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News Now: January 29, 2015

CUNA seeks answers from NCUA on IOLTA bill questions

WASHINGTON (1/29/15)--The passage of the Credit Union Share Insurance Fund Parity Act has raised a number of questions from credit unions about its potential applications, questions summarized by the Credit Union National Association in a letter to the National Credit Union Administration Wednesday.

The bill was signed into law in December, which was followed by NCUA Chair Debbie Matz announcing interest on lawyer trust accounts (IOLTAs) were now covered by the National Credit Union Share Insurance Fund (NCUSIF). Matz has also indicated that the agency is working to update Part 745 of the NCUA's regulations, which pertain to insurance.

While the law allows IOLTAs to be covered by the NCUSIF, it also provides coverage for "other similar escrow accounts," according to the bill's text. Credit unions have inquired as to whether this includes accounts such as prepaid funeral accounts and realtor escrow accounts.

"We do not think there is any question that the new provisions of the law cover these types of accounts, and we hope that Part 745 will enumerate types of accounts covered," reads the letter, signed by Lance Noggle, CUNA senior director of advocacy and counsel. "These accounts have very similar structures to IOLTAs and should receive similar insurance coverage."

Credit unions have also asked if the NCUA will use its authority to resolve questions about pass-through insurance of prepaid card programs. CUNA urged the agency to allow member businesses to offer payroll cards to employees, regardless of whether individual employees are members of the credit unions.

The Federal Deposit Insurance Corp. has determined that such accounts receive the same insurance coverage as other deposit accounts, and CUNA has urged the NCUA to follow suit.

CUNA also asked the NCUA to address questions on:
  • Expectations from the agency regarding the types of records that need to be maintained to keep track of beneficial owners of IOLTAs and similar accounts, and who is expected to maintain the records. CUNA encourages the NCUA to explain that credit unions should only have to make clear to the entity establishing the of account that the accountholder will need to maintain good records so the actual owners of the account can be ascertained if needed;

  • Bank Secrecy Act (BSA) compliance requirements on IOLTAs and similar accounts, since those accounts can hold nonmember funds. CUNA believes guidance on whether the agency will expect credit unions to modify customer identification program requirements would help credit unions; and

  • Whether IOLTAs and similar accounts are exempt from NCUA regulations that limit public unit and nonmember shares to 20% of the credit union's total shares or $3 million, whichever is greater. CUNA suggests those accounts become exempt.

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New privacy notice bill introduced with CUNA support

WASHINGTON (1/29/15)--A bill that would change annual privacy notice requirements for certain financial institutions was introduced Wednesday by Reps. Blaine Luetkemeyer (R-Mo.) and Brad Sherman (D-Calif.). The bill is titled the Eliminate Privacy Notice Confusion Act (H.R. 601).

The bill would amend the Gramm-Leach-Bliley Act to exempt from its annual privacy notice requirement any financial institution that:
  • Provides nonpublic personal information only in accordance with specified requirements; and

  • Has not changed its policies and practices with regard to disclosing nonpublic personal information from those disclosed in the most recent disclosure sent to consumers.
The Credit Union National Association wrote to Luetkemeyer and Sherman Wednesday to express its support of the bill.

"The Eliminate Privacy Notice Confusion Act will make privacy notices sent to consumers by financial institutions more meaningful by eliminating the requirement that the notices be sent annually, and requiring them only to be sent when the privacy policy of the financial institution has changed," reads the letter, signed by CUNA President/CEO Jim Nussle. "In addition to enhancing the value of these privacy notifications for consumers, your legislation also reduces regulatory burden for credit unions and other financial institutions."

CUNA estimates that since 2001, credit unions have sent more than 1 billion annual privacy notices to members.

A voter survey has indicated that less than 25% of consumers reads the privacy notifications they receive. The same survey showed that more than 75% would be more likely to read such a notice if it was only sent when a financial institution changed its policy.

According to CUNA, "this suggests that the public policy goal of privacy notification would be better achieved if the notices had more meaning to consumers." CUNA believes the proposed bill achieves that goal.

The bill previously passed the House by voice vote in the 112th and 113th Congress. During the 113th Congress the bill had 76 co-sponsors in the Senate.

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N.Y. league ready to press for data security with AG's bill

CU System
ALBANY, N.Y. (1/29/15)--The New York Credit Union Association is closely following a proposed overhaul of the state's data security law that could hold companies to new standards in protecting consumers' personal data.
New York Attorney General Eric Schneiderman's proposal, to be released today would create new data security requirements for businesses and would expand the types of information covered by New York's data breach notification statute ( Reuters Jan. 28).
The proposal seeks to expand the definition of what constitutes "private information" to include email addresses and passwords, biometric information and health insurance details.
Companies are currently not required to report a data breach if it is limited to the theft of email addresses and passwords.
"We are following the attorney general's efforts and will be reaching out to work with him and the state Legislature on the proposal once it is publicly unveiled," said Michael Lanotte, senior vice president/general counsel for NYCUA.
"Data security/breach is a state legislative agenda priority issue for us, and we are already educating lawmakers on the needed changes to current law to ensure adequate protections are in place and liability is fairly placed on the responsible party," he told News Now .
The proposal would also require companies that collect or store private information to take "reasonable security measures" to protect that information from unauthorized access.
Companies collecting or storing private information would be required to have:
  • Administrative safeguards to assess risks, train employees and maintain safeguards;
  • Technical safeguards to identify risks, detect, prevent and respond to attacks and test and monitor systems controls and procedures;
  • Physical safeguards to have special disposal procedures, detect and respond to intrusions, and protect the physical areas where information is stored; and
  • Certification, which would include independent third-party audits and certifications annually showing compliance with New York's data security requirements.
The proposal will also offer businesses that employ stringent data-security measures some protection from liability in lawsuits if the businesses can show that they took steps to protect private information.

The Credit Union National Association, which compiled comprehensive data in the aftermath of the breach that revealed how great the impact was on credit unions nationwide , continues to press lawmakers on the issue of ratcheting up payment data security standards for merchants.

Merchants aren't held to the same strict standards that financial institutions must adhere to, yet the cost of these breaches are unfairly and disproportionately carried by financial institutions, according to CUNA's leaders.

CUs, members share breach stories with media

CU System
SAN ANTONIO and MARQUETTE, Mich. (1/29/15)--Data breaches may not always occur at massive retailers such as Target or Home Depot, but that doesn't dampen the serious effect all breaches have on financial institutions and consumers.

In San Antonio, a recent data breach at a merchant payment terminal cost Baptist CU, with $33 million in assets, $17,000 to reimburse members for fraudulent charges on their payment cards alone ( KABB-TV Jan. 27).

Nearly 100 Baptist CU members had their credit and debit card information swiped, an event that dramatically affected the credit union, but not the merchant responsible for allowing the breach.

Worse, Nick Holguin, president/CEO of the credit union, said Baptist CU couldn't even warn members about where the breach happened in order to protect them from further incidents.

"Right now, it's very frustrating because although we've identified where the potential breach is, we cannot tell our members to stop shopping there," Holguin told KABB-TV .

"They need to hold the vendors or merchants responsible for these losses. We need to hold them to the same security standards that they hold financial institutions."

Consumers in Marquette, Mich., are feeling the effects of a spate of recent data breaches as well.

A number of stores in Marquette, including the Blue Link Party Store, were hacked in recent weeks, and consumers and credit union members alike are beginning to see fraudulent transactions appear on their credit card statements.

"Last week, my credit union had contacted me ... and said, 'Hey, there might be a fraudulent charge (on your card),'" Kevin Terpstra, a recent shopper at Blue Link, told WBUP-TV (Jan. 27). "They went through some recent charges that have been on my card, and they came to this one charge" for $454 and some change at a CVS store.

"I said, 'I haven't been to a CVS, I think, in my life.' They said, 'Well, it was in Lake Orion,' and I said, 'I've never been to Lake Orion.'"

The Credit Union National Association continues to lobby on Capitol Hill for equitable payment data security standards between merchants and financial institutions.

Merchants are not held to the same strict data protection requirements that financial institutions must uphold, leaving the payments network vulnerable, CUNA's leaders have said.

The Cooperative Credit Union Association (CCUA), meanwhile, recently created a survey to assess the effects recent data breaches have had on its member credit unions, and to develop recommendations for policy change ( Daily CU Scan Jan. 27).

With the survey, performed in coordination with the association's data breach working group, CCUA--serving credit unions in Massachusetts, Rhode Island and New Hampshire--hopes to compile recommendations for congressional delegations. 

The survey will close Feb. 27, at which point the results will be collected and subsequently made available.

CUNA, trades outline principles to Congress for combating 'patent trolls'

WASHINGTON (1/29/15)--The U.S. Congress must act to combat abusive patent demand letters. Deceptive demand letters and litigation from entities asserting low quality patents are major challenges facing the financial services industry, leading the Credit Union National Association and other trade organizations to express their concerns to members of Congress.

The letter , sent Wednesday, outlines concerns about such lawsuits and urges Congress to take action against the "patent trolls" that bring them. 

"We have serious concerns about the current patent litigation environment as well as the quality of patents granted by the Patent and Trademark Office," the letter reads. "In addition, patent trolls continue to assert low-quality patents through vaguely worded demand letters with the full knowledge that their targets, our members, are more likely to pay unnecessary licensing agreements then engage in lengthy, costly litigation."

The letter highlights a set of principles adopted by the financial services industry that it feels are needed to address the issue.

The principles fall into three categories, and are as follows:
  • Efficiency of the litigation process: Improvements need to be made to make the cost and burdens of patent litigation equitable and more efficient;

  • Enhanced transparency: Abuse of the patent system through the use of vaguely worded demand letters must be ended by requiring such letters to provide more details about the patent and who claims to assert it; and

  • Patent quality: Improvements are needed in the post-grant review of patents such as making the Covered Business Method (patents that claim a method or operation used in practice, administration or management of a financial product or service) permanent and more useable for smaller entities.
According to the organizations, those principles will "go a long way in protecting the financial services sector and the millions of customers our members interact with on a daily basis from the harm wrought by patent trolls."

In addition to CUNA, the letter was signed by the American Bankers Association. American Insurance Association, The Clearing House, Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association, NACHA--The Electronic Payments Association, National Association of Federal Credit Unions and National Association of Mutual Insurance Companies.

A patent troll bill was drafted last May by Rep. Lee Terry (R-Neb.) in the House, which eventually passed the House subcommittee on commerce, manufacturing and trade. A separate bill was considered by the Senate Judiciary Committee before eventually being removed from the voting agenda.

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Apple Pay interest booming at CUs, Western Union joins

CU System
MADISON, Wis. (1/29/15)--With Apple Pay accounting for two out of every three dollars processed through contactless payment systems, Apple CEO Tim Cook said Tuesday he is "more confident than ever 2015 will be the year of Apple Pay."

According to Apple's website, 54 credit unions and banks have adopted Apple Pay. On Tuesday Western Union announced thousands of its locations, as well as kiosks at more than 7,600 Walgreens and Duane Reade stores in the United States, would accept the service.

"You frankly don't want to be left behind," Paul Gentile, president/CEO of the Cooperative Credit Union Association, told the Boston Globe (Jan. 19). "You want to be where your members are."

Apple Pay will soon be in the hands of more California credit union members--through KeyPoint CU, Santa Clara, Calif., with $897 million in assets, the California and Nevada Credit Union Leagues reported.
"We're fortunate our members will probably be early adopters," said KeyPoint CU President/CEO Brad Canfield about his credit union's tech-savvy field of membership, which includes employees of Apple Inc. and other technology companies ( In the News Jan. 27).
KeyPoint Chief Operating Officer Sam Tuohey hopes at least half of the credit union's 22,000 members who have active checking accounts are routinely using an e-wallet--probably Apple Pay--within two years.
He said a consensus on how early, or late, consumers will start ingraining the payments system into their shopping habits is constantly changing. For many financial institutions, 10% of their clientele will probably adopt Apple Pay immediately, and another 20% within six to 12 months. It's difficult pegging how long it will take others, Tuohey said.
"If we didn't introduce this as fast as we possibly could, some members would leave us," he said. "They can't understand why anyone would want to call their credit union or bank, or walk into one. They're the same super-early adopters of mobile banking and remote deposit capture."
Other credit unions that have recently signed up for Apple Pay include:
  • A+ FCU, Austin, Texas, with $1 billion in assets;
  • Bethpage (N.Y.) FCU, with $5 billion in assets;
  • Connex CU, North Haven, Conn., with $415 million in assets;
  • Goldenwest FCU, Ogden, Utah, with $1 billion in assets; and
  • Meijer CU, Walker, Mich., with $58 million in assets.

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FOMC still in holding pattern on Fed funds rate

WASHINGTON (1/29/15)--Given the opposing forces of a strengthening job market and weakening inflation, the Federal Open Market Committee (FOMC) Wednesday made no substantial changes to forward guidance on when it will raise short-term interest rates from their near-zero levels.

Mimicking the refrain seen in its last policy statement, the FOMC said policy accommodation may be appropriate for "some time" once employment and inflation reach their mandate-consistent levels.

The Fed also reiterated that it will take a patient approach to making the decision on when to hike interest rates. Many expect the FOMC will not begin to raise rates until mid-2015, or later.

"The FOMC's decision to keep the federal funds rate at its current 0% to 0.25% target is not surprising given the low inflation rate, which is anticipated to decline further," said Perc Pineda, senior economist for the Credit Union National Association.

"One thing is definite: The decision of the Federal Reserve to keep the federal funds rate unchanged means that the squeeze on net-interest margin, which could be experienced by credit unions when short-term interest rates rise, is postponed for now," Pineda added.

While the FOMC did not mention the global economy, which has stagnated of late, much attention in the policy statement was paid to inflation and its recent struggles.

The Fed, which noted it continues to monitor inflation closely, expects inflation to continue to decline in the near term, but to rise gradually towards 2% in the medium term.

The FOMC sees the labor market, on the other hand, trending in the right direction, which could ultimately dictate when the Fed raises interest rates.

"This year is going to be another positive year for the U.S. economy, and at some point the federal funds rate will rise," Pineda said. "Since monetary policy has lags, it makes perfect sense to increase interest rates at some point sooner than later. The timing, however, depends on where inflation and unemployment rates are heading. So far, the Federal Reserve has done a good job keeping its fingers on the pulse of the U.S. economy."

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