The True Costs of Forced-Place CPI
With growing scrutiny on financial institutions, forced-place collateral protection insurance (CPI) has become a significant pain point for both members and credit unions. Hidden costs from CPI can lead to inflated loan payments, causing financial strain on members and, in extreme cases, vehicle repossessions. So, how can credit unions protect their members from these pitfalls while maintaining the necessary insurance protections?
In this episode of Grow Your Credit Union, hosts Joshua Barclay and Becky Reed welcome on Dan Daggett, Chief Strategy Officer at Credit Unions First, to unpack the real cost of forced-place CPI. They dive into why it’s a problem and explore a member-friendly alternative—lender single interest (LSI) insurance—that keeps the protection but ditches the hidden fees.
PLUS
Common mistakes in board dynamics and vendor relationships—and how credit unions can fix them.
How to keep your employees adaptable and ready for change in today’s fast-paced world.
A HUGE thanks to our sponsor, Credit Unions First
Credit Unions First is a fintech insurance credit union service organization that is always putting your “members first,” with all that they do. Credit Unions First is dedicated to creating efficiency for your team and while they are at it, they will show you how to keep more of your members’ dollars, yes, YOUR members' dollars, in your communities where it belongs. Reach out to Credit Unions First today and find out what they can do for your credit union at www.creditunionsfirst.org
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FULL TRANSCRIPT
Full transcript
Intro
Joshua Barclay:
Welcome credit union leaders. Here are your three topics for today. First up, we'll explore the mistakes credit union leaders were making back in the 1990s and ask what mistakes from back then are credit union leaders still making today.
Next, we're going deep into change management and how you can keep your teams adaptable in a rapidly evolving industry.
And finally, we uncover the practices of wrongly forced-placed auto insurance and discuss how to protect your members from this type of fraud.
Welcome to Grow Your Credit Union. This is the podcast where credit union leaders gather, learn, and grow. I am your host, Joshua Barclay, and joining me is my favorite Texan in all of Texas, my co-host Becky Reed. Becky, say hello to the audience.
Becky Reed:
Howdy y'all.
Joshua Barclay:
Before we begin today's show, I want to mention that today's sponsor is Credit Unions First. Our guest today is with Credit Unions First. We will introduce him in a little bit, but first, Becky, I want to mention you are in a brand new podcast studio. Talk to me about this a little bit.
Becky Reed:
Oh my gosh. I am so excited to be in a new office space. BankSocial was able to get some office space here in downtown Dallas that has a bunch of extra offices. So we just made one a podcast room. So now the audience will be able to see me from this really awesome space which just looks like a black wall behind me, but it's very cool. I promise.
Joshua Barclay:
I love it. Let's get into the show, Becky. Let's bring on our sponsored guest for this episode. It's the Chief Strategy Officer over at Credit Unions First, Dan Daggett. Dan, welcome to the show.
Dan Daggett:
Hey, appreciate that. It's nice to be doing this podcast with both of you. And the first podcast I ever did, I think, was with Josh at a NACUSO conference several years back.
Persistent Mistakes
Joshua Barclay:
Imagine becoming the CEO of a credit union in just your 20s. Dan, you don't have to imagine this scenario because it's your life story. You were the CEO of Bowdoinham Credit Union in Maine while you were still just a young baby, as my grandmother would say.
Fast forward to today, and you've had plenty of time to reflect on your success and your failures as a credit union leader. You've also built relationships with other leaders across the country throughout your career. So what I'm curious about, Dan, is what do you think are some of the biggest mistakes that you made during your time as a credit union leader that you still see other credit union leaders making to this day?
Dan Daggett:
Yeah, it's an interesting topic, and there's a myriad of issues that are going on. And as I contemplated the question, one issue that's, I'm not going to say plagued the credit union industry, but it's definitely prevalent, and that's board longevity.
We all go to conferences, and some credit unions invite board members to come, and a lot of them are getting a little bit long in the tooth, and they've been at the credit union for a long time. Not that they don't bring a lot of experience necessarily, but they perhaps aren't up to date with the changing environment in the credit union.
And I think that's been an issue, and I was certainly guilty of that. I had some great board members, but we also discussed board recruitment and turning that board over and trying to find folks within the community that could best serve the needs of the members and who were up to date with what was going on.
And so over the years, we never implemented this, but I definitely think there's an opportunity to transition some of those board members from the active board to an advisory board so that you don't lose necessarily that institutional knowledge. It's still there, and those folks could be willing to do that.
But I see that as a continuing issue. Along with board education or the lack thereof, these board members are volunteers, and it's nice to send them to GAC, but it also might be nice to send them to a lending conference where they get to see firsthand what's going on in the industry as opposed to relying on the C-suite folks to bring that information to them at a board meeting.
Joshua Barclay:
Becky, what do you think about what Dan just said? Because I think it was pretty explosive in terms of board member reformation.
Becky Reed:
It's something that I have spoken about before. I think we've actually talked about it on this podcast, and I have publicly stated that I am for term limits for boards. I've worked at a credit union where there were term limits. I've worked at a credit union where there weren't term limits.
And I think that what Dan talks about is true. You don't want to lose that experience, but you also want to have a fresh perspective. Your board is supposed to be representative of your membership, and when we talk about diversity, I think that diversity comes in a lot of different forms. But if your board doesn't look like your members today but instead looks like your members 30 years ago, then that's a problem.
And I think that it does need to be addressed.
Joshua Barclay:
Talk to me about how you would go about doing that. Like, just from a practical standpoint—we don't have to get into the nitty-gritty—but at a high level. Dan, you said that's something that you would change. That's a mistake that you made.
So if you were jumping back into the game, let's say in your twenties—same Dan Daggett but now it's 2024—you're in your twenties, you just started your CEO leadership stance, what moves are you making in the boardroom right now?
Dan Daggett:
So if I had to jump back into that fray and looking at succession planning, I don't think succession planning is just for the employees. I think it's also for the board.
And in that process, by bringing a third party in to talk about succession planning and have them include that board topic, that way it's deflecting necessarily away from the executives in the credit union. That would be a great approach to bring that topic forward to a board.
And oftentimes, we had a very proactive board at Bowdoinham Credit Union in that we required every one of the board members to attend a national conference. And in attending those national conferences, I would go out and select certain classes or breakout sessions that I wanted each of them to attend.
And they came back with a plethora of information and change to be able to say, "Hey, why don't we try this at our credit union?" So I think if you were able to get those folks into some succession planning meetings where board recruitment or board turnover was talked about or term limits, I'd support that as well, Becky.
I think that would be a unique approach to be able to do that.
Joshua Barclay:
Dan, you got any final thoughts or kind of one more mistake that you made? Because I know you love to share your mistakes openly with the public. So let's do this.
Dan Daggett:
Absolutely. I'd like to admit them all out there. Am I dirty laundry? I don't necessarily think that this was a mistake I made, but it's a mistake that I see or what I perceive to be a mistake within the movement is that credit unions can be loyal to their detriment with some of their partners, in that they're looking to change a core and they're reluctant to do it because they've been with a certain third-party provider for so many years and they've developed relationships.
And oftentimes, those relationships can hinder the proper business decision from being made. I see it in a myriad of issues, whether it's the programs that we offer or an LOS system or any of the above. There's just that element of resistance to change, and I think a lot of it stems from the relationships that have been developed over the years.
Those relationships shouldn't be what's important; it should be the members that are important and serving them best.
Joshua Barclay:
Becky, I've heard your take on this, but do you want to close us out with that thought?
Becky Reed:
I certainly have had a few words about this, Josh and Dan, but I think that a way to mitigate that risk is to have the board maybe a little more involved or given a little more insight into vendor decisions that are made.
Now, certainly the board should not be too in the weeds with that, but oftentimes the CEO or the senior leadership team is picking who gets put before the board. And I think that sometimes if it's an incumbent, maybe the board should be educated about asking for comparative analysis, right?
That's not so much based on the subjectivity of a relationship. This is a relationship business. We're all in this because of the relationships we have. We're collaborative; we're cooperative—all of those things.
But from a vendor relationship perspective, I think the fiduciary responsibility to make sure that the product or service is the best fit for where the credit union is at today, both from what the product provides as well as from a pricing perspective. And that's not always the case when you're dealing with relationships, which I know Dan has seen.
Retraining your workforce
Joshua Barclay:
They say you can't teach an old dog new tricks. And if that's true, you might see a lot of dogs barking in the unemployment line very soon. McKinsey & Company reports that 60 percent of global executives anticipate that within the next five years, up to half of their workforce will either require retraining or need to be replaced altogether.
Dan, you've been very adaptable throughout your career. Obviously, you began your leadership journey in the nineties during the era of cassette tapes, America Online, and you probably had a caller ID that you thought was awesome.
And now you have a podcast, you're active on social media, you always ask me questions, and you're driven by curiosity. You've been very adaptable. But we both know that change management in this industry can be very challenging.
So I want to know, as someone who has successfully adapted over the years, what advice do you have for credit union leaders who want to keep their employees adaptable to change?
Dan Daggett:
Sure. It's always a challenge. Personalities come into play, the size of the organization. The largest organization I was involved with, we were about 85 employees.
When I left the credit union back in 2019 at the height of my career as a CEO, there were only 16 employees and a seven-member board. But I found over the years, and we were changing all the time. So for us, as an instance, when I first started at the credit union in '93, we had a share account, we had a Christmas club, we had a personal loan, we had an auto loan, and we had a snowmobile loan.
We were open three days a week, and we didn't have cash. When we merged in January of 2008, we were full service. We had all of the products and services that a credit union would have. So we were adept at change. It was in our DNA, if you will, it was that descriptor.
But one of the things that I found to keep my employees engaged and to keep them employed long-term is I empowered them, first and foremost, to be able to make recommendations on process change, underwriting changes, keeping them engaged in that thing and giving them ownership of some of the things we were looking at.
So not only did I present different opportunities with a credit card program to the board of directors, I also engaged the staff and got their opinion about it to say, "How do you think our members are going to perceive this as a benefit? Or how are they going to perceive this and use this?" So giving them that ownership.
And that was reflective in making them feel like they were really part of the organization. It wasn't a top-down, "This is what we're going to do, and you're going to adopt what we're doing." It was more of an inclusive approach, and every executive looks at those things differently. And I understand that, but that's what makes up the nature of a credit union.
But one of the other things that I found prudent, and it actually was presented to me by the president of my board, Bob Curtis, probably four years after I had started at the credit union, he and I were at a conference, and we were traveling somewhere and had some windshield time. And I asked him, I said, "Bob, why is it that you gave a 23-year-old kid a chance to run the credit union?"
And he said, "I look at it this way." And he was an educator. He was a special ed teacher for years. He said, "I was drafted in Vietnam when I was 18, and I was given a gun and asked to go and defend the country and to be put in responsibility of a lot of things.
From my experience, older folks don't necessarily put enough trust in younger folks to be able to be capable of doing tasks." And that really resonated with me over the years. And as I had newer employees that were younger coming into the fold, we sent them to educational pieces, and I empowered them.
I let them have successes, and they made mistakes, and we all learned from them together. But that was reflective of who we were as a credit union, letting those younger folks come in. And a lot of them—they were hired 20 years ago, and they're still there.
And I love to see those little anniversary pop-ups come up on LinkedIn. And I say, "I remember when I hired that gal or that gentleman," and see the success that they've had over the years. Part of the people helping people mantra of credit unions isn't just the members; it's the staff as well.
And to see those folks just excel in their careers over the years is very rewarding.
Joshua Barclay:
Becky, you've overseen a lot of growth as a leader. A lot of people speak highly of you, so obviously you know how to engage with your employees and keep your teams adaptable. Can you share some insights on how you've done that throughout your career?
Becky Reed:
I love what Dan talks about because he's talking about a small credit union that is able to grow and change rapidly, right? The staff becomes very used to that change process.
Instead of everything kind of staying the same, there's a constant culture of change that's happening at a smaller organization that is growing and adapting to new things. I'm going to turn this around a little bit, and instead of talking about how to prepare people for adapting or taking on new responsibilities, I'm going to talk a little bit about how the credit union needs to adapt more to the people that are coming on board.
One of the things that we noticed at Lone Star Credit Union was that some of the frontline staff that was being hired—what I call foundational employees—these are member service representatives or financial service representatives, people who are working on the front lines with our members every day.
And most of these folks are not 25-year credit union veterans, right? The hope is that they come in at that particular level of the organization and move up, which generally does happen in the credit union space and other places as well.
But when we were onboarding Gen Z, for example, one of the things that we noticed right away that we had taken for granted was that a 22-year-old employee would understand how to navigate a desktop computer. They could not.
And I want you to think about why. A 22-year-old person has spent their entire life from the time they owned a device on mobile. So dealing with an iPad, dealing with a phone, dealing with a tablet—not dealing with a computer that's plugged into a cable in the wall.
They are constantly on the move and using mobile devices. We, at the credit union, were using static devices that were stuck on our desks, and we were using things like desktop applications like Word, Excel, Teams, those kinds of things.
We weren't using apps, and so there was a process where we realized there was a gap. A 22-year-old had to be taught how to use a static PC that was plugged into a wall. How do we actually change our organization to make it more appealing to a 22-year-old? A 50-year-old can adapt.
I already use a mobile device. So how do we make sure that the 22-year-old has a good experience? So that would be my take on it.
The woes of forced-place CPI
Joshua Barclay:
The term "used car salesman" has been synonymous with sleaze and distrust since the invention of motor vehicles. But maybe the used car salesman isn't your biggest adversary in your auto purchase.
Turns out National General Holdings Corp. just got a big slap on its wrist. They had over 655,000 vehicles on wrongly forced-placed collateral protection insurance from 2008 to 2016, and they aren't the only ones who got called out. Fifth Third Bank was ordered by the CFPB to pay $20 million in penalties, including $5 million for forcing borrowers to buy additional unnecessary insurance.
This is where it gets really wild. It's estimated that in the case of Fifth Third Bank, almost 1,000 families lost their cars to repossession due to excessive charges added to auto loan bills. Becky, these are just a few examples of organizations that got caught adding wrongly forced-placed collateral protection insurance.
What can credit unions do to prevent their members from falling victim to this kind of thing?
Becky Reed:
The whole CPI thing is just a painful process for everybody. It's just painful for everybody. And I have witnessed, as I'm sure that Dan has witnessed working in a credit union, that for whatever reason, wires get crossed and the forced-placed insurance gets added unnecessarily or by mistake or whatever.
And now the member is having to call in, and you're having to back it out. And in some cases, when you're adding a whole year policy at once, which a lot of the CPI companies require, it can be $1,200, $1,500. And depending on how you calculate your payments at the credit union, you could have a member who goes from having a $300 payment a month to having a $700 payment a month because of the forced-placed insurance, and they can't pay that.
And the car ends up being repossessed, which is what you're talking about right now. It's not a good member experience. It's never been a good member experience. It's just not a good member experience. And my take on it is there needs to be somebody out there who does it better. There has to be a better way because the way we've always been doing it is terrible.
Joshua Barclay:
Dan, she's calling you out. Talk to me about how you solve for this problem.
Dan Daggett:
So it's interesting how the industry has defined forced-placed collateral protection as CPI. So when a financial institution person or executive hears CPI, they immediately think forced-placed, and they don't understand that there are two variations of CPI.
Collateral protection insurance has two variations, two paths. It has forced-placed, which has all the attributes that Becky just spoke about. It's not a people-helping-people product. It's not in the credit union mantra, and it's fraught with issues, which hopefully I can address with these two cases.
But the other program in there, they're known as lender single interest or vendor single interest. And outside of New England, which is where I reside here in the state of Maine, most institutions don't even know there's an alternative to forced-placed CPI. And it's been done that way because forced-placed CPI is so profitable for the insurance companies.
They run on a 50 percent loss ratio, and they stick to that piece. And it's just a money machine for them. And within 30 days, these two federal agencies brought this legal action against forced-placed CPI users.
The first one was brought against Fifth Third Bank on July 9th, and the other one, the Department of Justice, brought the case against National General on July 24th. It can be solved easily with a blanket product such as the one that Credit Unions First offers. Lender single interest, where every auto loan or every collateralized loan that the credit union does, a small portion of premium gets applied to each one.
The member, in many instances, doesn't even know that protection exists. There's no insurance tracking; there's no adding premium balances to the loan, and it has the same exact protections that the forced-placed program does but without all of the issues.
Joshua Barclay:
That sounds really good. Dan, let's jump into this challenge a little bit more because I'm curious. I saw the articles about Fifth Third and then obviously National General, but how prevalent do you think this is? This feels very much like a thing that could be way more prevalent than it looks.
So what is your take on that? Because some people might say, "How big of a problem is this really, Dan?" But as we're seeing in the news, this is a really big problem.
Dan Daggett:
Let me just say this to answer that question. About a year and a half ago, we had a meeting with NCUA as it pertained to product cancellations and the fact that it was a big issue within the CFPB's purview. January of this year, NCUA, in their priorities letter to credit unions, stated that cancellations are now a priority for them.
These regulatory agencies, they look to see what one another are doing. And if the CFPB and the Department of Justice are bringing these kinds of cases against financial institutions, rest assured NCUA isn't going to be far behind in terms of making this a priority for them, which I believe they should.
Second to that is there are only a handful of these providers in the United States, and I rest assured and guarantee that credit unions are doing business with the same culprits out there in the industry. And the only way to get the word out to be proactive or change is education. And I was thrilled that this was going to be one of the talking points of today's podcast because it's important for credit union executives and credit union board members to know what's happening to their members.
And it's fraught with issues. Becky mentioned those balances going on there. If you actually read into the cases—and I've read both cases, all 58 and 60 some-odd pages—both of them had issues with Fair Credit Reporting Act violations, potential Truth in Lending violations because of the interest rate calculations.
There's just so many negative issues. And if you go out onto the CFPB's compliance or consumer complaint page, you can actually put in "forced-placed insurance," and you can see how many complaints are being issued against credit unions today.
Becky Reed:
Wow.
Dan Daggett:
I've been compiling a list. I think I'm up to 65 pages of consumer complaints I've copied off the CFPB's website.
Joshua Barclay:
This is a silent kind of fraud too, Dan, meaning if I'm a member, I might not know this is happening to me. I might not know that I'm getting gouged. Obviously, the report said over 1,000 people lost their vehicle. That's pretty pronounced.
But this could be happening to a lot of people who don't even know it's happening, right?
Dan Daggett:
Here's one statistic: with the Fifth Third case, 47 percent of the forced-placed policies that were placed were improperly placed. Those consumers had insurance. 47 percent.
Fifth Third is working with a partner that's supposed to be an expert in insurance tracking, and they got it wrong 47 percent of the time.
Becky Reed:
This is terrible, Dan. This is terrible, and what credit unions are paying attention to right now from the CFPB is overdraft. That's where all the attention is going.
But this could even have a more dire effect on the bottom line than just the overdraft issue.
Dan Daggett:
Certainly. I'll speak specifically to the financials in that regard. Jeremy Silva, the CFO at AMOCO Federal Credit Union, is our board chair. They invested in our CUSO—a super sharp guy.
And he did what he calls a net benefit analysis of his previous forced-placed program compared to his current LSI program through us. So keep in mind these insurance companies manage these programs at a 50 percent loss ratio.
So Jeremy said, "All right, for every dollar I sent to my previous provider, who will go unnamed on this podcast, for every dollar he sent, he received 52 cents back in benefit." Talking about that ROI—well, in that ROI, his first year with Credit Unions First, it was 78 cents on the dollar.
Percentage-wise, that's a pretty significant uptick, right? He's budgeting for 74 percent return this year. We quoted a credit union this past week, and right on the loss report from their current provider, I did the same analysis for them during our presentation and showed them they were getting 48 cents on the dollar in return.
Now, within that calculation—and most credit unions don't realize—they're charging off these premiums within these loans. It's an unhidden expense that they're not even tracking. I plugged in a number, which was half of what AMOCO's losses were with this credit union who's twice the size in assets.
All of a sudden, that benefit went from 48 cents on the dollar down to 35 cents on the dollar. The gal's eyes just opened up. "How do we not know about this?" she said. That's a good question. I don't know. They simply don't know, and it's a variable they're not tracking, which they should be.
Joshua Barclay:
Dan, thank you for jumping on the show and talking about this issue because it's obviously creating an impact. That brings us to the end of the show. Dan, what are your final thoughts for our listeners?
Dan Daggett:
I'd have to say the way you led things off is to be curious. Don't just take what somebody tells you as being the truth—dig into things, do your due diligence, regardless of what it is, whether it's in your personal life or in your work life. Be curious and continue to look to improve your position in life. And in doing so, you're going to improve the position of other folks around you.
Joshua Barclay:
Dan, if listeners want to learn more about Credit Unions First, how can they get in touch with you?
Dan Daggett:
They can email me at dan@creditunionsfirst.org or they can call me on my cell, which is 207-319-2561
Joshua Barclay:
Or they could also hit you on your LinkedIn.
Dan Daggett:
Yeah, I've got a LinkedIn page out there. Not many people are checking it out though. I would encourage everybody, when you go to Credit Unions First, to look at the Members First Mindset Podcast and listen to episode one where Ashley and Jeremy from AMOCO talk about their program and the pros and cons.
Joshua Barclay:
Becky, give me your final thoughts.
Becky Reed:
I have to say that when I was a credit union CEO, and especially these days when credit unions are going now into strategic planning and looking at their budget for 2025, what you hear consistently is gaining efficiencies, saving money, pinching pennies.
And I think that this area might be something that a credit union would look at. It's not a super heavy lift. You're going to save money for your members, you're going to save money for the credit union, not only from product costs but also administrative costs.
And so, if this were me, and I'm not just saying this because they're a sponsor, if this were me, I'd be bringing Dan and his team in right away. So I hope you guys do too.
Joshua Barclay:
Dan, I want to thank you for coming on the show. Becky, my co-host, thank you. And I want to thank Credit Unions First, our sponsor for today's show. And then I want to send a special thanks to you, our listeners, for continuing to support and listen to another episode of Grow Your Credit Union.
Remember, if you like the show, please follow us on your podcast player of choice and share an episode with someone who would benefit from listening. And if you want to be a guest or you would like to talk about sponsorship opportunities, head to growyourcreditunion.com to learn more.
That's growyourcreditunion.com. Thank you for listening, and we will see you next time. Take care. Buh-bye.