[00:00:00] Vince Passione: Welcome back to 22 Minutes in Lending. I’m your host, Vince Passione. Continuing my conversation with Tony Hernandez. In this episode, we’ll discuss how credit unions step up during government shutdowns, the unique challenges faced by federal workers and veterans, and what the future holds for the industry, including technology trends and consolidation.

[00:00:18] Vince Passione: Let’s dive in,

[00:00:21] Tony Hernandez: and I always encouraged my airmen as much as I loved them and wanted to stay in the military, I wanted them to have that choice when they got out. But I don’t wanna saddle ’em with the, with too much debt or, or not being able to get it. ’cause if they have a dream, they’re gonna go find the money.

[00:00:36] Tony Hernandez: And I’d rather they find the money with a, with a, a trusted institution that’s looking out for them than going to, going to get a, a loan from somebody right outside the gate that’s, doesn’t have their best interest.

[00:00:50] Narrator: Welcome to 22 Minutes in Lending Your Go-To podcast for insights on all things lending from lending practices, regulatory updates, how to enhance lending efforts and more.

[00:01:02] Narrator: In each episode, Vince Passione connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let’s dive in to the latest in lending.

[00:01:17] Vince Passione: So you’ve gone broad and recently I saw that you wrote on the Genius Act, right? So mm-hmm. Big, big, big discussion around stablecoin right now across the entire industry, not credit unions, but also banking. Does this somehow dis intermediate? What happens with things like deposits? What impact will it have?

[00:01:34] Vince Passione: So, so from from your seat, what’s the biggest safety and soundness blind spot for policymakers when they think about the Genius Act and about stable coin?

[00:01:44] Tony Hernandez: I think it’s where, uh, I guess, let me back up a bit. You know, there’s, there’s an $84 trillion, uh, uh, generational wealth transfer that’s already in progress today.

[00:01:58] Tony Hernandez: And your traditional banking accounts and debit card and ATM card and all that stuff, you know, may not be around Gen Z and, and the millennials will definitely pick up stable coin. I think the biggest threat to credit unions are, you know, outside of, you know, the one for one or a hundred percent, uh, you know, covering, you know, the dollar for dollar coverage of the stable coin within the banks and the credit unions.

[00:02:24] Tony Hernandez: I think the biggest thing is when they go to these other providers out there that are not a bank and aren’t a credit union, you know, uh, ’cause that’s, uh, it’s gonna be who can get top of wallet for, for these new Gen Z transfers. All that $84 trillion that’s spread across all these, you know, bank communities and investment, uh, investment houses, uh, um, that money’s going out the door.

[00:02:48] Tony Hernandez: And I think the biggest danger for credit unions is still being stuck in the 1990s and taking, you know, your mobile app. Your mobile app is the latest cutting edge technology.

[00:02:58] Speaker 4: Mm-hmm.

[00:02:59] Tony Hernandez: Right? Um, I was at a steak and shake, uh, in Indianapolis, uh, last May. But when you got done ordering on the kiosk like you do at McDonald’s, and then you total it up, it asks you do you want to pay credit or debit or do you wanna pay in crypto?

[00:03:15] Tony Hernandez: So it’s already here. You know, uh, yeah, no, SoFi,

[00:03:19] Vince Passione: I, I got to watch Anthony Noo, the CEO at SoFi at a conference and he said, you know, ’cause they announced their coin and they announced being able to, uh, basically hold crypto. And he said 62% of, of his customer base today right, has indicated their desire to.

[00:03:35] Vince Passione: Be able to, you know, store crypto at a regulated bank entity like SoFi. Um, and for hi, from his perspective, it’s great, right? Because he sits back, they don’t get any interest on it, right? He gets to basically hold the float, and I think that’s really what, what most of the folks that are out there doing the question really is how many of these are gonna be everybody’s issuing coin, right?

[00:03:56] Vince Passione: Yeah. You know, Fiserv’s got a coin, right? You know, everybody wants to have a coin and it’ll be the wild wild West for a while until finally it settles down. But Tony, do you see and are you concerned about, um, as, as, as we see a movement away from sort of fiat currency, the dollar into think cryptocurrencies like stable coin?

[00:04:15] Vince Passione: Do you, do you, are you concerned about what happens to credit unions from a deposit perspective? Yeah. Uh, I mean, because I, I hear, I hear the chairman of the NCO Howman talk about this all the time, and it sounds like credit unions are doing some things right? I mean, they are getting, I see, I hear more and more credit unions talking about stablecoin all the time.

[00:04:35] Vince Passione: Uh, but do you think it’s, the risk is like. The, you know, 12 months away, 24 months away, I think. Yeah. And what, what, what do the credit unions need to be doing and, and from a supervi supervisory perspective, what do you expect from the regulators?

[00:04:51] Tony Hernandez: Well, I think for the regulators, if it was a perfect system and all those deposits were just, you were gonna stay at the credit union and convert to stablecoin, and you have some regulatory pressures on that, whether if there’s a run on the credit union or something doesn’t.

[00:05:05] Tony Hernandez: I think the biggest danger to credit unions is liquidity. Because as generational wealth, you know, uh, um, transfers happen that money’s gonna leave the credit union. And now what? Right now? And, and now, you know, they, they still got, they, they still gotta, um, meet their liquidity, uh, you know, levels. And they still have to, uh, get that money back.

[00:05:26] Tony Hernandez: And I do think a lot of credit unions is gonna hit the share, you know, the share insurance fund. And I do think there’s a crisis, a potential crisis lumen on the horizon. As more people pick this up or, or Gen Z goes, I don’t, I don’t need a credit union. I got, I got SoFi, or I got whoever else is doing it.

[00:05:45] Tony Hernandez: You know, that, that they, that they like doing. And so if they don’t, if credit unions don’t get there soon and start build, you know, building this, the stable coin, they’re gonna see a drain on deposits going elsewhere and that’s gonna affect their liquidity ratios.

[00:06:00] Vince Passione: I, I agree. I agree. I think there, it’s nice to see that the NCA is leaning into it, and I think that’s helping.

[00:06:07] Vince Passione: Credit unions want to lean into it, and there’s certainly some very interesting projects on the way within the credit union system, which hopefully they’ll, they’ll bear some fruit shortly. So some of the government shut down, right? This is probably the longest government shutdown in the history of the country.

[00:06:23] Vince Passione: It has a huge impact on the membership base that you serve. Um, so what did you hear during that period of time from your credit union members about their members? And gimme examples of how they might have helped and what do we do Get prepared for the next one? ’cause it feels like this is just yet another tool, right.

[00:06:42] Vince Passione: Partisan tool that happens that’s being used uh, at the go, at the, at the government level.

[00:06:47] Tony Hernandez: Well, you know, a lot of them did, uh, you know, they do the, uh, zero, it’s almost like a zero interest loan.

[00:06:53] Speaker 4: Mm-hmm.

[00:06:54] Tony Hernandez: They, uh, they do guaranteed pay. If you have direct deposit there, then the credit union will extend one month or, or one pay periods worth of pay to tide you over.

[00:07:03] Tony Hernandez: And that was back when, uh, you know, government shutdowns were about two weeks, maybe three weeks, you know, tops. This one went two, pay two, almost three paid. Pay periods, you know, into it. Yeah. Um, some of ’em did skip pays if, you know, you could skip a, pay, a monthly payment, all that did. It just, it just pushed the debt, you know, further down the road.

[00:07:24] Tony Hernandez: But you didn’t, you didn’t miss anything. Uh, and then some did loan restructures. I’ve seen, you know, uh, we saw this back during COVID, they allowed people to cash in their, uh, you know, their, uh, um, their CDs without penalty, you know, if they needed that money. So there’s a lot of things that credit unions can do.

[00:07:43] Tony Hernandez: During that time, uh, and I think, you know, I don’t think I, it, it, it’s a safety net for the government because they don’t fund any of that stuff, you know, and, and it’s not as bad as it could be, and so you kind of buy the government a little time to get their act together. Um, but it got really close this last time because.

[00:08:03] Tony Hernandez: I mean, I think, uh, I think the administration did some things where they moved some money around and I’m, I’m a former comptroller. I don’t know that I’d be comfortable, but the fact that the president, you know, if he’s signing it, then you know, then okay, but when, you know, I just, I’d never seen that before.

[00:08:21] Tony Hernandez: Um, which was, which was interesting. And then I know Treasury did a lot of stuff, uh, you know, moving some money around, a kind of title. And then you had the credit unions, you know, that got to that point. Um. Things that, that we’re seeing in a crisis like that. And, and we have two, uh, two amendments in the, in this year’s National Defense Authorization Act.

[00:08:41] Tony Hernandez: And that’s restoring the CDFI fund, which helps with liquidity and doing these things. Sure. And then extending the central liquidity facility within the NCUA. Right. To give small credit unions, or, or any size credit union, you know, a little bit more liquidity so they can help their members out and help them through this.

[00:09:01] Tony Hernandez: You know, and those are two things that, uh, uh, we’re hoping stay in the NDAA un, under the, uh, under the banking title. And we, you know, using our, like I said earlier, using our, our experience with military and veterans saying this affects financial readiness, um, for the military, you know, uh, if, if you’re on the front lines and a government shutdown happens and your, uh, your family, uh, can’t make the rent or can’t pay the, uh, the electric bill.

[00:09:29] Tony Hernandez: That affects your ability down range to perform your mission. And like I always say, you know, that aircraft mechanic, you know, worried about it, might not put in the, uh, oxygen bottle all the way on that jet, you know, and then there’s a pilot flying that passes out at, you know, 60,000 feet. You know, it’s just, just not good.

[00:09:48] Tony Hernandez: You know, so now as people

[00:09:49] Vince Passione: have families and they’ve got financial concerns like everyone else, right, absolutely. It’s gonna affect attention to their job. They’re only human. And Tony, do you think that there’s, is there concern in your mind that, that in the future, the, you know, this particular population, you know, government workers, they’re viewed differently for when, when they apply for loans because the potential instability of their, of their income?

[00:10:11] Vince Passione: Or do you think that’s real? Is that, is that something to also sort of emphasize?

[00:10:16] Tony Hernandez: I think it’s real, you know, uh, um, I think you look at other things, you know, emergency funds and, and other access to capital at, you know, at the individual level. Um, but, you know, military is, is already that way. You know, when you transition out of the military, um, you can’t, you, it’s not a good time to apply for a mortgage ’cause you’ll get denied because you don’t have proof of another job or mother income coming in.

[00:10:43] Tony Hernandez: Um, just say your Air Force retired or, or government retired, and even worse, the defense, finance and accounting service doesn’t send you any, any money for the first six weeks of your retirement, I mean, until you’re retired. So you have gap. You have a gap to fill. And so, uh, and so, uh, you know, Jennifer’s a realtor now and that’s what she advises her client.

[00:11:05] Tony Hernandez: If you’re gonna apply for a mortgage, do it six months before you retire and before the lender can see that you’ve applied for retirement or do it after you’re safely on the other side with the job. So I think if you take that example and apply it to all federal workers is gonna be, I think, uh, you know, the longer, uh.

[00:11:23] Tony Hernandez: Whichever parties in Congress uses government shutdown as a tool, it’s, it’s almost become regular. I remember the first government shutdown when I was a lieutenant in the B two program and, and, and, and they went on a furlough and nobody knew exactly what that meant. And now you’ve seen over the last 10 years or 15 years, they’ve become a lot more frequent.

[00:11:45] Tony Hernandez: Uh, now they’re longer and more painful. So yeah, I do see that as a danger for, uh, for federal workers.

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[00:12:13] Ron Draper: Proof from a loan officer point of view, and I should know because I’m that loan officer. I still recommend LendKey to people whenever I get the chance because after almost a decade, it continues to offer consistent product and service delivery, both to our membership and to our staff.

[00:12:32] Vince Passione: Hey Tony, I wanna go back to something. You were talking about some of the gaps and the challenges that federal workers and, you know, obviously, um, uh, veterans, uh, would, would, would see in in funding. And one of the things we’ve been looking at is on the education lending side, you know, what are the unique challenges for veteran students?

[00:12:57] Vince Passione: And we’re hearing things like. Well, even with the GI Bill, there are gaps in funding for them, right? Uh, there are issues they encounter because there are caps, they’re family caps. They don’t realize they’re hitting the family cap. Uh, if they’re in, they’re in a state school, it’s covered. But if they go to private

[00:13:17] Tony Hernandez: right, they’re gonna run into issues there.

[00:13:19] Tony Hernandez: I am familiar with a lot of the challenges that, that come with that. Um, but it’s also, uh, it’s also, uh, something that, you know, when we talk about veteran member business lending, some of that is getting your education to transition into a better, uh, a better role outside of the military. And, you know, it all starts, I used to always encourage my airmen, um, go to school, get your community college associate degree.

[00:13:44] Tony Hernandez: Because the Air Force will pay for that. And you’re, you’re foolish if you’re not. Get your upgrade training first. Learn how to do your job and get your badge and your, your training, and then let’s get you into school. And then, uh, if you can do it, go get your four year degree, um, or, or, uh, or get your certification.

[00:14:02] Tony Hernandez: If you’re a SE certified, you open up your own auto parts or if you’re an electrician. Get, uh, get through all the apprentice and the, uh, all the licensing things you have to do and open up your own, your own business, you know. And, uh, and I always encourage my airmen as much as I love them and wanted to stay in the military, I wanted them to have that choice when they got out.

[00:14:24] Tony Hernandez: Um, but I don’t wanna saddle ’em with the, with too much debt or, or not have been able to get it. ’cause if they have a dream, they’re gonna go find the money. And I’d rather they find the money with a, with a, a trusted institution that’s looking out for them than go under. Going to get a, a loan from somebody right outside the gate that doesn’t have their best interest.

[00:14:44] Vince Passione: Yeah, we’re gonna spend some, we’re gonna clock some time on it. We, we started doing the research. There’s about 50 schools where the majority of veterans go to school. And, uh, and I think there’s a, there’s certainly a, a very finite group of employers who will turn around like Raytheon and Walmart and Amazon.

[00:15:02] Vince Passione: And, and it runs that barbell, right? When you think about, you know, where veteran students wind up going after they graduate and get their degrees. So last question. If you could launch one national initiative right now, fully funded, staffed and approved, what would it be?

[00:15:16] Tony Hernandez: One national initiative. Um,

[00:15:21] Tony Hernandez: you know, uh, um, fully funded and, uh, and staffed. Um, uh. I’m, I’m gonna throw a bone, you know, to, you know, small credit unions. I do think we need to focus on keeping them robust, you know, and healthy. Um, I do think they have a lot of political power that never really gets fully, uh, mobilized. And so, uh, you know, how do we do that, you know, for, for the small credit unions.

[00:15:49] Tony Hernandez: To move that forward, you know, and I think, uh, well not think we’re already moving in that direction with DCUC is how do we, how do we help them out? And that was something, you know, talking with, with, uh, with Sam Plaster earlier was something we had talked about, uh, in the past. And so I do think that something that we’re going to have to do, um, just because consolidation, the pace of consolidation is going to pick up.

[00:16:13] Tony Hernandez: That’s something that, that we just started really, uh, about a month ago. Uh, working with a lot of small credit unions. You know, our, uh, um, we cap our dues, you know, they’re, uh, they’re capped at 22,500, and then it’s, and it goes down and, and it’s very demo, very, uh, very, uh, equal. But, um, you know, we have a seven member board of directors and two of those directors, including the chair, are from small credit unions.

[00:16:41] Vince Passione: Hmm.

[00:16:41] Tony Hernandez: And that means, that means something. We get that small credit union perspective.

[00:16:46] Vince Passione: I love it. I love it. So if we did this again this time next year, what do you think we’re talking about?

[00:16:54] Tony Hernandez: I think we’re talking. Well, there are several things, you know, the, uh, um, I think stablecoin and everything we talked about during the stable coin segment mm-hmm. Conversation. I think we’re gonna be seeing that. Um, I think we’re gonna be seeing more AI and the challenges with ai and who’s doing it and who’s not, you know, and who’s, uh, uh, who’s policing their ai, who’s, uh, who’s taking advantage of that and using it, you know, and, and I think it’s gonna challenge credit unions.

[00:17:20] Tony Hernandez: My wife and I, when we remodeled our kitchen, we didn’t use a credit union, you know, to, to do the financing because, um, my contractor, uh, needed to give him a, yeah, we’ve got the funds and let’s, let’s execute it, you know, otherwise he was gonna go find somebody else that was ready. And Jennifer wanted her kitchen remodeled by Thanksgiving, so I couldn’t wait.

[00:17:41] Tony Hernandez: The normal three weeks I went with a lender that got me the funds in my account that afternoon. That’s all AI driven. And I think the other thing we’re gonna be talking about even more next year is something called post quantum computing. And uh, when you use that, when you use those, uh, those post, those quantum computers, um, you can start cracking encryption codes and stuff.

[00:18:04] Tony Hernandez: And I think you’re gonna see a lot of people scrambling at the last minute, you know, to do that. So I think in the financial services industry, I think those are things we’re gonna be talking about. Plus there’ll be the, all the mergers that are happening in our, uh, consolidation in our industry. Um, and, uh, you know, I think those are the industry wide issues that, that, uh, that, that we’ll see this time from next year.

[00:18:28] Vince Passione: No. Excellent. Well, Tony, look, we’re gonna leave it there. Thank you so much for joining us today. I really appreciate your time. Thanks, Vince. And as always, thanks for our listeners. If you haven’t yet, be sure to subscribe so you never miss an episode. And I will see you back here our next 22 minutes and landing Tony.

[00:18:42] Vince Passione: Thanks again. Thanks.

[00:18:46] Narrator: Thank you for listening to the 22 Minutes in Lending podcast. We hope you enjoyed today’s episode. You’ll find links to any resources mentioned in the show notes. If you’re enjoying our show, please be sure to subscribe and leave us a five star review.