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News Now: September 29, 2014

NEW: Matz to request revised RBC proposal, new comment period

ALEXANDRIA, Va. (9/29/14, UPDATED 4:10 p.m. ET)--National Credit Union Administration Chair Debbie Matz announced she intends to request a revised proposed risk-based capital rule be issued with a new comment period. This is a result of "significant structural changes" being considered. The Credit Union National Association requested a second comment period prior to issuing a final rule.

According to the agency, the amended proposal will include a longer implementation period and revised risk weights for mortgages, investments, member business loans, credit union service organizations and corporate credit unions, among other changes.

Stakeholders will also be invited to comment on an alternative approach for addressing interest rate risk using the supervisory process.

"I have always said that another comment period would only be appropriate if we decide to make significant structural changes that would exceed the parameters of the Administrative Procedure Act," Matz said. "Even though the changes we are developing would pose less of a regulatory burden than the original proposal, some changes would affect the rule's structure. Based on discussions with NCUA's General Counsel, I now believe it is prudent under the APA to ask for additional comments."

Matz anticipates the NCUA board could issue an amended proposal before the end of 2014.

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Proposed MLA changes could restrict CU payday alternative loans

WASHINGTON (9/29/14)--The U.S. Department of Defense's (DOD) announcement of a proposed overhaul of the Military Lending Act could affect credit unions that serve military members and families, raising concerns from the Credit Union National Association.

The proposed changes, announced Friday, would:
  • Place a 36% cap on the annual percentage rate (APR) of interest, referred to as the military APR and charged for credit products covered by the regulation, including credit cards;

  • Require creditors to provide military borrowers with additional disclosures, including a statement that the borrower should seek other options besides high-cost credit, and to include reference to financial counseling and assistance from military aid societies;

  • Prohibit creditors from requiring service members to submit to arbitration or waive their rights under the Servicemembers' Civil Relief Act and impose legal notice requirements as a result of a borrower taking one of these loans; and

  • Expand the definition of "consumer credit" covered by the regulation and bring any closed- or open-end loan--other than a loan secured by real estate or a purchase-money loan--within the scope of the regulation.
CUNA and Defense Credit Union Council (DCUC) staff will review the proposal in detail in the coming days. They will also reach out to credit unions and leagues to help develop a comment letter to the DOD.

In August 2013, CUNA and DCUC submitted a comment letter to the DOD regarding consumer credit extended to servicemembers and their dependents. In the letter, the organizations expressed their support for the existing DOD rule on consumer credit.

National Credit Union Administration Chair Debbie Matz said the NCUA, which finalized a payday lending alternative rule in 2010, considered how the rule would fit with existing DOD regulations.

"The Defense Department's new proposed rule would broaden the definition of 'consumer credit' under Military Lending Act regulations in a way that would prevent federal credit unions from making payday alternative loans permitted by our rule," she said.

Current NCUA regulations allow federal credit unions to offer payday alternative loans with an interest rate of up to 28% and an application fee of up to $20. Under Military Lending Act regulations, consumer credit to covered borrowers is subject to a 36% cap on the military APR, which includes application fees.

The Defense Department's proposed rule would cover other types of consumer credit as well, including credit card accounts and lines of credit tied to a checking account with a finance charge. As with payday alternative loans, the combined interest rates and fees for these products could exceed the 36% military APR cap, even if the interest rate is below the general 18% interest rate cap for federal credit unions.

Approximately 500 federal credit unions offer payday alternative loans. Systemwide, these federal credit unions have about $23 million in outstanding loans, with an average loan balance of $382, according to the NCUA.

The DOD is accepting comments for 60 days after today, upon being published in the Federal Register.

Use the resource link below to access the proposed rule, and the CUNA/DCUC comment letter.

Maine league pegged by media as data breach expert

CU System
WESTBROOK, Maine (9/29/14)--Media outlets in Maine have been on the hunt for an expert who can give feedback and advice about the recent string of major data breaches. It appears they've found one in the Maine Credit Union League.

Maine League President/CEO John Murphy has been interviewed a number of times by the Portland Press Herald and the Maine Sunday Telegram to offer his perspective on how data security breaches, such as the one to strike Home Depot, can affect credit unions and their members.

Murphy has explained to the publications that financial institutions, not the merchants responsible, will pay the biggest price as a result of the Home Depot breach, "as is often the case in most breaches that occur."

"Maine credit unions and other financial institutions are expecting to pay millions of dollars as a result of reimbursing members (and customers) for credit card losses and issuing new cards," Murphy said. "Unfortunately, those extra costs will, ultimately, result in higher fees or interest rates for consumers."

Murphy also said it's important the public understands that credit unions and other financial institutions are the ones on the hook for breaches, not the merchants who actually are responsible for them.

The Credit Union National Association continues to urge state and federal lawmakers to pass legislation that would require merchants to meet the same high data security standards that financial institutions must follow.

Murphy's comments on the subject ran in every Maine daily newspaper, and the stories were covered by a number of radio stations in their newscasts.

In addition to Murphy's presence in the media, Rebekah Higgins, league assistant vice president of card services, recently was interviewed by several TV stations in Maine, including WSCH-TV 6, WLBZ-TV 2 and WMTW-TV 8.

The league also connected ABC 7 News with Steve Clark, president/CEO of Bangor (Maine) FCU, with $127 million in assets, to offer a first-hand account of the impact of the breaches on his credit union and its members.

Grants support CU, community partnerships to serve immigrants

CU System
NEW YORK (9/29/14)--Two credit unions that have partnered with community agencies focused on serving the immigrant population have received grants from the National Federation of Community Development Credit Unions.
Ascentra CU, Bettendorf, Iowa, with $342 million in assets, and Lower Valley CU, Sunnyside, Wash., with $64 million in assets, were selected for the Northwest area immigrant asset-building initiative, designed to connect low-income immigrants with quality immigration services and safe, affordable financial products.
Grantees for the initiative were selected by the federation, Grantmakers Concerned with Immigrants and Refugees, and the Northwest Area Foundation.
In Iowa, the partnership between Ascentra CU and the Diversity Service Center of Iowa (DSCI) was a natural fit, according to Alvaro Macias, community development manager. Both organizations had heard about the work the other was doing and knew their respective reputations for serving the immigrant community.

The Muscatine, Iowa, area has a diverse population that includes immigrants, refugees and asylum seekers, Macias said. Last year, 78% of DSCI clients were of Latino descent, while the other 22% consisted of people from Vietnam, Ukraine, Syria, the Philippines, Guyana, China and Palestine.

"The immigration costs have increased tremendously," Macias told News Now. "A lot of the people applying don't have well-paying jobs, so the fee might be as much as 10% of their annual income."
Application fees range from $465 for employment verification, to $595 for naturalization, to $1,070 for citizenship. Some require an additional $85 biometric fee.
The first client who benefited from the grant program was a couple whose husband was a U.S. citizen and his wife. She wanted to start the process to get a Social Security number so she could begin working and contributing to the household income, Macias said. They did have some funds to cover the costs, but with the grant program filling in the last amount, "together we made it happen," he said.
Together, Ascentra and DSCI are using the $37,500 in grant money to provide staffing and start a pool of collateral for the loans.
DSCI now has a part-time employee--an immigrant who went through the process--to assist other applicants.
For participants, the credit union provides financial education about how to build a credit score, create a spending plan and raise money-savvy kids, he said.
The credit union holds $24,500 of the grant money as collateral. "We tell the borrowers that it is important to follow through and pay back their loans," he said, adding, "If they don't, it takes away from the opportunity for others to use the program. It's a 'pay it forward' mentality."
The structure--a pool of money that is loaned, paid back and loaned again--makes the project sustainable, Macias said. "It will have a lasting effect."
In Washington, the grant will support citizenship clinics, where immigrants have access to financial education and application financing from the credit union and immigration legal services from OneAmerica and La Casa Hogar.
Cathie Mahon, federation president/CEO, said, "Partnerships between credit unions and local community organizations are proving effective in the efficient delivery of services that help low-income consumers achieve financial independence."

100M CU memberships celebrated at Nationals Park

WASHINGTON (9/29/14)--Credit unions and the 100 million memberships milestone were on full display at Friday's game between the Washington Nationals and the Miami Marlins.

The Credit Union National Association had two booths at the game, passing out slap koozies and other credit union materials to those in attendance, with help from volunteers from local credit unions.

The allure of the credit union system intrigued many nonmembers, included Washington Nationals staff, who were directed to to find a credit union that could meet their needs.

In addition to slap koozies, the first 20,000 fans who entered the ballpark received calendars with the 2015 Nationals' schedule, which also featured the 100 Million Memberships logo.

Political commentator Charlie Cook was featured in a video message that played on the scoreboard just prior to the first game of the Friday's day-night doubleheader. In the video, Cook praised credit unions for reaching the 100 million memberships mark, and for providing access to financial services to members nationwide.

FFIEC offers guidance on Shellshock computer bug

WASHINGTON (9/29/14)--The Federal Financial Institutions Examination Council (FFIEC) members are advising financial institutions of a material security vulnerability in the Bourne-again shell (Bash) system software widely used in servers and other computing devices that could allow attackers to access and gain control of operating systems.
The vulnerability, nicknamed "Shellshock," could expose organizations and individuals to potential fraud, financial loss, or access to confidential information.
Bash is a software tool found on many operating systems and is used to translate user instructions and other inputs into machine-readable commands. Financial institutions may have Bash present on a wide array of servers and network devices, including Web servers, email servers and physical security systems. On Sept. 24, security researchers reported the existence of Shellshock in Bash versions 1.14 through 4.3, which have been in use for decades.
The vulnerability potentially allows a remote attacker to run malware, or malicious code, on affected systems. Given the broad use of the Bash software tool, the vulnerability may be present in the computer systems of financial institutions, their members and customers, and those of their third-party providers.

Attackers could use the vulnerability to access and take control of systems, leading to a range of operational risks. These risks may include the loss of confidentiality, integrity, and availability of sensitive customer information and confidential business data. This access could lead to data destruction, disruption of operations and fraud, FFIEC said. (See related story: Security expert: Shellshock could cause 'chaos and mayhem.')
While vendors are working to patch and update their systems, the FFIEC member agencies expect financial institutions to conduct a risk assessment and address the Shellshock vulnerability as part of ongoing information security and incident response plans. FFIEC advices financial institutions to take the following steps, as appropriate:
  • Identify all servers, systems, and appliances that use vulnerable versions of Bash and follow appropriate patch management practices, including conducting a vulnerability scan to detect if the patch is installed and testing to ensure a secure and compatable configuration;
  • Apply mechanisms to filter malicious traffic to vulnerable services such as appropriate Web application firewall signatures;
  • Monitor systems for malicious or anomalous activity and update signatures for intrusion detection and prevention systems;
  • Ensure that all third-party service providers are taking appropriate action to identify and mitigate risk and monitor the status of vendors' efforts to address the vulnerability; and
  • Review systems to determine if this vulnerability has been exploited and, if necessary, conduct a forensic examination to determine the potential effects of any breach.
The FFIEC is comprised of federal financial institution regulators, including the National Credit Union Administration.

CUNA adds co-sponsor for 2015 community conference

CU System
MADISON, Wis. (9/29/14)--The Credit Union National Association announced Friday that the National Federation of Community Development Credit Unions will be a partner at the 2015 CUNA Community Credit Union and Growth Conference.
The federation will organize and present two sessions at the conference, which will be held in Phoenix, Sept. 22-25, 2015.
The federation has "a wealth of valuable industry insights to offer for any credit union that's interested in playing a bigger role in their local underserved communities--not to mention practical applications and takeaways that complement the goals of this conference perfectly," said Meghann Dawson, CUNA's director of learning events. 
The federation host one session on developing emerging marketing strategies in underserved markets and another on community development financial institution (CDFI) certification.
The first session will involve a self-assessment of commodities offered for players in emerging markets in each credit union's community, and guidance on addressing shortcomings identified with the emerging market review.
In the latter, the federation will present a report on the 173 CDFI-certified credit unions in the United States and how they have leveraged outside resources, technology and member services to expand. The session will also include information about the Federation's product and service analysis and the certification process.
The annual Community Credit Union and Growth Conference aims to help credit unions develop workable strategies for making connections in their communities.

U.S. Bank ordered to pay $48M in relief for illegal billing practices

WASHINGTON (9/29/14)--U.S. Bank has been ordered to provide approximately $48 million in relief to consumers harmed by illegal billing practices. The order came from the Consumer Financial Protection Bureau (CFPB), alleging U.S. Bank customers were unfairly charged for certain identity protection and credit monitoring services that they did not receive.

According to the CFPB order, U.S. Bank's service provider enrolled bank customers in identity protection add-on products that promised to monitor consumers' credit and alert them to potentially fraudulent activity. These credit monitoring programs, known as "Privacy Guard" and "Identity Secure," were marketed by U.S. Bank and administered by its third-party vendor.

In order for a company to provide credit monitoring services, it generally must obtain the consumer's written authorization. U.S. Bank customers were charged for these products as soon as they enrolled and without the necessary authorization.

As a result, consumers were billed for services they did not receive, unfairly incurred charges for interest and fees and failed to receive product benefits.

The CFPB's action is being taken in coordination with the Office of the Comptroller of the Currency (OCC), which is separately ordering restitution for the same illegal practices. These practices were uncovered through supervisory examinations conducted by the CFPB and the OCC.

U.S. Bank will issue the roughly $48 million in refunds to more than 420,000 customers. It also will pay a $5 million civil money penalty to the CFPB and a $4 million penalty to OCC.

Use the resource link below to access the full order.
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