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Corporate CU sues U.S. Central over excess capital

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WASHINGTON (10/21/09)--In legal documents filed late last week, Wisconsin-based Corporate Central CU is seeking the reimbursement of $6 million in excess investments from U.S. Central FCU. In the court complaint, which was filed in U.S. District Court for the Eastern District of Wisconsin, Corporate Central claims that a late 2008 change in U.S. Central’s bylaws prevented Corporate Central from receiving $6 million in funds via a Membership Capital Share (MCS) refund. This change involved an alteration to policies governing the recalculation of required MCS balances to create an “adjustment refusal policy” that would prohibit MCS refunds to U.S. Central members, even in the event that a member was entitled to a MCS refund based on its investment and loan levels. U.S. Central’s previous policy required member credit unions to maintain MCS and other capital equal to at least 5% of their total investments in U.S. Central and associated loans from U.S. Central. This percentage was recalculated every six months, and members could reportedly receive refunds of excess MCS if their total investments and loans with U.S. Central had decreased. The complaint alleges that the bylaw change was invalid because some U.S. Central board members, who are not specifically named in the complaint, should have allegedly recused themselves from voting on the bylaw change. According to the complaint, the voted on policy represented “a pecuniary benefit” to some U.S. Central board members whose institutions would not have received a refund of MCS at that time because it “eliminated or reduced the amount of capital they would have been required to contribute in the absence of the Adjustment-Refusal Policy.” Additionally, Corporate Central has alleged that the National Credit Union Administration violated equal protection of rights under the U.S. Constitution by allowing the adjustment refusal policy adopted by U.S. Central to continue once the NCUA became U.S. Central's conservator. U.S. Central did not notify Corporate Central of the policy change until Dec. 22, 2008, according to the complaint. Corporate Central held just over $1.3 billion in both direct and indirect investments in U.S. Central as of Dec. 31, 2008. The causes of action named in the complaint are conversion, breach of contract, violation of bylaws, violation of equal protection of rights, and declaration of rights. NCUA Director of Public and Congressional Affairs John McKechnie said that the agency is reviewing the complaint and does not comment on pending litigation.

Matz encourages CUs to use new CDFI ed. program

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ALEXANDRIA, Va. (10/21/09)--National Credit Union Administration (NCUA) Chairman Debbie Matz on Tuesday welcomed the launch of the U.S. Treasury's Community Development Financial Institutions (CDFI) Fund’s Financial Education and Counseling (FEC) Pilot Program as “another avenue for credit unions to explore as they seek new resources to benefit their members.” According to the CDFI Fund, the goal of the FEC program is “to identify successful methods resulting in positive behavioral change for financial empowerment, and to establish program models for organizations to carry out effective financial education and counseling services to prospective homebuyers.” The CDFI Fund will award funds to organizations that provide financial education services to potential homebuyers. The CDFI Fund on its Web site said that those educational services may be activities that increase the financial knowledge and decision-making capabilities of homebuyers and assist them in developing budgets, increasing their savings, reducing their debt, financing or planning for major purchases, and generally improving financial stability. The CDFI Fund was given $2 million for the implementation of this program in March of this year. Commenting on the FEC Program, Matz said that “financial education is a natural service for credit unions,” and encouraged credit unions “to use all resources at their disposal to help members expand their financial knowledge.” The CDFI Fund will hold a conference call for organizations interested in applying for funding through the FEC Program on Thursday, October 22, 2009 at 2:00 p.m. ET. Organizations that are interested in applying must do so by 5:00 p.m. ET on November 19, 2009.

CUNA sparks interchange grassroots action

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WASHINGTON (10/21/09)--The Credit Union National Association (CUNA) continues to stride toward its goal of sending 250,000 interchange postcards to Senators in October. CUNA launched its interchange grassroots advocacy campaign, which features symbolic credit card postcards bearing the iconic credit union little guy, earlier this month.
Click to view larger imageA member at North Caroilna-based Welcome FCU fills out her postcard, becoming one of thousands taking part in CUNA's grassroots advocacy.
Credit union leagues nationwide have distributed the materials, which include interchange talking points and other communications materials aimed at educating credit union members on the interchange issue. One grassroots action hotspot is North Carolina, where the North Carolina Credit Union League has helped distribute 8,500 postcards to 13 credit unions, with some branches already running out. Nearly 600 individual postcards were sent to Senators Richard Burr (R-N.C.) and Kay Hagan (D-N.C.) on Oct. 16th, and North Carolina Credit Union League Director of Political Affairs Mickey Fanney told News Now that the League expects to send out another 500 postcards to its member credit unions before the end of this week.
CU members sign interchange postcards before they are mailed to their Senators.
Fanney said that “the dedication of member owners to their credit union and its success” is one factor that sets credit unions apart from other financial institutions, adding that the dedication to see credit unions succeed and continue to bring the best value to members "shines when we run a grassroots campaign such as the interchange postcards.” Virginia’s credit unions are also among those that have responded to the call for action, requesting 10,000 campaign postcards from the Virginia Credit Union League. Karma Samartino of Boise, Idaho’s Idahy FCU commented on the efforts of individual credit unions, saying that her credit union “continually” works to inform members on legislative activity that will affect their personal financial accounts. “It is important to our members to know that their opinions matter with the Idaho Congressional Delegation and the postcards provide the opportunity to get that message to our U.S. Senators. We are fortunate in Idaho to have Congressmen that listen and respond to what their constituents say,” she added. CUNA has fiercely opposed merchants proposals that would affect interchange fees. Interchange reflects a merchant's fair share of the costs of the convenient card system and supports everything from re-issuing cards compromised by merchant data breaches to providing a call center to contact if a card is lost or stolen.

CUNA analyzes reserve reporting requirements

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WASHINGTON (10/21/09)--The Credit Union National Association (CUNA) has posted a final rule analysis on the Federal reserve Board’s recent amendments to the reserve and reporting requirements for depository institutions under Regulation D. Regulation D addresses reserve and reporting requirements for credit unions, banks and thrifts by requiring reserve balances and frequency of reporting commensurate with funds held by these depository institutions in certain Federal Reserve accounts. The Fed has increased the amount of funds that are exempt from reserve requirements during 2010 to $10.7 million, up from the $10.3 million exemption ceiling that was provided in 2009. Any funds in excess of the exemption ceiling but less than $55.2 million, the so-called “low reserve tranche,” will be subject to a 3% reserve requirement. Any funds in excess of the low reserve tranche will be subject to a $1.3 million reserve requirement as well as a 10% surcharge, CUNA reported. The Fed has also established new compliance dates. Depository institutions that report weekly will apply the reserve requirements to their 14-day reserve computation periods beginning on December 1, 2009, and the corresponding reserve maintenance period beginning on December 31, 2009. Depository institutions that report quarterly will apply the reserve requirements to their 7-day reserve computation periods beginning on December 15, 2009, and the corresponding reserve maintenance period beginning on January 14, 2010. The deposit cutoff level of $243.1 million, the reserve requirement exemption amount, and the reduced reporting limit will be used for all depository institutions. To see CUNA’s final analysis of the Fed amendments, use the resource link.

Hyland 2010 assessment is unpredictable

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WASHINGTON (10/21/09)—The National Credit Union Administration (NCUA) cannot predict what credit unions’2010 share insurance assessment will be because of the unknown future of such things as expenses, share growth, investment yields and resolution costs, according to NCUA board member Gigi Hyland. However, she added, budgeting between 15-30 basis points would likely be appropriate. Hyland noted that the agency would disseminate more information on the issue following either the Oct. 22 board meeting or the Nov. 19 meeting. She made her made remarks earlier this week at an American Institute of Certified Public Accountants Conference on Credit Unions. At last month’s board meeting, Melinda Love, director of NCUA's Office of Examination and Insurance, said she thought credit unions could plan on a 15-30 basis point assessment for next year. Chairman Deborah Matz wanted more precision in that figure for credit union planning purposes and requested that staff bring a more honed estimate of 2010 premium costs to the Oct. 22 meeting. How this is presented will be of interest, however, because some observers note that if the agency announces a precise figure for the future premium assessment, accountants may require credit unions to book the costs this year. Also on the agenda, as reported earlier in News Now, are the regular monthly report to the NCUA board on the state of the NCUSIF, as well as action on a final rule addressing increased federal share insurance coverage to $250,000 through 2013 and increased coverage for revocable trust accounts.

Inside Washington (10/20/2009)

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* WASHINGTON (10/21/09)--TierOne Corp., Lincoln, Neb., and Citizens First Bancorp, Port Huron, Mich., are among several financial institutions that are being required by regulators to restate their second quarter financial statements. The restatements will result in capital ratios below regulator minimums at both companies (American Banker Oct. 20). The restatements will likely become more common at financial institutions as regulators scrutinize banks’ loan and asset value assessments. In the past, a bank could give its estimated values of a loan and that would be sufficient, according to Douglas Landy, partner, Allen & Overy LLP. Now, that’s not good enough, he said. Citizens First’s re-assessment was driven by differences with the Federal Deposit Insurance Corp. In a securities filing earlier this month, the bank said its $35.3 million allowance for losses was not adequate. At TierOne, the bank differed with the Office of Thrift Supervision on the value of its underlying collateral. Before the restatement, TierOne’s numbers came out looking better than they had, said Theodore Kovaleff, Horwitz and Associates analyst, but now, “all bets are off.” TierOne told American Banker it tries to be as realistic as possible with its numbers, but new information often arises ... * WASHINGTON (10/21/09)--The Federal Reserve Bank of New York said Monday that it is testing a market tool that could potentially absorb excess cash from the financial system, but said it was not ready to use the tool. The tool would reverse repurchase agreements to drain excess reserves from the central bank to avoid the risk of inflation (The New York Times Oct. 20). During a reverse repurchase agreement, the Fed sells assets like treasuries in exchange for cash with an agreement to re-purchase them later at a higher price--thus removing cash from the system, the newspaper said ... * WASHINGTON (10/21/09)--National Credit Union Administration board member Michael E. Fryzel spoke at the Valley of the Sun Chapter of the Arizona Credit Union League’s dinner celebrating International Credit Union Day in Phoenix. He urged credit union officials to speak out about the good things credit unions are doing--like providing scholarships, supporting community events, holding fundraisers and going to the extra mile to help credit union members. “They truly exemplify the credit union philosophy of people helping people,” Fryzel said ...