“Fintech is integrated into credit unions”: Q&A with NCUA’s Rodney Hood

Rodney Hoodboard member of the National Credit Union Administration, has been informally pinch-hitting as the federal agency’s fintech director.

That de facto role will soon end when NCUA appoints a director of financial technology and access to oversee the Office of Financial Technology and Access, which is set to open in early January. But Hood has distinguished himself by spearheading one regular discussion series where he brings together fintechs and leaders in NCUA and by getting the new office up and running. Most recently, Hood, along with the rest of the NCUA board, voted to proceed a proposed rule that would allow credit unions to participate in or purchase multiple member loans from fintech companies.

“It is … his vision that paved the way for the rulemaking we are considering today,” NCUA Chairman Todd Harper said in a Dec. 15 statement about the proposed rule,

Fintech and regulation are both far removed from Hood’s original career path as an Episcopal priest. He spent time in Zambia and Zimbabwe as a missionary, but eventually felt the call to banking instead. Hood served as NCUA Chair from April 2019 to January 2021. He also spent time on the NCUA Board of Directors from November 2005 to August 2009. In addition, Hood has served as Corporate Social Responsibility Manager for JPMorgan Chase and Assistant Administrator for the Rural Housing Service at the US Department of Agriculture , and more.

In an interview with American Banker, Hood discussed the roots of his fintech discussion series, which includes meetings with underwriting software company Zest AI, conversational AI provider Posh Technologies and loan decision engine QCash Financial. He also explained why NCUA benefits from being “last” in creating its innovation office and why he believes fintech innovation is critical to the industry’s survival. The interview has been edited for clarity and space.

What is the Office of Financial Technology and Access? Why the emphasis on “access”?

RODNEY HOOD: Fintech is integral to the ongoing success of the credit union system. If credit unions are going to compete today, they need many tools, including data aggregation, the ability to expedite payments and the ability to make more loans.

But I also want credit unions to look at access. Financial inclusion is one civil rights issues of our generation. How do we use financial technology to drive greater financial access in underserved communities, whether they are low-to-moderate income, minority, differently-abled, veteran, tribal, or rural? This new office within NCUA will look at how we use fintech solutions to provide broader financial access.

I don’t want people to think my excitement is because this is a shiny new toy. I am very conscious and emphatic that we innovate not just because it’s cool, but because the proper deployment of these tools should help marginalized communities and individuals migrate from harmful lenders to credit unions or banks. In underserved communities, wherever I go in the world, they all use technology.

How will the office do it?

I want to pursue technical sprints and sandboxes. I think a lot of fintech companies can help us do a better job at regtech or supervisory tech. Our colleagues at the Federal Deposit Insurance Corporation have done a technical sprint around modernization of the call report. I’d like us to do technical sprints where we bring in individuals to tackle solutions we’re struggling with, such as the modernization of our NCUA call report. How do we use real-time data? How do we get much of the information we need to make informed decisions? Once a quarter is over, it can take weeks or months for the data to be scrubbed and analyzed to make decisions. Or how do we develop tools that can go deeper and understand an underserved community’s ability to pay?

Whenever I meet fintech leaders, I meet them one on one. I hold an information session, including what they do around data and how they view consumer protection. I’ll take them back to the agency so we can call senior managers and ask questions. How do you work with credit unions? What are some of the barriers and success stories? We invite them in, but we let them know that this is not a marketing ploy, this is more for us to understand the safety and soundness of their institution. I’ve done it every week—we call it the NCUA fintech discussion series—and once every spring [new director] gets acclimated, I hope they will continue with the series I made.

The new members [of credit unions] is Generation Z and millennials. They’re going to expect their credit unions to do things like remote deposits and have faster payments. That’s another reason I’m so eager to have this new fintech office, because if credit unions want to remain viable, they need to embrace these tools. Otherwise, I don’t know if I will get an industry to regulate.

How will NCUA’s Office of Financial Technology and Access differ from similar offices at other financial regulators?

We and the Federal Housing Finance Agency are the last two financial regulators to create innovation offices. We’re all looking at how we make sure that the institutions we oversee are looking at safety and soundness and fair lending and fair compliance. The benefit of going last is that I’ve been able to talk to some of the other fintech offices and learn what they wish they could have done differently. I would like to see us regulators who have fintech offices come together and collaborate, perhaps around the Bank Secrecy Act or digital identity. I think there is room for us to have our own niche and there will also be opportunities to work together.

For your weekly fintech series, how did you decide which companies to meet?

I started the series in the third quarter of this year. I have attended 15 to 20 conferences per year, either as a keynote speaker or a panelist. As I walk around the exhibition hall and meet some of the fintechs, only one person will say: ‘Mr. Hood, we already have 25 credit unions [as clients].’ When I hear they have a credit union relationship that gets them on my list.

We will ensure that credit unions follow third-party due diligence. Do they check their suppliers? Do they walk them through the mechanics of a safe, effective partnership? Do they have a good management structure? When we bring fintechs in to meet with us, we walk them through the things we care about, but we also want to hear from them. We don’t micromanage or adjust their business model. This is that we as regulators understand how they communicate with our devices.