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Inside Washington (10/30/2009)

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* WASHINGTON (11/2/09)--Overdraft policies may change the way financial institutions offer free checking programs, according to financial industry observers (American Banker Oct. 30). Legislation proposed last month by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) to control overdraft fees may mean that financial institutions will have to find other ways to earn noninterest income. Financial institutions have offered free checking for some time as a way to gather deposits, but the product may have to be retooled. Hank Israel, director of payments and checking at Novantas LLC said financial institutions will still tout the product as free, but it “will become a damaged item. Banking companies could be “pinched,” added Kevin Jacques, former Treasury Department economist. Many banks have become too dependent on noninterest income, he said. The fee changes also could harm proactive banks, noted Robert E. Marling Jr., CEO of Woodforest National Bank. The company has allowed its customers to opt out of overdraft protection and has refunded overdraft fees, he said ... * WASHINGTON (11/2/09)--House Financial Services Committee Chairman Barney Frank (D-Mass.) said publishing a public list of systemically important financial companies constitutes a moral hazard because once individuals find out their institution is on the list, they’ll think their deposits are protected (American Banker Oct. 30). Frank, who opposes publishing a list, is working on legislation with Treasury Secretary Timothy Geithner that would increase supervision of large financial companies and create a system to help them if they are in trouble. Geithner has said it would be too difficult to keep a “too big to fail” list. Federal Reserve Board Gov. Dan Tarullo agreed, saying that because of some disclosures to analysts and shareholders, it’s likely the institutions would be known. Rep. Spencer Bachus (R-Ala.) said it’s “foolish” to keep the list a secret. Market participants would be able to quickly figure out who is on the list based on regulatory constraints placed on each systemic firm, he said ...

Regulators adopt CRE workout guidance

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WASHINGTON (11/2/09)--The National Credit Union Administration (NCUA), in coordination with the Federal Financial Institutions Examination Council (FFIEC), is adopting a policy statement on commercial real estate (CRE) loan workouts. The statement will help financial institutions, including credit unions, who are working with CRE borrowers who have diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The guidance stresses that performing loans--including those that have been renewed or restructured on reasonable modified terms--made to creditworthy borrowers will not be adversely classified solely because the value of underlying collateral is declined. NCUA does not require credit unions to adopt a uniform regulatory classification schematic of loss, doubtful, substandard or special mention. A credit union should apply an internal loan grade based on its evaluation of credit risk. The guidance also details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition. Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be criticized for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications.

Mica asks president to sign CARD fix

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WASHINGTON (11/2/09)—The Credit Union National Association (CUNA) Friday sent a letter to President Barack Obama encouraging him to sign the CARD Act Technical Corrections Act (H.R. 3606) into law. The bill was approved mid-October by the House and by the Senate late Thursday. The bill corrects section 601 of the original Credit Card Accountability, Responsibility and Disclosure (CARD) Act and declares that a 21-day late-notice rule would apply only to credit cards -- and not open-end credit in general. Mica noted in the CUNA letter that the original bills inadvertent omission stating that the 21-day rule applies only to credit cards has set credit unions “reeling from an unintended consequences.” Under the legislative fix, Mica has noted, “credit unions may continue the practices of sending members consolidated billing statements, changing payment due dates for members who had previously chosen a due date based on their specific financial situation, and continuing bi-weekly payment plans -- all essential tools consumers use to manage their finances in the ways that best suit their needs." “We hope you will agree that a technical correction is appropriate and sign this measure into law,” Mica penned the president.

House approves SBA financing act

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WASHINGTON (11/02/09)--H.R. 3854, the Small Business Financing and Investment Act, passed the House of Representatives by a vote of 389-32 late Thursday. Of particular interest to credit unions are portions of the legislation that would temporarily extend increased Small Business Administration loan guarantees that were enacted in recent Federal stimulus bills. The legislation, as currently written, also increases eligibility for, and loan limits under, the SBA's Microloan program which provides small-scale loans to startup, newly-established, or growing small businesses for working capital or the acquisition of materials, supplies, or equipment. The bill would also establish an SBA program to help finance “early-stage small businesses in specified targeted industries.” The bill will now move on to the Senate. In comments delivered on the House floor, Rep. Nydia M. Velázquez (D-N.Y.) praised the bill as “a bipartisan product” that “addresses a key concern for small firms, and ensures they have the resources to help grow our economy.” Velázquez in her statement also cited portions of the bill that would open “new avenues for seed capital and microloans” for “the aspiring entrepreneur,” provide “fresh funds for investment” for mid-market ventures, and create “room for targeted risk and innovation” for “the established business.” “Through innovation and ingenuity, small businesses have created enormous wealth for our nation. But America’s economic engine doesn’t run on good ideas alone. Small firms need capital to not only get off the ground, but to operate and grow. That’s why H.R. 3854 delivers better funding options to small firms at every stage of development,” Velázquez said.

Sens. Dodd Isakson push homebuyer tax credit extension

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WASHINGTON (11/02/09)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Sen. Johnny Isakson (R-Ga.) have collaborated to extend access to first-time homebuyer tax credits that were set to expire at the end of the month. “Every economist will tell you we have to steady the housing market before the economy will turn around,” Dodd said in a statement, adding that “we can’t afford to let this tax credit expire now.” “We need to be fighting with everything we’ve got.” According to the release, the agreement extends the $8,000 first time Homebuyers Tax Credit and also creates a new $6,500 tax credit for homeowners that purchase a new home between December 1, 2009 and April 30, 2010. The tax credit will be made available to single homebuyers with up to $125,000 in income and joint income tax filers with up to $225,000 in total income, but will not be available for home purchases totaling more than $800,000. The agreement also extends the tax credit to individuals that are in the market for a new home but have owned their current home for five years or longer. Over 70% of existing homeowners will be eligible for the tax credit, according to the statement. The tax credit extension legislation will be attached to an unemployment insurance extension bill that will come up for a Senate vote this week.