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First Senate Tax Discussion Draft Could Come Today

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WASHINGTON (11/19/13)--The head of the Senate Finance Committee, Sen. Max Baucus (D-Mont.), has updated the ETA on the release of the first in a series of tax reform discussion drafts, Politico reported Monday. Baucus is expected to begin the unveilings today.
The timing is in keeping with what tax policy writers on Capitol Hill have been saying since the summer--that they intend to launch into tax reform and prepare for a vote during the Fall.  
Credit Union National Association Senior Vice President of Legislative Affairs Ryan Donovan said Monday that CUNA does not expect anything related to not-for-profits to be included in this week's drafts.  They are most likely to address international taxes and Internal Revenue Service reforms.
However, Donovan emphasized that a high level of advocacy on behalf of credit unions must continue. "Credit unions, credit union members--all credit union supporters--must continue to advocate for the current credit union federal tax status," Donovan said. Credit unions are assigned that tax status because they are not-for-profit, member-owned cooperatives with the statutory mission to promote thrift and provide credit for provident purposes to their members.

"Credit unions must make sure that lawmakers on all levels truly understand that a new tax on credit unions would be a tax on their 97 million members," Donovan said.
Tax reform talks have been buzzing all year and in the midst of the reform effort, credit unions and their members are using CUNA and state credit union leagues' resources, social media sites including Facebook, and micro-video site Vine, to tell their legislators, "Don't Tax My Credit Union!"

The effort has garnered almost 1.2 million separate congressional contacts, made since mid-May, to support credit unions in the tax talks.

CUNA research indicates that credit unions generally offer higher returns on savings, lower rates on loans, and most importantly, low or no fees--and that these benefits combine to result in more than $8 billion in direct financial benefits each year to American taxpayers.

NEW: Comprehensive CUNA Letter Urges NCUA To Cut Burdens

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WASHINGTON (11/19/13, UPDATED 4:00 p.m. ET)--The Credit Union National Association is urging the National Credit Union Administration to do all it can to cut credit union regulatory burdens and build a regulatory environment and examination culture that enhances the ability of credit unions to serve their members.  
In a letter to the NCUA, CUNA detailed a list of regulatory areas that are of key concern to credit unions, and also noted the impact of the Consumer Financial Protection Bureau and other regulators on the daily operations of credit unions.
CUNA President/CEO Bill Cheney wrote to NCUA Chair Debbie Matz:
"We urge the agency, rather than continuing the parade of new rules that apply on a broad basis, to utilize its array of supervisory powers to focus on problem credit unions. We also urge NCUA to do all it can to allow well-managed credit unions the space and latitude they need to serve their members of today and to attract new members for tomorrow."
CUNA also advocated that the NCUA always consider the magnitude of regulatory requirements--from a variety of regulators--that credit unions must already meet in all areas of their operations before imposing any new requirements. CUNA added that the agency should work to eliminate rules that are outdated, unnecessary, or simply provide minimal benefits.
Among the letter's other top issues are two that directly affect credit union bottom lines, the NCUA budget, which is funded by the credit union system, and the assessment for the Corporate Stabilization Fund for 2014. Both topics are scheduled for action at the Nov. 22 NCUA open board meeting.
CUNA urged the agency to keep credit unions' costs as low as possible.
"CUNA, the leagues, and credit unions do not want the agency to be underfunded. At the same time, we strongly oppose large, steady increases in the face of the solid financial performance by the credit union system, which continues to rebound from the financial crisis," wrote CUNA's Cheney in the Nov. 18 letter.
"Credit unions are frustrated about the agency's budget due in large part because there seems to be little opportunity for oversight by Congress or the credit unions that pay the costs of NCUA's expenses or a connection between spending and the achievement of strategic goals.
  CUNA also addressed the agency's plan to regulate credit union service organizations (CUSOs), which is also on the NCUA agenda this week. CUNA underscored that, under the Federal Credit Union Act, the NCUA has very limited authority where CUSOs are concerned.
  Other issues addressed in detail in the letter include:
  • Risk-based net worth: CUNA noted that the NCUA has ample supervisory tools to handle problem cases and urged the agency to advance supplementary capital;
  • Examination and exam appeals process: CUNA encourages the development of an Examinations Working Group;
  • Financial Accounting Standards Board (FASB) proposals and rules: CUNA reiterated that NCUA's support on FASB issues is critical;
  • NCUA's derivatives proposal: CUNA recommended the agency move forward to approve the plan that would let well-run federal credit unions to use simple derivatives for the sole purpose of hedging against interest rate risks; and,
  • CUNA said the NCUA should allow for an expedited process, when warranted for waivers for member business lending and loan participation requirements.
The comprehensive CUNA letter also focused on the NCUA's important role in payments developments, its engagement on cybersecurity coordination, and the importance that regulatory strictures not act to discourage student lending.

CUNA further noted that the NCUA's pending proposal on stress testing for the largest credit unions would be costly and is not required by the Dodd-Frank Act.
CUNA commended the NCUA for a number of its recent actions that brought regulatory relief, and underscored the importance of the agency's October guidance to improve the federal examination process, and the NCUA's action this year to cut its operating budget by $2.6 million from its original projections, among other important decisions. CUNA added that the agency NCUA should use its own positive regulatory steps as a template for future regulatory relief for credit unions.
A copy of the letter was sent to each of the three NCUA board members: Chair Debbie Matz and board members Michael Fryzel and Richard Metsger.

Reg Advo Report Previews CUSO Final Rule

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WASHINGTON (11/19/13)--In this week's Regulatory Advocacy Report, the Credit Union National Association takes a look at credit union service organization (CUSO) regulations that are expected to be unveiled this week.

A final CUSO rule is one of the key items on the November National Credit Union Administration open board meeting agenda. Under a proposal released last year, CUSOs and their subsidiaries would be required to directly file their financial statements with the NCUA, and to forward those reports to state supervisors.

The NCUA currently has the authority to inspect the books and records of some CUSOs, but that authority is not universal, and the agency works with natural person credit unions that obtain services from the CUSOs to provide the majority of financial information on CUSOs. The agency has said that this method is inefficient and restricts its ability to conduct offsite monitoring and evaluate systemic risks posed by CUSOs

However, CUNA maintains that the Federal Credit Union Act does not confer greater authority over CUSOs to the federal credit union regulator.

"NCUA has indicated the final rule is an improvement over the proposal and we will be reviewing it in detail to determine if we agree and how it will affect the credit union system," CUNA Deputy General Counsel Mary Dunn wrote in this week's Report.

The agency's 2014 operating budget and corporate stabilization fund assessments are also on the agenda, and are discussed in this week's Report. Other issues addressed in the Regulatory Advocacy Report include:
  • New NCUA enterprise risk management guidance;
  • The Consumer Financial Protection Bureau's housing counselor list tool and accompanying guidance;
  • CUNA's request for comment on the NCUA's capital planning and stress testing proposal; and
  • CUNA's request for comment on the Federal Reserve Banks' payment system improvement paper.
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.

NEW: JP Morgan To Pay $13B Settlement

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ALEXANDRIA, Va. (11/19/13, UPDATED: 3 P.M. ET)--The National Credit Union Administration has added another settlement to its victory pile related to lawsuits to regain costs associated with losses to the corporate credit unions brought by residential mortgage-backed securities of alleged questionable quality. The U.S. Department of Justice has just announced that JP Morgan Securities would pay $13 billion in total.

The NCUA will receive $1.4 billion under the terms of the settlement.

The DOJ is also reportedly considering criminal charges against JP Morgan.

The settlement announcement comes just two days before the NCUA discusses the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment on natural person credit unions for 2014 at its open board meeting.

Credit Union National Association President/CEO Bill Cheney said Tuesday that the announcement gives even more weight to CUNA's recommendation that the TCCUSF projected assessment range for next year be set at 0% of insured shares. The NCUA is expected to discuss a projected assessment of 0% to 5% at its Thursday open board meeting.

"The NCUA has taken a strong leadership role in its work to regain costs it says were caused by securities firms that knowingly sold products of questionable value. It must now make sure that the regained funds benefit the credit unions who have carried the cost of those actions," he said.

The NCUA lawsuits alleged JP Morgan oversold the quality of certain mortgage-backed securities (MBS's) it issued, underwrote and sold to U.S. Central FCU, Western Corporate FCU and other corporates from 2006 to 2007. The corporates collapsed in 2009, and NCUA, as their liquidating agent, sued a number of Wall Street banks who issued or underwrote the securities that contributed to the corporates' collapse.

The agency alleged systemic disregard of underwriting guidelines stated in the offering documents and says the alleged misrepresentations caused U.S. Central and WesCorp to believe the risk of loss on the investments was minimal, when in fact, the risk was substantial.

In addition to JP Morgan, the NCUA has also filed lawsuits against RBS Securities, Wachovia Capital Markets and Wells Fargo, Barclay's Capital Inc., Goldman Sachs, and UBS Securities. The agency has also settled claims of more than $170 million with Citigroup, Deutsche Bank Securities and HSBC.

Liquidity Rule Details, Tips, Star On NCUA YouTube Video

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ALEXANDRIA, Va. (11/19/13)--In a new YouTube video, National Credit Union Administration staff provide details on the agency's new liquidity and contingency planning regulation, upcoming compliance deadlines, and additional resources the agency is providing for credit unions.
The video reflects an October NCUA Letter to Credit Unions on this issue, "Guidance on How to Comply with NCUA Regulation §741.12 Liquidity and Contingency Funding Plans" (13-CU-10). (See resource link for Oct. 28 News Now story: NCUA Letters Detail Liquidity, E-Filing Regs For CUs.) The YouTube spot is hosted by NCUA Director of Examination and Insurance Larry Fazio and NCUA Division of Capital and Credit Markets Director J. Owen Cole, Jr.

Under the final rule, which was approved at last month's NCUA open board meeting:
  • Credit unions with less than $50 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action;
  • Credit unions with assets of $50 million or more would be required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations; and
  • Credit unions with assets of $250 million or more would be required to have access to a backup federal liquidity source for emergency situations.
The final rule effective date is March 31.

CUNA Seeks Comment On Two ACH Proposals

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WASHINGTON (11/19/13)--Credit unions have until Jan. 13 to comment on a pair of NACHA--The Electronic Payments Association proposals that aim to reduce risk and exceptions on Automated Clearing House (ACH) networks. 
The Credit Union National Association is interested in how these proposals would affect credit union operations and compliance on the ACH Network and will develop a comment letter to NACHA. CUNA seeks credit union comment by Dec. 16 to help inform the CUNA letter.
The first of the two NACHA proposals addresses ACH Risk and Enforcement. The proposal would improve NACHA's ability to identify and enforce rules against "outlier" originators responsible for the highest levels of exceptions. The proposal would also:
  • Reduce the existing return rate threshold for unauthorized debits from 1.0% to 0.5%;
  • Establish a return rate threshold for account data quality returns (i.e., administrative returns) at 3% and an overall debit return rate threshold (for all return reason codes) at 15%;
  • Clarify the definition of a "reinitiated entry";
  • Apply risk management rules to third-party senders; and
  • Expand NACHA's enforcement authority.
The second proposal aims to reduce exceptions by establishing economic incentives for Originating Depository Financial Institutions (ODFI) to improve the quality of ACH transactions they originate. Under the proposal, an ODFI would pay fees based on exceptions to partially offset the Receiving Depository Financial Institution's costs for exception processing and customer service. This would happen in the following instances:
  • A return due to erroneous data;
  • A notification of change; and/or
  • A return due to an unauthorized entry.
To comment on the NACHA proposals, use the resource link.

Two Housing Finance Hearings Anchor Washington Week

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WASHINGTON (11/19/13)--Housing finance reform will again be a hot topic as the U.S. Congress meets before the Thanksgiving holiday break.

Today's hearing, entitled "Housing Finance Reform: Fundamentals of Transferring Credit Risk in a Future Housing Finance System," will feature testimony from Federal Housing Finance Agency (FHFA), Freddie Mac, and Fannie Mae representatives, among others.

The powers and structure of a strong regulator will be examined in the second Senate Banking Committee housing hearing of the week. FHFA General Counsel Alfred Pollard, Federal Deposit Insurance Corp. Division of Insurance and Research Director Diane Ellis and Arizona Department of Insurance Assistant Director Kurt Regner, CFE, are among those scheduled to speak at the Thursday, Nov. 21 hearing.

The Senate Banking Committee is holding weekly hearings on the topic with the hopes of crafting plans for a future housing finance market. The ranking committee Republican, Rep. Mike Crapo (Idaho), recently said a bill could be marked up soon.

The House Financial Services Committee has also scheduled a Wednesday markup of pending legislation related to the Consumer Financial Protection Bureau.

Other hearings scheduled this week include:
  • A Tuesday House Financial Services oversight and investigations subcommittee hearing entitled "A General Overview of Disparate Impact Theory";
  • A Tuesday House Financial Services housing and insurance subcommittee hearing entitled "Implementation of the Biggert-Waters Flood Insurance Act of 2012: Protecting Taxpayers and Homeowners"; and
  • A joint Senate Banking subcommittee hearing entitled "The Present and Future Impact of Virtual Currency."
On Thursday, the House Financial Services capital markets and government sponsored enterprises subcommittee has scheduled a hearing on the Restoring Main Street Investor Protection and Confidence Act (H.R. 3482).