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GAO report backs opposition to interchange legislation Mica says

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WASHINGTON (11/20/09)--A U.S. Government Accountability Office (GAO) report on the impact of interchange fees, released on Thursday, “further underscores why Congress must protect the interests of consumers and oppose harmful interchange legislation,” Credit Union National Association (CUNA) President/CEO Dan Mica said. The report, entitled “Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges,” found that merchants benefited from “increased sales, faster payments, and lower labor costs” related to card acceptance. “Accepting credit cards also allows merchants to make sales on credit at a generally lower cost than operating their own credit program,” the GAO report added. “Consumers would also benefit if merchants reduced prices for goods and services, but identifying such savings would be difficult. Consumers also might face higher card-use costs if issuers raised other fees or interest rates to compensate,” the GAO report found. The report also “rightly pinpoints the fact that Interchange is a significant source of revenue for smaller issuers such as credit unions,” Mica stated, adding that this revenue “allows credit unions to offer credit card programs to their consumer/members which are competitive with card programs offered by much larger institutions.” “In fact, those credit union programs have proven to be less expensive for our members than those offered by larger issuers,” he said. The GAO report also “recognizes that having small issuers in the market benefits consumers by forcing competition,” Mica said. “Limiting or reducing Interchange would likewise limit competition – and our members would pay the price,” he added. The GAO, which was tasked with the interchange study following the passage of the 2009 Credit Card Accountability, Responsibility, and Disclosure Act, also found that while “some consumers have benefited from competition in the credit card market,” those who do not use credit “may be paying higher prices for goods and services, as merchants pass on their increasing card acceptance costs to all of their customers.” CUNA and credit union leagues have combined forces to advocate against merchant-proposed changes to interchange by distributing over 300,000 postcards to be mailed to the Senate. Credit union leagues have also used CUNA's Hike the Hill program to communicate with Congressional representatives on interchange and other issues central to credit union success.

Comprehensive corporate plan out for 90-day comment period

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ALEXANDRIA, Va. (11/20/09)--The National Credit Union Administration on Thursday approved proposed new rules for corporate credit unions that would amend Part 704 of the NCUA’s rules, adjusting the current corporate capital requirements by replacing the current 4% minimum total capital ratio with a 4% minimum leverage ratio, a 4% tier one risk-based capital ratio, and an 8% total risk-based capital ratio. The corporates would need to demonstrate capital ratios of 5%, 6% and 10%, respectively, to be considered well capitalized. The proposed rules, which will be open for public comment for a 90-day period, will also prevent corporate credit unions from investing in collateralized debt obligations and net interest margin securities, and makes A- the lowest rating at which corporate credit unions with expanded investment authority may purchase nationally recognized statistical rating organization-rated investments. Corporates will also be required to keep on hand the funds needed to support its payment system obligations. Any credit union service organizations that the corporate credit union does business with must “primarily serve credit unions” and “restrict its services to those related to the normal course of business of credit unions,” the NCUA said. The NCUA proposal would prohibit troubled corporates from providing so-called “golden parachutes” to executives, and would impose other limits on corporate leadership. Corporate boards must be mainly comprised of natural person credit union employees, and board members would be required to hold the position of CEO, CFO, or COO at their member entity. Executive compensation would also need to be disclosed on a yearly basis under the proposed rules. Credit Union National Association President/CEO Dan Mica has promised that CUNA will “develop a comprehensive view” of the new proposed rules once the 253-page document has been fully reviewed, and noted that “a number of the safety and soundness provisions of the proposed rule on corporate credit unions” were “broadly consistent” with some of the recommendations provided by the CUNA/National Association of Federal Credit Unions joint task force on corporate regulation. Commenting on the new corporate rules, NCUA Chairman Debbie Matz commended the agency’s “unprecedented effort” to incorporate outside input into the rulemaking process. The new rules have the potential to “fundamentally change” the way that credit unions interact with the corporate credit union system, and encouraged both corporate and natural person credit unions to provide extensive comments during the 90-day review period. The NCUA also approved a new National Credit Union Share Insurance Fund premium and 1% deposit, and estimated that credit unions could be assessed between .05% and .15% to maintain the corporate stabilization fund in 2010.

CUs carved out of Stability Fund Act

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WASHINGTON (11/19/09)—In a vote of 52-17, the House Financial Services Committee adopted an amendment to H.R. 3996, the Financial Stability Improvement Act of 2009, which would, in effect, exclude all credit unions from having to contribute to a stabilization resolution fund for systemically risky institutions. H.R. 3996 would create a stabilization resolution fund, located at the Federal Deposit Insurance Corporation (FDIC), to cover the cost of resolving failing financial companies that are systemically important to the financial system. The National Credit Union Share Insurance Fund (NCUSIF) currently has similar authority with respect to insured credit unions. The stability bill was set to direct the FDIC to assess financial companies, including credit unions, with over $10 billion in total assets to provide the initial funding for the new fund, and to replenish the fund in the future. Offered by Rep. Brad Sherman (D-Calif.), the amendment adopted Thursday ups that threshold to $50 billion, effectively exempting all credit unions. Credit Union National Association (CUNA) President/CEO Dan Mica praised the committee vote and said, “Credit unions and CUNA appreciate the House Financial Services Committee taking action to essentially eliminate credit unions from paying into a fund that would finance a ‘systemic risk’ regulatory agency. “In fact, by adopting the amendment that raises the threshold for institutions that must pay into the fund from $10 billion to $50 billion by a vote of 52-17 – a 3-1 margin – lawmakers, in our view, were signaling strongly that credit unions should never have been included under this requirement in the first place. Our sincere thanks to Rep. Brad Sherman for moving this amendment forward.” CUNA earlier this week wrote to House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) and ranking member Rep. Spencer Bachus (R-Ala.), seeking their support for the Sherman amendment. CUNA detailed several reasons that credit unions should be excluded from the legislation, including their member-owned, not-for-profit cooperative business plans. Credit unions "exist to provide financial services to their member-owners" and "by definition face a set of incentives that are very different from those confronting for-profit financial companies," the letter added.

NCUA orders bar six from financial institution work

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ALEXANDRIA, Va. (11/20/09)--The National Credit Union Administration issued orders prohibiting the following individuals from participating in the affairs of any federally insured financial institution.
* Donald Bowers, Jr., the former manager of 1st United Labor FCU, Louisville, Ky., without admitting or denying fault, signed an order of prohibition to avoid the time and cost of administrative litigation; * Jessica Franco, a former loan officer of Navy Army FCU, Corpus Christi, Texas, was convicted of aiding and abetting a false statement on a federal credit union loan or credit application and sentenced to five years probation and ordered to pay a $2,000 fine and a $100 assessment; * Ana Gonzalez, former head teller of Southland FCU, Lufkin, Texas, without admitting or denying fault, signed an order of prohibition to avoid the time and cost of administrative litigation; * Tracey Michelle Reese Hitt, a former employee of Magnolia FCU, Jackson, Miss., without admitting or denying fault, signed an order of prohibition to avoid the time and cost of administrative litigation; * Anthony C. Jones, a former vice president of State Department FCU, Alexandria, Va., was convicted of credit union theft, embezzlement or misapplication of more than $1,000 and sentenced to 21months in prison, three years of supervised probation and ordered to pay $122,067 in restitution; and * Christina Pushnik, a former teller at Stanwood Area FCU, New Stanton, Pa., was convicted of property theft and sentenced to two years supervised probation.
Violation of a prohibition order is a felony offense punishable by imprisonment and a fine of up to $1 million. Use the resource link below to view NCUA enforcement orders online.

Holiday spending survey to be released Monday

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WASHINGTON (11/20/09)—It’s been a decade since the first joint consumer survey on holiday spending was executed by Consumer Federation of America (CFA) and the Credit Union National Association (CUNA), and this year’s outcome promise to be interesting when released Monday. The results of the tenth annual survey, conducted just days ago on Nov. 6-9, provide fresh findings on consumer attitudes towards their personal financial condition and how that may translate into holiday spending plans. After finding a record-high level of concern last year, this year’s survey documents the change in consumers' attitude in spending compared to a year ago, after more than a year of economic recession. As always, the survey asks those who expressed their intent to spend less why they plan to do so. For the first time, the survey asks consumers whether they feel their financial situation has gotten better or worse compared to a year ago. CFA and CUNA representatives will discuss their complete survey findings at a Nov. 23 press conference, including:
* The latest look at consumers’ holiday spending plans; * Consumer concern about credit cards and paying off the full monthly balance; * How the findings compare to consumer attitudes last year; * How consumer attitudes have changed over ten years; and * New tips for managing holiday spending.
CFA Executive Director Stephen Brobeck and CUNA Chief Economist Bill Hampel will meet with the media at 10 a.m. at the National Press Club here.

NCUA discloses 13 2010 budget increase

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ALEXANDRIA, Va. (11/20/09)--The total 2010 budget for the National Credit Union Administration (NCUA) will be $200,923,512, an increase of 13% over the 2009 budget, the board reported during its monthly meeting held Thursday.
Click to view larger image Former NCUA Chairman Michael Fryzel (left) and the agency's current leader, Debbie Matz (right), listen intently to a staff presentation of the 2010 operating budget plan, which represents a 13% jump from the previous year. Matz said her top goal as chairman is for the NCUA to be recognized as a "fair and effective regulator that sets the highest standards for safety and soundness." She added the 2010 budget will help the agency achieve this goal. (CUNA Photo)
NCUA Chairman Debbie Matz said the increased budget is a response to past budget cuts and also reflects the need for more funding due to the current “state of the credit union industry.” Over $14 million of the $23 million funding increase is related to NCUA program changes. Responding to the news of the budget increase, Credit Union National Association President/CEO Dan Mica said that CUNA has “significant concerns about the magnitude” of the increase, adding that those concerns are shared by many credit unions and credit union leagues. Even with steps the NCUA has taken to mitigate the cost impact, the budget actions taken today will add to the cost burden born by credit unions, Mica added. “Going forward, we hope to see more disclosure in the budget process and will seek to work with NCUA to ensure expenses are kept to the minimum necessary without compromising the agency’s mission of safety and soundness,” he said. Matz said that while "the proposed increases in dollars and full time staff are extraordinary," credit unions, regulators, and citizens "are living in extraordinary times." The budget adds a total of 74 new positions to NCUA staff, bringing the total NCUA staff to 1,112.
Click to view larger image Click for larger view
$1.5 million of the budgetary increase will go toward establishing the NCUA’s new Office of Consumer Protection, which will divide a total of thirty positions into two divisions, one addressing consumer protection and one addressing consumer access. While many of the Office of Consumer Protection staffers will be current NCUA employees, the new agency will create seven new positions. According to the NCUA’s board action memorandum on the budget, the Office of Consumer Protection will:
*Provide consumers with educational resources and a forum for dispute resolution; *Consolidate a number of consumer protection functions; *Work with other federal agencies to address consumer protection; *Take on centralized chartering activities; and *Take over the tasks of the NCUA’s ombudsman.
The Office of Consumer Protection will also handle field of membership change processing, a move that could address concerns over consistent handling of FOM requests. The establishment of the Office of Consumer Protection will “elevate the importance of consumer protection in the industry,” board member Gigi Hyland said. The NCUA budget will also create a new Office of Chief Economist, and will dissolve the NCUA’s National Examination Team, which was charged with examining cases that threatened the National Credit Union Share Insurance Fund. The examination team, which was established last year, handled large and complex credit unions that were experiencing financial issues, but the NCUA determined that the centralized oversight of the examination team did not allow for adequate monitoring of troubled credit unions. A further 57 of the new positions will be taken up by regional employees added due to the NCUA’s new Annual Examination Program. The NCUA will realign some of its examiner resources and will also hire 39 examiners, 12 case officers, four lending specialists, and two supervisory examiners to implement increased onsite and offsite monitoring of troubled credit unions. The agency plans to add a further 28 examiners in 2011. The examinations will be integrated into the existing examination schedule, and will not result in new examinations for credit unions. The NCUA also approved a 2010 overhead transfer rate of 57.2%, up from the 53.8% rate approved for 2009, during the meeting. Additionally, the agency voted to decrease the natural person federal credit union operating fee rates by 1.58 percent and increase the asset level dividing points for natural person federal credit union operating fee scale by 8.5%. These operating fees will be collected by the NCUA by April 15, 2010. The board has also shifted supervison of California credit unions to Region II because of the availability of more experienced examiners. It also moved supervision of Alaskan credit unions to Region V. For further quotes from Matz, use the resource link.

Inside Washington (11/19/2009)

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* WASHINGTON (11/20/09)--The House Financial Services Committee approved an amendment Wednesday that would prevent large financial institutions from receiving Federal Home Loan Bank (FHLB) advances and raise large institutions’ funding costs. The amendment was one of several pieces the committee voted on, but financial observers said the FHLB amendment would have the largest impact because it would allow the Federal Deposit Insurance Corp. (FDIC) to impose a 20% haircut on secured creditors when resolving failed systemically important institutions. Lawrence Kaplan, partner at Paul, Hastings, Janofsky and Walker, said the move will ultimately raise credit costs (American Banker Nov. 19). Cutting off advances to some institutions from the FHLBs also may prevent the FHLBs from lending to those institutions, said Alfred DelliBovi, president of the Federal Reserve Bank of New York. Rep. Brad Miller (D-N.C.), one of the amendment’s authors, said he drafted the legislation at the suggestion of the FDIC and proposed it as a way to save taxpayers from bailing out banks ... * WASHINGTON (11/20/09)--Banks need to increase their lending, Treasury Secretary Timothy Geithner said Wednesday during an Obama administration summit on credit flow. Limits on credit availability for small businesses will slow the nation’s economic recovery, he added (American Banker Nov. 19). Geithner said there needs to be more positive figures in banks’ earnings for the economy to recover, but Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said credit losses will continue to affect banks’ earnings ... * WASHINGTON (11/20/09)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is sparring with members of the Republican Party over legislation that would freeze interest rates until the Credit Card Accountability, Responsibility and Disclosures (CARD) Act takes effect in spring. Dodd asked the Senate to quickly begin considering his bill. Republicans filed an objection to his request, which prevents the bill from coming to a quick vote (American Banker Nov. 19). Dodd’s bill responds to credit card companies that are hiking their rates before the CARD Act goes into effect ... * WASHINGTON (11/20/09)--“Systemic risk” can be broadly defined as unsafe amounts of leverage at a bank, the possible failure of a large financial firm that could adversely impact the financial system, or breaks in regulatory oversight, Federal Reserve Board Chairman Ben Bernanke said in a letter to Sen. Bob Corker (R-Tenn.) Systemic risks threaten the stability of the nation’s financial system as a whole, Bernanke said (American Banker Nov. 19) ...