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News Now: March 27, 2015

CUs aim to get members out of payday loan cycle, CFO says

RICHMOND, Va. (3/27/15)--The credit union mission stood out during a Consumer Financial Protection Bureau hearing in Richmond, Va., Thursday, as panelists addressed various aspects of payday lending. The field hearing was held in conjunction with the bureau's new proposal on payday lending.

While some at the hearing defended such lending as a consumer's choice, and others compared payday loans to "giving a starving man food laced with poison," panelist Stan Leicester of BayPort CU, Newport News, Va., offered a simple alternative: come to a credit union.

"Credit unions have two primary objectives: get the member out of the payday lending cycle from week to week and improve credit scores," said Leicester, senior vice president/chief financial officer at BayPort CU.

"We feel like our two primary objectives have been reached: We've done over $50 million [in short-term loans] since we started our program, and we've converted about 3,300 members out of the payday lending cycle. We're really proud of that."

BayPort started its short-term lending program in 2007, Leicester said, and it also offers a line of credit good for up to one year with a small fee and interest charged. Borrowers are required to pay off the loan within 30 days.

Leicester also added that borrowers are provided with financial counseling when they look into those types of loans. Counselors on staff look at ways the member can improve their credit score and get out of the payday loan cycle.

During the question-and-answer portion of the panel discussion, Leicester was asked what features credit union loans have that protect consumers.

"We carefully underwrite those loans to make sure the borrower has the ability to repay. Our main goal is to get them out of that payday lending cycle and get them into a more traditional product," he said. "We also do feel like many people end up improving their credit score and then once we ultimately get them into that newer product, we can do that at a lower cost."

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CFPB proposes to end payday lending 'debt trap'

WASHINGTON (3/27/15)--The Consumer Financial Protection Bureau (CFPB) released a plan early Thursday morning aimed at eliminating payday lending "debt traps," and CUNA is evaluating it to determine if it accomplishes its goal without hindering credit unions' efforts to provide credit to their members.

The new consumer protections would apply to payday loans, vehicle title loans, deposit advance products and certain high-cost installment and open-end loans.

"One of the goals of the founders of the American credit union movement was to create a system of cooperative finance that provided consumers with access to credit, including short-term, small-dollar loans, on fair terms and rates. Therefore, CUNA supports the ability of credit unions to provide beneficial short-term, small loans as alternatives to predatory payday lending, which has no place in the financial marketplace," said CUNA President/CEO Jim Nussle.

"The extent to which credit unions will be able to continue to productively, efficiently and responsibly serve their members' short-term, small-dollar credit needs will be a key measure we use in evaluating these proposals.  If the rule results in consumers having reduced access to credit from credit unions or if the access to credit is made more expensive by regulatory burdens imposed on credit unions which would be more appropriately targeted toward the abusers of consumers, it will have failed to adequately protect consumers.

"We are evaluating the proposals the bureau released overnight, and we look forward to discussing them with our members, the CFPB and other policymakers," Nussle added.

The proposal would cover both short-term credit products (which must be paid in full within 45 days), and long-term loans where the lender collects payments through access to the borrower's bank accounts. One of the proposal's main focuses is requiring a lender to determine a borrower's ability to repay a loan before granting it.

For long-term loans, the CFPB is considering protections already used by the National Credit Union Administration for its payday alternative loan program. Those loans are capped at 28% interest and an application fee of no more than $20.

The other approach the bureau is examining for long-term loans would cap a loan payment amount at no more than 5% of the borrower's gross monthly income, and no more than two such loans can be made to a borrower within a 12-month period.

For short-term loans, lenders would have to verify a borrower's income, financial obligations and borrowing history to determine the consumer's ability to repay. There would be a 60-day "cooling off period" between loans--loans cannot be made within that period unless there is documentation the borrower's circumstances have improved enough to repay without re-borrowing.

Lenders also would not be allowed to keep consumers in debt on short-term loans for more than 90 days in a 12-month period. Rollover loans would be capped at two, followed by a mandatory 60-day cooling off period.

For the second and third consecutive short-term loans, the bureau is considering two options. One would require the principal decrease with each loan, so that it is repaid after the third loan, or require the lender provide a no-cost "off-ramp" after the third loan, to allow the consumer to pay the loan off over time without further fees.

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Calif. district court overturns anti-surcharging law

SACRAMENTO, Calif. (3/27/15)--The U.S. District Court for the Eastern District of California ruled Thursday that the state's anti-surcharging law is unconstitutional.

CUNA filed an amicus brief in a similar case in Florida earlier this month, arguing that allowing merchants to add additional surcharge fees to card transactions will give merchants full value of participation in the credit card system while passing costs to consumers.

"Credit cards provide the consumer a safe, efficient, convenient, seamless transaction that redounds to the benefit of merchants," CUNA Senior Director of Advocacy and Counsel for Special Projects Robin Cook argued in the brief. "Meanwhile, card issuers like credit unions assume all of the risk and guarantee the merchant will receive payment immediately. The interchange component of the merchant discount fee is how issuers are appropriately compensated for providing this service."

CUNA anticipates filing an amicus brief in the California case, arguing that a surcharge on credit card transactions could lead to consumers using credit cards less frequently.

From a credit union perspective, lower usage could cause credit unions to exit the credit card market, and be unable to provide access to consumer-friendly products such as free checking, which the interchange fees help subsidize.

Retailers have brought lawsuits in three other states arguing that price determination is a form of free speech, and by banning surcharges, merchants cannot protest the interchange fees which they believe are too high.

A similar decision was reached in New York on a similar case, and that decision is now on appeal. Anti-surcharging laws have been upheld in Texas.

Reg. relief package steps toward removing barriers: CUNA

WASHINGTON (3/27/15)--Nine regulatory relief bills supported by CUNA were approved by the House Financial Services Committee Thursday after a two-day markup of a series of bills.

"These bills are a step in the right direction toward removing barriers and allowing credit unions to efficiently serve their members," said CUNA President/CEO Jim Nussle.

"I look forward to seeing these pieces of legislation that reduce regulatory burden come the House floor for a vote. When credit unions boards and managers--not government bureaucrats--are making decisions about how to provide services, it's the 102 million member-owners of the credit union who benefit."

The bills that passed the committee Thursday include:
  • H.R. 299, the Capital Access for Small Community Financial Institutions Act, introduced by Reps. Steve Stivers (R-Ohio) and Joyce Beatty (D-Ohio), corrects a drafting oversight in the Federal Home Loan Bank Act that has resulted in a small number of privately insured credit unions being ineligible to join a Federal Home Loan Bank. This bill passed by a vote of 56-1;
  • H.R. 601, the Eliminate Privacy Notice Confusion Act, introduced by Reps. Blaine Luetkemeyer (R-Mo.) and Brad Sherman (D-Calif.), would eliminate the requirement financial institutions currently face to send their members or customers privacy policy notifications annually, and instead would only require such notifications when the privacy policy is changed. This bill passed by a vote of 57-0;
  • H.R. 1195, the Bureau of Consumer Financial Protection Advisory Board Act, introduced by Reps. Pittenger (R-N.C.) and Denny Heck (D-Wash.), would require the Consumer Financial Protection Bureau (CFPB) by law to establish the Credit Union Advisory Council, as well as the Small Business Advisory Board and the Community Bank Advisory Council. These advisory councils had previously been voluntarily established by the CFPB.  The separate Consumer Advisory Board is already codified in statute. This bill passed by a vote of 53-5;
  • H.R. 1265, the Bureau Advisory Commission Transparency Act, introduced by Rep. Sean Duffy (R-Wis.), would, in effect, open CFPB advisory committee meetings to the public. This bill passed by a vote of 56-2;
  • H.R. 1259, the Helping Expand Lending Practices in Rural Community Act, introduced by Reps. Andy Barr (R-Kan.) and Ruben Hinojosa (D-Texas), directs the CFPB to establish an application process determining whether an area should be designated as a rural area if the CFPB has not designated it as one. This bill passed by a vote of 56-2;
  • H.R. 1480, the SAFE Confidentiality and Privilege Enhancement Act, introduced by Reps. Robert Dold (R-Ill.) and Ed Perlmutter (D-Colo.), would require that confidentiality protections provided by federal and state laws apply when state and federal regulatory officials with mortgage or financial services industry oversight authority access any information provided to the Nationwide Mortgage Licensing System and Registry. This bill passed by a vote of 58-0;
  • H.R. 1408, the Mortgage Servicing Asset Capital Requirements Act, introduced by Reps. Perlmutter and Luetkemeyer, requires federal banking agencies to conduct a study of the appropriate capital requirements for mortgage servicing assets for nonsystemic banking institutions. This bill passed by a vote of 49-9;
  • H.R. 1529, the Community Institution Mortgage Relief Act, introduced by Reps. Sherman and Luetkemeyer, would exempt mortgage loans made by financial institutions under $10 billion in assets and held in portfolio for three years from RESPA's escrow requirements and would also exempt mortgage servicers that service fewer than 20,000 mortgages annually from a number of requirements of RESPA.  This bill passed by a vote of 48-10; and
  • H.R. 685, Mortgage Choice Act, introduced by Reps. Bill Huizenga (R-Mich.) and Gregory Meeks (D-N.Y.), would make an important modification to the Truth-in-Lending Act's definition of "points and fees." This bill passed by a vote of 43-12.
The next step in the House for these bills would be a vote on the House floor.

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62% worry about fin. stability: CUNA Mutual study

CU System
LAS VEGAS (3/27/15)--A large majority of the middle class worries about its financial stability on a daily basis, according to new research from CUNA Mutual Group.

Released this week during the CUNA Marketing and Business Development Council Conference in Las Vegas, the research found that 62% of middle-income Americans fret daily about their finances.

At the same time, only 6% of people said they defined success as having a lot of money.    

"People define success more personally; it's about relationships and work-life balance. I like that," said Kim York, senior vice president/chief marketing officer, Ascend FCU, Tullahoma, Tenn.

Conducted by TruStage, CUNA Mutual's consumer brand, the "What Matters Now" study aims to identify how middle-income Americans define success so that credit unions may learn how to focus their operations to best serve their members.

Susan Sachatello, TruStage senior vice president, said that consumer insights such as these also help TruStage develop media plans and design products, among other things.

Other key findings from the research:
  • 34% of individuals self-identified as having no banking relationship. "Understanding this population and engaging them in the credit union value proposition could be a significant source of membership growth," CUNA Mutual said; and
  • Middle-income Americans rank raising good/happy kids first (38%) and having a great partner relationship second (36%) as measures of success in life. Financial stability and good health tied for third at 33%.
"We know that what matters most to members evolves over time as people go through different life stages or as our economy fluctuates," Sachatello said. "In fact, 77% of the members we talked with said their definition of success has changed over time."

Added York: "(This research) made me realize that when we're choosing art for marketing pieces, we really need to focus on kids and families. We need to position Ascend as the go-to source for members seeking stability."

Fed: Mobile banking, shopping popularity gains in 2014

CU System
WASHINGTON (3/27/15)--The rate at which consumers take advantage of mobile banking continues to climb, as 39% of adults with mobile phones and bank accounts reported using mobile banking in 2014, a 6% annual increase, according to a recent survey from the Federal Reserve.
While checking an account balance continued to be the most common activity, use of remote deposit capture experienced the biggest jump on an annual basis with a 13% increase to 51%.
After checking account balances, transferring money between accounts was the second-most common feature used in 2014, followed by alerts from financial institutions.
Further, 22% of all mobile phone users had made a payment sometime in the 12 months prior to the survey, a 5% increase annually. Bill pay was the most common type of payment, followed by online or in-app purchases.
The survey also showed where financial institutions might have an opportunity to serve the underbanked or unbanked.
While 14% of consumers in the study were underbanked, 90% of that group also had access to a mobile phone, and 73% had access to a smart phone.
Additionally, underbanked consumers used mobile banking at a higher rate than fully banked consumers, according to the study.
Shopping habits also continue to evolve thanks to the mobile phone, as 47% of consumers used their phones to compare prices on the Internet, while 33% had scanned a barcode in-store to find the best price.
More than 40% used their phones to peruse product reviews while in a store, and more than two-thirds of those who used their phones to compare prices purchased something different because of that extra information.

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Transportation Network Co. legislation pending in 35 states

WASHINGTON (3/28/15)--Legislation regulating Transportation Network Company (TNC) vehicles--covering services like Uber and Lyft and including insurance requirements--continues to be a hot topic in the states and among some credit unions.

A number of state credit union leagues are active--or have been in recent years--in advocating for rules that would protect credit unions and other lenders with an interest in a car being used as a TNC vehicle.

"The primary credit union concern," explained Shelton Roulhac, a CUNA director of advocacy, "is that the vehicles used for these services are personal vehicles and oftentimes, have loans on them.

"Credit unions and other lien holders require proper collision insurance to protect their collateral and personal auto insurance policies do not cover commercial use, thus leaving lapses in coverage."

Some TNCs have insurance policies that may, under certain circumstances, pay claims by drivers and passengers. However, Roulhac noted, depending on the policy terms, there still could be gaps in coverage, thus prompting legislation to require sufficient coverage.

Thus far in the 2015 session, TNC legislation has been enacted in Virginia and is awaiting the governor's signature in Utah. In 2014, bills were enacted in California, Colorado, Connecticut and Rhode Island.

And currently legislation is pending in 34 other states . See the resource link for a full listing of where TNC bills await final action.

Jobless claims duck under 300K for 3rd straight week

WASHINGTON (3/27/15)--Initial claims for unemployment fell by 9,000 to 282,000 for the week ending March 21, according to numbers released by the Department of Labor Thursday.

The drop, which pushes the decline over the last three weeks to 43,000, marks the third consecutive week claims have come in under 300,000 ( March 26).

"This is welcome news as the February economic data have disappointed," said Ryan Sweet, Moody's analyst ( ). "Our tracking estimate of first quarter GDP is only 1% at an annual rate."

The four-week moving average for jobless claims fell by 7,750 for the week to 297,000, the second decline in the last three weeks. A four-week moving average below 300,000 is historically rare, Sweet said.

Continuing claims, meanwhile, or those who filed for unemployment benefits for at least a second straight week, fell by 6,000 to 2.416 million, according to the numbers.

Though, the four-week moving average climbed by 3,000, leaving the possibility open that the unemployment rate could rise by the end of March, Moody's said.

The insured unemployment rate, at 1.8%, did not change during the week, and sits 0.3% down on a year-over-year basis.

"There are some temporary factors hurting growth this quarter, including weather and the West Coast port disruptions," Sweet said. "The good news is that claims suggest the economy has gained some momentum heading into the second quarter."

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