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News Now: July 28, 2014

House FSC markup of Reg D Study Act set for Tuesday

WASHINGTON (7/28/14)--The House Financial Services Committee will begin a markup of the Regulation D Study Act (H.R. 3240) Tuesday, a bill supported by the Credit Union National Association.
The bill, introduced by Rep. Robert Pittenger (R-N.C.), requires the Government Accountability Office (GAO), in consultation with credit unions and community banks, to study the Federal Reserve's Regulation D minimum reserve requirements.
The bill calls for the study to report:
  • A review of how the Fed has used reserve requirements to conduct U.S. monetary policy;

  • The impact of the maintenance of reserves on depository institutions;

  • The impact upon consumers in managing their accounts; and

  • Alternatives available to the Federal Reserve Board to maintain reserves to effect monetary policy.
Regulation D affects credit union members by limiting the number of automatic withdrawals from a member's savings account to six per month. This can cause members to overdraw checking accounts when a debit draws the account balance below $0 and the number of transfers for the month has already happened. Members who might have the funds in a savings account are unable to automatically transfer the funds, which could lead to a nonsufficient funds fee.
"We would like to see this cap increased or eliminated altogether, but we understand that one of the reasons the regulation is in place is because the Federal Reserve uses it as a tool to conduct monetary policy," said Doug Fecher, president/CEO of Wright-Patt CU, Beavercreek, Ohio, with $2.8 billion in assets, on behalf of CUNA to the House Financial Services Committee earlier this month.
CUNA's testimony referenced a quote from former Fed Chair Ben Bernanke, who said reserve balances far exceed requirements, and play only a "minor role" in the daily implementation of modern monetary policy.
"A GAO study will allow an objective assessment of whether the rarely changed monetary reserves imposed on depository institutions and consumers are necessary in order for the Fed to implement monetary policy in the 21st century," Fecher said.
The committee will also mark up another bill CUNA testified in support of--the Access to Affordable Mortgages Act of 2014 (H.R. 5148). The bill would amend legislation including the Truth in Lending Act to provide regulatory relief to institutions originating mortgages of $250,000 or less from appraisal requirements listed in the Dodd-Frank Act.
"The bill would provide both regulatory relief to mortgage lenders as well as increase access to mortgage credit availability for borrowers purchasing lower cost dwellings," Fecher said. "The bill would allow credit unions that offer mortgage loans secured by covered properties to better serve their middle to lower income members."
The markup is scheduled to begin at 10 a.m. (ET) Tuesday in the Rayburn House Office Building.

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CUs differ from banks in approach to subprime auto loans

CU System
MADISON, Wis. (7/28/14)--A July 21 article in The New York Times described how the subprime auto loan market has grown 130% in the five years since financial crisis, with roughly one in four new auto loans last year going to borrowers with credit scores at or below 640. Credit unions and banks approach the market quite differently.
The increase is driven by some of the same factors that fed the runaway growth of subprime mortgages that led to the financial crisis, the article explained. Banks are charging rates that can exceed 23% and making loans to consumers without the means to make payments. And, as with subprime mortgages leading into the Wall Street implosion, some subprime auto loans are bundled into complex securities sold as investments--a process that creates more demand for the loans. (See related story: Auto loan balances race to all-time high: Equifax.)
The vast majority of banks largely rely on dealers to screen potential borrowers. The arrangement, which means the banks rarely meet customers face to face, mirrors how banks relied on brokers to make mortgages.
Credit unions interviewed by News Now take a vastly different approach to subprime auto lending. "We're trying to set our members up for success," Jim Brown, senior manager of consumer lending at University FCU, Austin, Texas, with $1.7 billion in assets. "The last thing we want to do is set somebody up to fail."
University FCU participates in Non-Prime Auto Loans, a partnership between the National Credit Union Foundation and the Filene Research Institute that tests the viability of subprime auto lending in credit unions. Fourteen credit unions participate in the program.
"These are members who have the fewest options out there," Brown told News Now . "Credit unions were initially formed to serve these members: the underserved. We've found that if we help these members, they're very loyal, and they come back to us time and time again for future loans."
University FCU has been offering subprime auto loans since 2004. The credit union classifies subprime auto loans as D and E loans, which represent consumers with credit scores below 600, Brown said. The credit union currently makes the loans at annual percentage rates between 12.05% and 14.85%
"In our market, we have people who are coming to us that were at 23% and 24% through dealers and other financial institutions," Brown said.
Among the keys to making subprime auto loans is focusing on the overall member relationship. Seasons FCU, Middletown, Conn. with $142 million in assets, also participates in the NCUF/Filene subprime auto loan initiative. When it screens subprime applicants, the credit union considers if the member has a direct deposit or a checking account with a debit card, said Jeff Rindfleisch, vice president of financial services ( News Now April 23).
Indeed, credit unions appear to know their members before lending to them for subprime loans. While subprime auto loans account for 14.2% of credit union auto lending portfolios, compared with 13.7% for banks, credit unions' 30-day delinquency rates on subprime auto loans in the first quarter of 2014 was 1.20%, compared with 1.93% for banks, according to data from Experian.
Denver Community CU, with $263 million in assets, is another NCUF/Filene program participant. "One of our components of underwriting that we take a lot of pride in is lending based on character, and that can make or break a program like this," Tessa Bonfante, Denver Community CU chief operating officer, told News Now . "You do need to understand the member and ask what their intent is and how they are trying to improve their lives financially to create some kind of comfort that lending to them is going to work."
In many cases the vehicles provided through subprime loans can literally change lives. "It can be a matter of going to work, or getting to the doctor's office," said Helen Gibson, Denver Community CU vice president of marketing and education.

Neb. Hike the Hill focuses on reg relief

CU System
LINCOLN, Neb. (7/28/14)--Nebraska credit union advocates took their message of regulatory relief to Capitol Hill during a Hike the Hill event earlier this month.
Click to view larger image Nebraska credit union advocates met with Sen. Deb Fischer (R-Neb.) during their Hike the Hill visit to Washington, D.C., earlier this month. (Nebraska Credit Union League Photo)
"Our credit unions are being inundated with hundreds of new complex regulations from multiple agencies that they must now comply with," said Scott Sullivan, Nebraska Credit Union League president/CEO ( The Affiliate July 21).

There have been 180 new regulations from 15 separate agencies since 2008, not including those from the CFPB, according to the Credit Union National Association.
Ronny Miller, president/CEO of $16 million-asset Gallup FCU, Omaha, Neb., told lawmakers that small credit unions are bearing the brunt because of their limited staff and resources. "Their staffs (small credit unions) are spread so thin that it hurts the members," said Miller.

Steve Edgerton, vice president of operations and governmental officer for Centris FCU, Omaha, with $531 million in assets, said that larger credit unions are hiring more compliance officers to keep up with the new rules and regulations coming out of Washington, D.C.
Nebraska advocates thanked U.S. Reps. Jeff Fortenberry (R-Neb.), Adrian Smith (R-Neb.) and Lee Terry (R-Neb.) for co-signing the risk-based capital (RBC) letter sent to the National Credit Union Administration. The letter was co-sponsored by Rep. Peter King (R-N.Y.) and Rep. Greg Meeks (D-NY).  The letter garnered support from more than 300 House members.  During visits to Sens. Deb Fischer (R-Neb.) and Mike Johanns (R-Neb.), Nebraska credit union representatives asked them to pen a letter to the NCUA.
In addition to meeting with federal lawmakers, the advocates met with NCUA Chair Debbie Matz and NCUA board member Rick Metsger. Much of the focus of both meetings was the proposed RBC rule.
Other states participating in Hike the Hill visits this spring and summer include Michigan, Minnesota, Maine, Missouri, New Mexico, Arkansas, Oklahoma, Texas, North Carolina, South Carolina,  New York, Ohio, Iowa,  Oregon, Washington, California, Nevada, Alabama, Florida, Wisconsin, Georgia, Kentucky, Montana, Massachusetts, New Hampshire and Rhode Island.

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McCaskill: RBC proposal means downgrade of 79% of Mo. CUs

WASHINGTON (7/28/14)--Missouri credit unions have raised several issues with the National Credit Union Administration's risk-based capital proposal, prompting Sen. Claire McCaskill (D-Mo.) to write to the agency.

McCaskill, chair of the Senate Commerce, Science and Transportation subcommittee on consumer protection, product safety and insurance, expressed her concern that the new rules will have a negative affect on credit unions in her state and around the country.

"There is concern that the new risk weights are not each set at appropriate levels to best reflect the risks present in the market. These new calculations will result in a downgrade of 79% of Missouri credit unions covered by the new rules," she wrote. "With this drastic impact, credit unions should have confidence that these numbers were achieved with careful study. I urge NCUA to conduct further examination of the risk weights applied to each form of capital to ensure they are appropriate."

McCaskill also raised concerns about the proposed implementation period, citing the unique difficulties faced by credit unions when it comes to raising capital.

NCUA Chair Debbie Matz said during the agency's series of Listening Sessions that the implementation period would be more than the originally proposed 18 months. The agency has since stated that risk weights would be adjusted, particularly in the areas of mortgages, member business loans, investments, credit unions service organizations and corporate credit unions.

McCaskill is a proponent of several regulatory relief measures. In February she introduced a bill that is designed to require minimum disclosures from entities that send abusive patent demand letters, known as "patent trolls."

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Maine league rallies volunteers for Michaud campaign

CU System
WESTBROOK, Maine (7/28/14)--The Maine Credit Union League is soliciting volunteers to help elect U.S. Rep. Mike Michaud (D-Maine) for governor.
The league endorsed Michaud for governor last fall and highlighted Michaud's track record of supporting credit unions during his 12 years in Congress and 20 years in the Maine Legislature. Michaud also served as a longtime credit union board member and remains an honorary credit union board member at Eastmill FCU, Millinocket, Maine, with $60 million in assets.
"Helping to successfully elect Mike as Maine's next governor is going to take a strong, coordinated and involved effort on the part of Maine's credit unions," said John Murphy, league president ( Weekly Update July 25). "We played a critical role in helping him first get elected to Congress in 2002, by participating in leaflet drops in key areas, hosting him at credit union-related events and working in other aspects of his campaign. In fact, Mike has never forgotten our involvement, as he often cites the work of credit unions as helping to put him over the top in that race.
"We have continued to support him during his other campaigns, but the race for governor is shaping up to require a 2002-like effort, as it is anticipated to be a hard-fought and close race," Murphy added. "It is going to take a strong effort on the part of your league and Maine credit unions so we need to get this process under way now and identify individuals and credit unions that are willing to help."

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CUNA BSA training to reach 38 Mich. state examiners

CU System
MADISON, Wis. (7/28/14)--The Credit Union National Association has been invited by the Michigan Department of Financial Institutions to provide CUNA Bank Secrecy Act (BSA) training to 38 state examiners during a Department of Insurance and Financial Services training event later this year.

The training, offered in partnership with the National Association of State Credit Union Supervisors, is scheduled for Oct. 8-9 in Ann Arbor, Mich. Michigan credit unions are invited to participate in the certification opportunity as well.

Tracy Blaske, CUNA director of compliance education, said that it's an honor to bring the training program to the compliance experts "who safeguard the Michigan credit union system year-round."

Examiners who complete CUNA's BSA designation training will receive the CUNA BSA Compliance Specialist (BSACS) designation, which recognizes them for their expertise in the field and for their dedication to the advancement of credit union compliance.

CUNA also will host the Bank Secrecy Act Conference later in the month, from Oct. 26-29, in Las Vegas.

The conference brings together BSA compliance officers, state and federal examiners, industry experts and regulators, and provides attendees with updates from the Financial Crimes Enforcement Network, the National Credit Union Administration and agencies from the Office of Foreign Assets Control.

Those in attendance will learn the statutory and regulatory training knowledge needed to comprehend and comply with the complex federal BSA law.

For more information on the training use the link.
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