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CUNA testifies as House lawmakers study MBL benefits

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WASHINGTON (10/13/11)--National Credit Union Administration (NCUA) Chairman Debbie Matz and Jeff York, president/CEO of CoastHills FCU, Lompoc, Calif., testifying on behalf of the Credit Union National Association, discussed the benefits a higher credit union member business lending cap would have on the nation's economy and small businesses during a Wednesday hearing before the House Financial Services subcommittee on financial institutions and consumer credit.
Click to view larger image In her testimony and in response to questions from lawmakers, National Credit Union Administration Chairman Debbie Matz (shown center) detailed for the House Financial Services subcommittee on financial institutions and consumer credit three tangible benefits of increased MBL authority: more reasonably priced loans for small businesses, enhanced safety and soundness through diversification for credit union portfolios, and job growth. Shown behind Matz from left: CUNA Senior Vice President of Legislation Affairs Ryan Donovan, Jeff York, President/CEO of Coasthills FCU in Lompoc, Calif., who testified on behalf of CUNA after Matzs testimony, CUNA President/CEO Bill Cheney, and CUNA Executive Vice President for Government Affairs John Magill. (CUNA Photo)
Click to view larger image At the center of things, CUNA witness Jeff York, of Coasthills FCU, prepares to take his spot at the witness table during Wednesday hearing on increasing the MBL cap. York testified that large numbers of small business owners are telling policymakers that they are being turned away for credit by their banks, and are coming to credit unions for help. His testimony notes that, in the year ending June 2011, community bank commercial loans outstanding declined by 2.6%--in sharp contrast to the 4.4% increase in credit union business loans over the same period (CUNA Photo).
The hearing centered on H.R. 1418, the Small Business Lending Enhancement Act, which would increase the MBL cap to 27.5% of assets. The cap currently stands at 12.25% of assets. Testifying first, Matz said more than one in five credit unions making member business loans that are subject to the cap have reached 50% or more of this [12.25% of assets] ceiling. Later, as part of a panel of five witnesses, York said his $617 million-asset credit unions business loan portfolio currently stands at around 7% of assets, and added that his credit union could reach the upper limit of the 12.25% lending cap within six months. However, he explained, credit unions cannot simply lend up to the cap and then halt lending, as doing so could harm their ability to lend to current business-owning members. York said credit unions that consider getting into the business lending marketplace are also forced to examine whether there would be a benefit in business lending if cap concerns would force them to slow down or end this practice within a few months. His remarks were in accord with an earlier statement by Matz. Testifying bank representatives said that the demand for small business loans was not high at the moment. However, York in his testimony countered those statements, saying that small business owners are coming to credit unions for help after they are turned away for loans at banks. York noted that credit union business lending increased by 4.4% in the 12-month period ended June 2011, adding that small business lending by commercial banks declined by 2.6% during that same time period. Matz in her testimony said providing more reasonably priced loans for small businesses, enhancing safety and soundness through diversification for credit union portfolios, and creating new jobs are the three main benefits of the MBL cap increase. She added that her agency would promptly revise credit union regulations to protect safety and soundness if MBL cap increase legislation is enacted. NCUA would also remain vigilant in carrying out our supervisory authorities, she added. The NCUA in a release noted the legislation would allow experienced, well-capitalized and well-managed credit unions to gradually increase member business lending portfolios, by no more than 30% annually. Matz also called on Congress to expand credit union access to supplemental capital during her appearance. Rep. Ed Royce (R-Calif.), who is an original sponsor of the legislation, said his goal in introducing the legislation is to expand access to credit for creditworthy borrowers. Rep. Brad Sherman (D-Calif.), a co-sponsor, noted that H.R. 1418 is one of the few job creation measures that has bipartisan support. H.R. 1418 has 88 cosponsors. A similar Senate bill, S. 509, was introduced earlier this year by Sen. Mark Udall (D-Colo.) and has 20 cosponsors. CUNA has estimated that lifting the MBL cap would have a number of beneficial effects on the ailing economy, including infusing $13 billion in new credit for small businesses and adding 140,000 new jobs within the first year of enactment--all at no cost to the American taxpayer. Other testifying witnesses included:
*Sal Marranca, president/CEO of Cattaraugus County Bank, on behalf of the Independent Community Bankers of America; *Albert Kelly, Jr., president/CEO of SpiritBank and chairman-elect of the American Bankers Association; *Gary Grinnell, president/CEO of Corning FCU, on behalf of the National Association of Federal Credit Unions; and *Mike Hanson, president/CEO of the Massachusetts Credit Union Share Insurance Corporation.

Remote capture issues cause higher CU SARS filing

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WASHINGTON (10/13/11)--Credit unions filed 15% of all suspicious activity report (SAR) inquiries between July 1, 2010 and June 31, 2011. The high percentage was attributed in large part to an increasing number of Remote Deposit Capture (RDC) transactions, which, while innovative, can create new types of risks, the Financial Crimes Enforcement Network (FinCEN) reported. RDC transactions allow credit union members and other bank customers to transmit scanned checks or share drafts to their financial institutions from remote locations. FinCEN in its release said “the adoption of new technologies or use of those technologies to provide innovative banking products and services, such as RDC services,” raise risk management issues. FinCEN added that smaller institutions such as credit unions “may require additional guidance to identify and appropriately mitigate these risks.” A total of 1,017 SAR reports were filed between July 1, 2010 and June 31, 2011, and 78% of these RDC-related SAR filings were tied to check fraud, FinCEN said. FinCEN added that “the vast majority of RDC-related SAR filers associated suspicious activities with the deposit of third-party or personal checks.” Money laundering, check kiting, and the use of counterfeit checks were among the specific instances of fraud. The agency recommended that “special precautions and commensurate due diligence efforts may be appropriate when processing items from non-U.S. correspondent accounts or foreign-located customers.” Credit unions and other institutions should also “ensure that their transaction monitoring systems adequately capture, monitor and report on suspicious activities occurring through RDC, especially as transactional levels increase,” FinCEN said. The agency also noted that SARs related to international prepaid cards accounted for 0.19% of all SARs filed between January 2008 and June 30, 2011. FinCEN on Wednesday proposed adding prepaid cards and other so-called "prepaid access devices" to the list of monetary items that must be reported when they are transported into or out of the United States. FinCEN Director James Freis in a release said "reporting tangible prepaid access devices puts another tool at the disposal of law enforcement to interrupt the transfer of monetary value anonymously across international borders when that value was obtained illegally." For FinCEN’s most recent SAR Activity Review and Wednesday's release, use the resource links.

House bill introduced to repeal debit interchange cap

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WASHINGTON (10/13/11)--Reps. Jason Chaffetz (R-Utah) and Bill Owens (D-N.Y.) Wednesday introduced H.R. 3156, a bill to “repeal the debit card interchange price control provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and restore balance to the electronic payments system.” In announcing the bill, Chaffetz in a release said the debit interchange cap rule “is a perfect example of the dangers of price controls and the inefficiency of government intervention in the free market.” He added that the “legislatively enacted price controls have compelled banks to charge consumers higher (and in some cases new) fees to make up for lost revenue.” The Federal Reserve's final debit interchange rule, which became effective earlier this month, caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents. The regulation also allows card issuers to charge an additional five basis points of the value of the transaction to cover fraud losses. An extra penny may also be charged by financial institutions that are in compliance with the Fed's fraud-prevention standards. Credit Union National Association (CUNA) President/CEO Bill Cheney said Wednesday, “The recent action of large banks imposing fees on consumers for debit card usage and checking accounts confirms what we have feared: That regulation of interchange fees is poor public policy that has opened the door to unintended consequences for consumers and the financial institutions that serve them.” Cheney added, “While most credit unions are exempt from the cap on interchange fees, we continue to have concerns that market forces may render that exemption unworkable. “We are keeping a close eye on the card networks. Credit unions are doing whatever they can to hold the line on new fees – for them, raising fees is a last resort not a first resort.” “In the final analysis,” the CUNA leader said, “as this legislation acknowledges, all consumers would be better off if there were no debit interchange law.”

Inside Washington (10/12/2011)

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* WASHINGTON (10/13/11)--The Financial Stability Oversight Council voted yesterday to evaluate not only financial firms that have more than $50 billion in assets, but also other companies to determine which ones need extra supervision because they pose a potential threat to the economy American Banker Oct. 12). Financial institutions with more than $50 billion in assets are automatically considered systemically risky under the terms of the Dodd-Frank Act. Firms such as insurance companies that hold a 15-to-1 leverage ratio, $3.5 billion in derivatives liabilities or $20 billion of outstanding loans borrowed and bonds issued may be subject to additional scrutiny by regulators. Treasury Secretary Timothy F. Geithner, who chairs the council, did not identify what types of non-bank financial firms, such as hedge funds or asset management companies, would be considered systematically risky. Using a three-step process, the council will evaluate companies based on size, interconnectedness and liquidity risk to determine if they pose a risk. Firms considered financially susceptible would be required to to raise capital and minimize risky practices … * WASHINGTON (10/13/11)--Missouri credit unions added two new co-sponsors to the member business lending (MBL) bill during their Hike the Hill efforts earlier this month. U.S. Reps. Todd Akin (R) and William “Lacy” Clay (D) signed onto H.R.1418, the Small Business Lending Enhancement Act. Clay joined the bill Oct.3, and Akin announced he was joining the bill at a breakfast meeting at National Credit Union House with Missouri credit union leaders on Oct. 5. The credit unions met with the state’s entire congressional delegation. “Missouri’s credit union leaders went to Capitol Hill with a purpose, and they clearly made a difference,” said Missouri Credit Union Association President/CEO Mike Beall. “There are no better advocates for the credit unions than these motivated and informed activists, and our visits helped drive our message home leading up to (Wedesday’s) House hearing on MBLs,” Beall said. The Credit Union National Association (CUNA) and credit unions are urging Congress to increase the credit union MBL cap to 27.5% of assets from 12.25%. Doing so would open up more opportunity for credit unions to offer MBLs, inject $13 billion in loans into the economy and create as many as 140,000 new jobs, with no cost to taxpayers, CUNA said …