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News Now: January 28, 2015

Legislators say statutes must ensure merchants protect consumers' info

WASHINGTON (1/28/15)--A stable law to ensure merchants are appropriately protecting consumers is needed, said Rep. Gus Bilirakis (R-Fla.) in a subcommittee hearing Tuesday on elements of potential data breach legislation.

The House subcommittee on commerce, manufacturing and trade discussed the specifics of such legislation and heard from a panel of experts on the matter.

Tuesday's hearing is likely to be the first in a series of hearings on creating data breach legislation, and it saw many of the themes that are likely to emerge when creating such a bill.

The members of the subcommittee all agreed at the outset of the hearing that data breach legislation that is universal and includes standards for consumer notification is needed. There are currently 47 different state laws dealing with data breach notification and 12 state laws governing commercial data security.

House Energy and Commerce Chair, Rep. Fred Upton (R-Mich.), said Congress has a real opportunity to set a single national data security standard, which is a key component to combating the effects of data breaches. Rep. Frank Pallone (D-N.J.) said that he would not support any bill that supersedes strong state protections with a "weak federal standard."

Rep. Leonard Lance (R-N.J.) said he wants any forthcoming legislation to avoid becoming a "48th standard," and instead it should serve as the primary standard.

A letter from the Credit Union National Association and other financial trade organizations was accepted into the record.

As previously reported in News Now, the letter outlined several essential characteristics of potential data breach legislation, including national protection and notification standards that pre-empt state laws and recognition of the requirements financial institutions face under the Gramm-Leach-Bliley Act.

Lance asked the witnesses if they thought the standards set forth by the Gramm-Leach-Bliley Act, created 16 years ago, were sufficiently protecting consumers, and the witnesses agreed changes are needed.

Bilirakis said effective legislation would also not likely be tied to specific technologies, such as chip-and-pin payment cards, but the law should focus on meeting the threat. (See related story: Data security legislation among FTC recommendations.)

Three of the four witnesses said that data breach notification should only be required when the exposed information can be used to commit fraud, or other crimes, for fear of consumer fatigue when it comes to notifications of breaches.

The fourth witness, Woodrow Hartzog of Samford's Cumberland School of Law, strenuously disagreed and said it is too difficult to determine how stolen data might be used in the future, and that consumers have the right to know when any of their information has been exposed.

While the others cautioned that consumers would grow weary of getting repeated notices about breached, Hartzog said he did not believe consumers were suffering fatigue when it comes to being notified about data breaches that involve their personal informaton.

April 27 is RBC2 comment deadline: CUNA webinar available online

WASHINGTON (1/28/15)--The Credit Union National Association is strongly encouraging credit unions to comment by an April 27 deadline on the National Credit Union Administration's second-round risk-based capital (RBC) proposal.
CUNA has posted a free, recorded version of its 60-minute Jan. 26 RBC2 webinar online.  It features NCUA Director of Examination and Supervision Larry Fazio, CUNA President/CEO Jim Nussle, CUNA Chief Policy Officer Bill Hampel, and CUNA Deputy General Counsel Mary Dunn discussing in detail the revised RBC plan. 
CUNA has noted "significant improvements" in the agency's revised plan and is seeking credit union comment on how the new proposal will affect their operations, and what further improvements are necessary.
CUNA soon will issue a Comment Survey asking credit unions to address specific points of the proposal. 
For instance, CUNA strongly advocates for the ability of credit unions to use supplemental capital, both for this proposal and for the purposes of meeting prompt corrective action requirements.  This will be one of the issues CUNA raises in its comment letter.
Also, while weighted average life was not factored into the risk weightings in the revised RBC plan, the NCUA is still focusing on interest rate risk (IRR).  The agency has asked for comments on alternative approaches that could be taken in the future to address IRR within prompt corrective action.
CUNA will be reviewing this area closely and seeks to develop, with credit union recommendations, ways to address any safety and soundness issues, but without tough new requirements on well-managed credit unions.  
CUNA has red-flagged other ongoing concerns regarding the RBC2 plan.  They include:
  • Whether a two-tiered, risk-based capital system is permitted under the Federal Credit Union Act; and
  • Is there a need for complex credit unions to continually assess their overall capital adequacy on an ongoing basis.
Credit union stakeholders also are encouraged to submit questions about the proposal to CUNA at the email address , and the organization will be posting an updated frequently-asked-questions document with answers as they become available.
CUNA is also designing a high-level breakout session dedicated to RBC2 questions, concerns and comments to be held during its upcoming Governmental Affairs Conference here from March 8-12.

NW CUs responsible for $6.8B in economic impact

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SEATAC, Wash., and TIGARD, Ore. (1/28/15)--A new economic analysis shows credit unions delivered $6.8 billion in economic benefits in Washington and Oregon in 2014.
Click to view larger image (Source: Northwest Credit Union Association)
Cooperative financial institutions provided more than 15,000 family-wage jobs and delivered $352 million in direct benefits to their 4.9 million members in 2014, according to the analysis by the independent firm ECONorthwest.
The ECONorthwest analysis was commissioned by the Northwest Credit Union Association (NWCUA).
"The ECONorthwest analysis underscores the economic impact of credit unions in Oregon and Washington. In many ways, credit unions are the communities they serve," said Troy Stang, NWCUA president/CEO. "It is the not-for-profit financial cooperative business structure that credit unions operate under that makes them unique--they deliver real, tangible value to the economy."
Not-for-profit credit unions are structured to put their members' interests first, and to ensure that families and small businesses have affordable access to financial services.
Credit union members received an average direct benefit of $76 per individual member in Washington, while Oregon credit union members received an average direct benefit of $63 per individual member. Collectively, credit unions put $352 million into the wallets of their members. That money created buying power of more than $732 million, according to Michael Wilkerson, ECONorthwest economist.
John Tapogna, president of ECONorthwest, compared the economic impact of credit union member benefits to the effect that falling gas prices have recently had on consumers' pocketbooks.

"As people spend less money on gasonline they have more money for everything else they want to buy," Tapogna told News Now . "You have that same kind of stimulus effect when credit unions members pay low interest rates on loans and receive higher returns on their savings. At the end of the year their members have more money they can spend more broadly in the economy."

Credit unions employed 10,415 people in Washington and 4,908 in Oregon. Every credit union job supports another 2.02 jobs for workers in other sectors, according to ECONorthwest, resulting in a total impact of 46,296 Northwest jobs.
"Whether it's the people who work in credit unions, the people who build credit union branches or the businesses small and large that support them, the credit union footprint is found throughout the Northwest economy," said Tapogna.
Credit unions are also foundations for the communities they serve, according to the report. In Northwest rural communities, about 617,500 consumers are members of credit unions, representing 37% of the rural population. Credit unions are often the only financial institutions available in many Northwest communities.
The $6.8 billion economic impact documented by ECONorthwest does not include the additional influence of lending activities such as auto lending, mortgage lending and business lending. A current lending snapshot shows Northwest credit unions have nearly 3 million loans outstanding totaling almost $40 billion.

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Data security legislation among FTC recommendations

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WASHINGTON (1/28/15)--Data security and privacy risks are among the challenges facing the "Internet of Things" and the estimated 25 billion connected electronic devices that send and receive information, according to a report from the Federal Trade Commission.
Taken from the November 2013 workshop, "The Internet of Things: Privacy and Security in a Connected World," the report highlights the benefits and risks for consumers.
Consumers could be harmed by the exploitation of security risks that enable unauthorized access and misuse of personal information, facilitate attacks on other systems and create risks to personal safety.
The paper discusses the need for legislation and emphasizes the FTC's previous recommendation for Congress to "enact strong, flexible, and technology-neutral federal legislation to strengthen its existing data security enforcement tools and to provide notification to consumers when there is a security breach." (See related story: Legislators say statutes must ensure merchants protect consumers' info.)
"Reasonable and appropriate security practices are critical to addressing the problem of data breaches and protecting consumers from identity theft and other harms," the FTC said. "Notifying consumers of breaches after they occur helps consumers protect themselves from any harm that is likely to be caused by the misuse of their data."
The Credit Union National Association, along with other financial trade organizations, sent a letter to Congress last week with principles to support potential data security legislation.
Credit unions and financial institutions are subject to significant federal requirements to protect consumer information, and retailers aren't held to the same strict standards when data breaches occur.

FHFA head notes strong interest in FHLB membership plan in testimony

WASHINGTON (1/28/15)--Rep. Frank Lucas (R-Okla.) expressed reservations about proposed changes in the Federal Home Loan Bank (FHLB) membership requirements during a House Financial Services Committee hearing Tuesday.

The hearing, which featured testimony from Federal Housing Finance Agency (FHFA) Director Mel Watt, also delved into discussions on the agency's proposed low down-payment loans.

The FHLB proposal would set forth several ongoing requirements for FHLB members that are more burdensome than current requirements. The Credit Union National Association is adamantly opposed to the proposal, citing the additional compliance burden the new requirements would create.

Watt said the agency received more than 1,300 comments on the proposal and is in the process of reviewing the comments. He pledged to consider those comments, as well as those of the committee.

Lucas said the committee would be "very sensitive" about doing anything to alter the current FHLB model, which he said is working well. He specifically mentioned how the proposal could adversely affect community financial institutions.

According to Watt, the proposal is to ensure the FLHB system is in compliance with statute, a claim that was disputed by Lucas, who said he does not believe the proposal is in line with anything intended by Congress.

"Every time that Congress has amended the Federal Home Loan Bank Act with respect to membership eligibility, the intent has been to make the banks more accessible--not less accessible--to lenders and other members," said Ryan Donovan, CUNA's chief advocacy officer. "The FHFA proposal does just the opposite."

Members of the committee also questioned Watt about the FHFA's proposed 3% down-payment loans. Committee Chair Rep. Jeb Hensarling (R-Texas) said he is concerned that loans with a loan-to-value (LTV) ratio of higher than 95% (the FHFA's 3% down payment option would have a 97% LTV) have seen a rise in default rates.

Watt responded by saying the loans don't only require a 3% down payment, rather, as part of Fannie Mae (MyCommunityMortgage) and Freddie Mac's (Home Possible Advantage) low down-payment products , potential homebuyers must complete borrower education programs and meet other requirements that lessen the overall risk to the lenders.

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CUAD testifies in support of N.D. patent 'troll' bill

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BISMARCK, N.D. (1/28/15)--The Credit Union Association of the Dakotas (CUAD) is tracking more than 30 bills--including one regarding patent "trolls"--in the North Dakota Legislative Assembly.
On Monday, Jeff Olson, CUAD executive vice president of government affairs, testified in favor of HB 1163, which relates to bad faith assertions of patent infringement and to provide a penalty ( Memo Jan. 27).
Patent "trolls"--a nickname referring to nonpracticing entities--submit demand letters to credit unions and financial institutions to force settlements or payments for technology or services they have purchased as end users.
The bill received a unanimous "do pass" from the Industry, Business, and Labor Committee on Monday.
CUAD also sponsors the North Dakota "Legislature Today" radio show, which features live broadcasts every Monday evening during North Dakota's 80-day legislative session.
Freshman legislator and credit union leader Denton Zubke joined CUAD President/CEO Robbie Thompson during Monday's broadcast to discuss the patent troll bill and other legislation of interest to credit unions.
Zubke (R-Watford City) represents western North Dakota and is president/CEO of Dakota West CU, Watford City, N.D., with $225 million in assets.

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Fla., N.D. policymakers notch Desjardins fin. lit. awards

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WASHINGTON (1/28/15)--The Credit Union National Association has named policymakers from North Dakota and Florida the winners of the Desjardins Financial Education Award for State Government Policymakers.
The award, which is determined by CUNA's State Credit Union Subcommittee, recognizes the leadership in financial education at the state level. State government policymakers who promote financial education to individuals of any age may be nominated.
Kelly Schmidt, North Dakota's treasurer, was nominated by the Credit Union Association of the Dakotas (CUAD) for making financial literacy a "priority for her office."

Schmidt has tackled financial literacy in North Dakota with a number of initiatives, including through a partnership among Visa, the NFL and NFL Players that led to the "Financial Football" money management video game.
Jeff Olson, CUAD executive vice president of government affairs, noted that Treasurer Schmidt is truly passionate about financial education, adding "Her position as the top fiduciary executive in one of the best-run states in the country carries significant clout among our policymakers while promoting financial education in the state."

Olson emphasized that "this distinguished recognition will help in her mission of helping people understand how to better navigate their personal finances and make positive changes in their lives."
The state's treasurer also has served as chair of the National Association of State Treasurers Foundation and was a featured speaker at the National Financial Education Network meeting hosted by the U.S. Department of the Treasury, where she addressed ways the state and local governments and leaders can provide personal finance to its' citizens.

"Financial education is about the individual," Schmidt said. "You have to make concepts personal so people will care and understand."
Nominated by the League of Southeastern Credit Unions (LSCU), Sen. Dorothy Hukill (R-Port Orange) is the second recipient of the award.
"Sen. Hukill embodies this award because she recognizes the need for financial literacy for our students," said LSCU President/CEO Patrick La Pine. "She not only filed a bill to require a half-credit of financial literacy for high school students for graduation, but she also filed a bill to help individuals with developmental disabilities get financial education. The league and our credit unions have been working closely with Sen. Hukill to gain support for this legislation."
She introduced a bill that bolsters financial literacy for individuals with development disabilities through the creation of a program that brings financial services stakeholders throughout Florida together to offer assistance to the population.

Hukill also authored Bill 92, the Personal Financial Literacy Education Act, which makes a half-credit, full-semester course in personal financial literacy education a graduation requirement for high-school students.
La Pine said Hukill understands that for consumers to attain financial freedom, they need to have a grasp of their finances, which starts with financial education.
"Personal financial education is an essential life skill that all students need to be learning now," Hukill said. "Preparing our students with these skills will allow them to achieve financial stability through a better understanding of their finances."  

Further, Hukill drove the effort to make April 2015 Financial Literacy Month, when all residents in the state will be urged to recognize that financial literacy is an important part of a student's education "in order to ensure their bright futures."
Hukill also published opinion pieces in state newspapers to help raise awareness of the importance of the issue of financial literacy among young people in Florida and pushed Florida to participate in National Thrift Week.

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Consumer confidence surges to 7-year high

NEW YORK (1/28/15)--U.S. consumer confidence surged in January to its highest level since August 2007.

The Conference Board, a private research group, said its index of consumer confidence jumped to 102.9 from a revised 93.1 in December, first reported as 92.6, The Wall Street Journal reported (Jan. 27).

"A more positive assessment of current business and labor market conditions contributed to the improvement in consumers' view of the present situation," said Lynn Franco, Conference Board director of economic indicators and surveys. "Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labor market, as well as their earnings."

Consumers' assessment of present-day conditions was considerably more favorable in January than in December. Those saying business conditions are "good" increased to 28.1% from 24.7%, while those claiming business conditions are "bad" decreased to 16.8% from 18.9%.

Consumers were also much more positive in their assessment of the job market. Those stating jobs are "plentiful" increased to 20.5% from 17.2%. Those claiming jobs are "hard to get" decreased to 25.7% from 27.3%.

The economy grew from July through September at a 5% annual rate, the fastest in 11 years.

Adding to improving spirits: Gas prices have plunged to $2.04 a gallon Tuesday from $2.32 a gallon a month ago, according to AAA.

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