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White House, CUNA Meet On Tax Reform And More

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WASHINGTON (10/22/13)--Jason Miller, special assistant to the President in President Barack Obama's National Economic Council, and NEC Senior Advisor Brett Taxin met with Credit Union National Association President/CEO Bill Cheney and senior CUNA staff Monday to discuss credit union concerns on a range of issues, including tax reform.
Addressing credit union tax status issues with the White House comes at a critical time, noted Cheney after the meeting. House Ways and Means Committee Chair Dave Camp (R-Mich.) and Senate Finance Committee Chair Max Baucus (D-Mont.) have underscored they remain committed to tax reforms. Tax reform could also be discussed as the budget conference committee convenes as part of the deal to reopen the government meets in the coming weeks.
"We are very aware that work continues on drafts in both chambers, which makes our continued grassroots efforts on this issue very important," Cheney underscored.
The NEC staff indicated the administration fully recognizes the important role that credit unions play in the U.S. economy and all of our communities. 
Cheney called the meeting "extremely cordial" and added, "I feel we had a very good opportunity to reinforce how imperative the tax exemption is for credit unions, as well as raise a range of other issues that are critical for the credit union system, such as the regulatory burdens that credit unions face on a daily basis," Cheney said.  CUNA Senior Vice President for Legislative Affairs Ryan Donovan, Deputy General Counsel Mary Dunn, General Counsel Eric Richard, and Chief Economist Bill Hampel also attended the meeting.
Topics covered by CUNA during the meeting also included:
  • The importance of ensuring fair access for credit unions to the secondary market as housing finance reform is addressed;
  • The growing and immediate need for regulatory relief;
  • The catalyst that removing the member business loan (MBL) cap would be to greater small business lending at credit unions; and
  • The impact that access to supplementary capital for all credit unions could have on the ability of credit unions to serve their members and communities.
Concerns that regulators and the secondary market may require mortgage loans to be "qualified mortgages" under the Consumer Financial Protection Bureau's Ability to Repay rule were also among the priority issues raised during the meeting.
"We were encouraged by the NEC staff to follow up with them on these and other issues and we look forward to continuing the dialogue on the significant issues facing the credit union system," Cheney added.

Reg Advocacy Report Updates NCUA, CFPB News

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WASHINGTON (10/22/13)--The latest information on this week's National Credit Union Administration open board meeting, that agency's recent charitable donation proposal, and Credit Union National Association comments made in a meeting with new agency board member Richard Metsger are all featured in this week's Regulatory Advocacy Report.

This week's edition of the Report also features:
  • Details on the Consumer Financial Protection Bureau's interim final mortgage servicing rule and bulletin;
  • The results of CUNA's survey on how CFPB mortgage rules could impact credit unions;
  • The CFPB's release of the annual report of the student loan ombudsman;
  • CUNA's call for credit union comments on credit risk retention and U.S. Department of Housing and Urban Development qualified mortgage rules; and
  • Recent Federal Deposit Insurance Corp. guidance on interest rate risk management and payments processing for higher-risk merchants.
A resource chart with information on current CUNA comment calls is also provided in the Report.

For this week's Regulatory Advocacy Report, CUNA members can use the resource link. Also, use the resource links for more on CUNA's recent conversation with new NCUA board member Metsger.

Fed Brief Says Interchange Rule Faithful To Law's Intent

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WASHINGTON (10/22/13)--In a brief filed Monday, the Federal Reserve argued that it correctly followed congressional intent when it wrote regulations implementing the debit card interchange cap required by the Dodd-Frank Act, and should be entitled to deference as a result.

The brief was filed in the U.S. Court of Appeals for the District of Columbia Circuit. It follows Judge Richard Leon's July decision, in which he ruled that the Fed did not follow narrow congressional intent when it implemented the cap. The Credit Union National Association, in partnership with a group of trade associations representing all types of financial institutions, also filed a brief in this case on Monday. (See News Now story: CUNA Brief: Fed Interchange Rule Bad, Court Ruling Worse.)

In its brief, the Fed argued that it reasonably interpreted the network exclusivity provisions included in the Dodd-Frank Act, "which direct the Board to prohibit 'an issuer or payment card network' from restricting the number of networks on which a debit card transaction may be processed to a single network or to only affiliated networks."

The Fed also argued that when it set the new interchange fee, it correctly:
  • Used issuers' incremental costs related to authorizing, clearing, and settling debit card transactions as a baseline;
  • Excluded other costs which are not specific to a particular electronic debit transaction; and
  • Considered the functional similarity between electronic debit and checking transactions.
The Fed briefing also questioned merchants' insistence that multiple routing options for each method of authentication enabled on a card should have been required.

CUNA Brief: Fed Interchange Rule Bad, Court Ruling Worse

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WASHINGTON (10/22/13)--The Federal Reserve Board has made errors in implementing the Dodd-Frank-imposed debit interchange fee cap, the Credit Union National Association said Monday in a legal brief, but a July 31 court ruling overturning the rule would make things "significantly worse."
The ruling "compounds the (Fed's) legal error through a construction that would require deep cuts--amounting to many billions of dollars each year--into issuers' remaining interchange-fee revenues," CUNA, with its financial services coalition partners, warned in an amicus brief.
Already the Fed cap is too low and the court has further misinterpreted the law to set the fee cap equal to only a portion of the cost incurred by the debit card issuer with regard to the transaction, CUNA said.
"(T)he statute states clearly that the full 'cost' incurred by an issuer 'with respect to' an electronic debit transaction may be recovered through an interchange fee," CUNA noted.
Judge Richard Leon of the U.S. District Court for the District of Columbia issued the July decision to strike down the Fed's price caps on debit interchange fees. He ruled at that time that the Fed did not follow narrow congressional intent when it implemented the cap and other changes imposed by what is known as the Durbin amendment.
At the urging of both sides party to the lawsuit--the merchants' group plaintiffs and defendant Fed--as well as CUNA and its partners, Leon issued a stay in September to keep the Fed rules in place during the court proceedings.
The CUNA brief Monday made two additional points against the court's ruling. CUNA said the court ignored that the statute provides that the interchange fee "shall be reasonable and proportional to that transaction cost." 
"In choosing that language, Congress invoked the established constitutional principle that price regulation may not deprive one of the right to earn a reasonable return.  The district court's construction, which would call for deeply below-cost price caps, would flagrantly violate that principle," the CUNA brief stated.
The court and Fed also depart from congressional intent in their interpretations of the network non-exclusivity clause. CUNA wrote the while the Fed final rule departs from intent by requiring issuers to negotiate contracts with unaffiliated networks so as to "enable multiple networks on a debit card," the court's interpretation departs further. 
The court's interpretation that issuers must enable additional networks on their debit cards would force issuers to spend billions of dollars developing complex technology that did not, and does not yet, exist. CUNA argued that is "implausible" to believe it was the intent of Congress, especially where those expenditures are not recoverable under the district court's construction of the statute.
CUNA made a final point that the district court's ruling would cause grave harm to all debit system participants through reduced services, diminished investment in innovation by issuers, increased fees to consumers, and disruptive technological changes--all with no tangible offsetting economic benefit.
The Fed's brief in support of its appeal was also due Monday. (See related story.) Merchants have until Nov. 20 to respond and then the Fed has a Dec. 4 deadline to reply to that.
CUNA's partners in filing the brief are the American Bankers Association, Consumer Bankers Association, Electronic Payments Coalition, Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, National Association of Federal Credit Unions, and National Bankers Association. The case is known as NACS, et al. v. Board of Governors of the Federal Reserve System.

See the resource link to read CUNA's full brief.

CUNA Will Represent CUs On Reg Burden, Capital, CFPB Issues

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WASHINGTON (10/22/13)--The Credit Union National Association will submit statements for the record for upcoming hearings on key credit union issues this week, topics including regulatory burden, impediments to capital formation, and changes to the structure of the Consumer Financial Protection Bureau.
Though the U.S. House has scheduled a brief work week and the Senate is out, there are three hearings on the agenda of interest to credit unions:
  • A House Financial Services capital markets and government sponsored enterprises subcommittee hearing entitled "Legislation to Further Reduce Impediments to Capital Formation." CUNA has noted that supplemental capital does not change the credit union structure, said has said that new sources of capital would be a tool that would help credit unions better serve their members;
  • A House Small Business investigations, oversight and regulations subcommittee hearing entitled "Regulatory Landscape: Burdens on Small Financial Institutions." Compliance can be the most important legal task faced by many credit unions. CUNA has noted that regulatory complexity continues to increase, creating more and more emerging issues for credit unions. CUNA continues to work with credit unions and leagues to ensure that new regulatory developments do not have unintended consequences for the credit union system or impose unnecessary regulatory burdens; and
  • A House Financial Services financial institutions and consumer credit subcommittee hearing entitled "Examining Legislative Proposals to Reform the Consumer Financial Protection Bureau." CUNA has encouraged the CFPB to consider the regulatory burdens faced by credit unions as it writes new rules, and to exempt credit unions from the terms of new regulations as much as possible.

Cordray Defends CFPB Mortgage Rule

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WASHINGTON (10/22/13)--In a speech delivered in New Orleans Monday, Consumer Financial Protection Bureau Director Richard Cordray, in effect, addressed critics of his agency's new mortgage rules saying they were needed, they are better than the alternative, and there are good reasons for the January 2014 effective date.
First, he said, two of the new rules will be "extremely important" in addressing some of the worst problems that undermined the mortgage market and served to push it towards collapse. They are the Ability-to-Repay rule, also known as the Qualified Mortgage--or QM--rule, and the CFPB's mortgage servicing rule.
The QM rule, he said, ensures borrowers get mortgages "they can actually afford to pay back," and the servicing rule cleans up "many sloppy and unsatisfactory practices," as well as provides a better process for troubled borrowers who could face the loss of their homes.
Cordray also noted that continuing with the mortgage market "status quo" was never an option under the Dodd-Frank Act, under which the CFPB mortgage rules have been written. "(T)he new law contained an entire chapter that largely would have taken effect in its own right in January 2013--nine months ago (Monday)."
"So you would have already been living under those provision for quite some time with no guidance to resolve ambiguities and subject to whatever interpretations the courts might eventually arrive at through litigation," he said in his prepared remarks to the American Bankers Association annual convention.  
Under that regime, Cordray said, lenders would not have been permitted to charge any points or fees on any loan for which a loan originator--employee or not--was compensated; there would not have been a clear safe harbor against litigation for all prime QM loans as the CFPB rule provides, and there were no special provisions for small creditors, like the CFPB rule that deems as QMs all loans by those making 500 or fewer mortgages per year and keeping them in their own portfolios.
Regarding the fast-approaching January 2014 effective date, Cordray spoke in its defense as well.
"(T)here are many moving parts that are dependent on (the rules), and the mortgage market cannot attain certainty going forward if these part continue to move."

Charitable Donation Proposal Tweaks Could Improve Participation: CUNA

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ALEXANDRIA, Va. (10/22/13)--While the National Credit Union Administration's proposed creation of hybrid charitable and investment vehicles "will allow federal credit unions to do well by doing good," the Credit Union National Association Monday recommended a few changes that could improve the proposal. The changes would "facilitate credit union participation without raising safety and soundness concerns," CUNA said in a comment letter to the agency.
The NCUA plan, introduced at the agency's September open board meeting, would limit total investment in charitable donation accounts (CDAs) to 3% of the credit union's net worth for the duration of the accounts. A minimum of 51% of the total return from such an account would have to be distributed to one or more qualified charities. Distributions could be made to qualified charities no less frequently than every five years.
These CDAs will allow federal credit unions to make investments that are otherwise prohibited, provided that the proceeds are primarily for charitable purposes. This would facilitate a federal credit union's charitable activities by allowing investments that could generate a higher return, CUNA wrote.
Changes recommended in the CUNA comment letter include:
  • Making the limitations on a federal credit union's aggregate contributions to CDAs more flexible by specifying the net worth limitation be measured at the time of purchase or placement of the investment in the CDA and at the time of any subsequent additional investment and raising it from 3% to 5% of net worth;
  • Making CDA disbursements on an annual basis;
  • Allowing corporate credit union to take part in CDAs;
  • Eliminating U.S. Securities and Exchange Commission registration requirements for Office of the Comptroller of the Currency-supervised entities that manage CDAs for federal credit unions. Such a change would prevent redundant regulatory oversight; and
  • Allowing credit unions to recover their costs so that these do not impact the total investment return.
For the full CUNA comment letter, use the resource link.