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Inside Washington (11/02/2009)

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* WASHINGTON (11/3/09)--Fannie Mae and Freddie Mac will be allowed to back larger loans for another year (American Banker Nov. 2). The House and Senate approved legislation Thursday allowing the government-sponsored enterprises to guarantee loans up to $729,750 through 2010. President Barack Obama is expected to sign the legislation soon. Without the legislation, the enterprises could only guarantee loans up to $625,000, their previous limit, at year-end ... * WASHINGTON (11/3/09)--The Federal Reserve Board said it will not share the results of its latest review on industry compensation practices, citing the confidential nature of supervision (American Banker Nov. 2). The Fed reviewed compensation that targets executives and other employees of 28 large financial institutions. The Fed’s decision not to publicize the review contrasts with its focus on transparency in the financial markets, observers said. Releasing compensation data is different from publicizing which financial institutions have enough capital to weather a financial crisis, said Fed Chairman Ben Bernanke, referring to the stress tests. Gil Schwartz, former Fed lawyer, said the public has a right to know which institution’s compensation practices could affect the economy ...

CUNA 21-day CARD fix compliance issues

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WASHINGTON (11/03/09)-Passage by the House and Senate of the CARD Act Technical Corrections Act is raising some questions by credit unions on what steps to "uncomply" with the former terms of the 21-day mailing provision. President Obama is expected to sign that bill, H.R. 3606, at any time and the Credit Union National Association (CUNA) has urged him to act quickly. As a "technical correction" to the May 2009 law—known now mostly as the Credit CARD Act--to make clear that a 21-day late notice mailing requirement only applies to credit card accounts, "it's like the requirement never existed for the rest of open-end loans," explained Mike McLain, CUNA's Senior Compliance Counsel and Assistant General Counsel. "The Federal Reserve Board doesn't have to amend its interim regulation because there's no longer a statutory basis for the 21-day mailing requirement as it applies to open-end loans other than credit cards." Credit unions, however, spent the summer struggling to comply with the requirement to provide at least 21 days after mailing the periodic statement for any open-end loan before assessing late payments fees or imposing other penalties. Numerous compliance problems were identified affecting consolidated periodic statements, bi-weekly payment plans, existing due dates, and more. "We know that credit unions expended a lot of time and resources to come up with a variety of ways to comply with this burdensome requirement, and now are asking what should they do next," said McLain. Some credit unions simply followed a temporary solution permitted by the Fed in its interim rule to put a special notice on their periodic statements: Your Payment will not be considered as late for any purpose if it is made within 21 days of the date your statement is mailed or delivered, regardless of the due date that is reflected on the statement. "These credit unions can just stop putting this special notice on their periodic statements," McLain said. Other credit unions decided to comply by listing several upcoming due dates on the current periodic statement to make sure that the member had plenty of notice. They also can just discontinue printing outward due dates on their periodic statements, noted McLain. Once it was clear in July that the Fed would not resolve credit unions' problems with the 21-day mailing requirement by a regulatory interpretation, CUNA established as a high legislative priority to amend the CARD Act to resolve this problem. However, since no one could predict in August if and when a technical corrections bill would pass, many credit unions decided to make more comprehensive changes to their open-end lending terms and practices. "Credit unions that took actions such as changing due dates to the end of the month or altering bi-weekly payment plans will have to make their own business decisions on whether they want to revert to what they did prior to August 20," said McLain. "As the Fed made clear this summer, changing a loan's payment due date is not an action that requires compliance with Regulation Z's change-in-terms rules." However, McLain emphasized that there are certain situations where the 21-day notice will continue – beyond of course credit card programs, which are definitely subject to the 21-day notice. "Some credit unions apparently provide a grace period for repayment before charging any finance charge on certain open-end loans they offer. If there is a grace period on any type of open-end loan, the credit union must give the member 21 days to take advantage of the grace period," McLain emphasized. "Congress was unwilling to change this aspect of the 21-day rule." Anytime a lender decides to eliminate a grace period, a change-in-terms notice is required. If the loan is a credit card, the change-in-terms notice must be provided 45 days in advance (a rule that became effective August 20). If the loan is any other type of open-end loan, the change-in-terms notice must be given 15 days in advance – but starting July 1, 2010, all open-end loans will require a 45-day advance notice similar to the new credit card rule. "Credit unions are also asking about potential liability between May 22 – the date the CARD Act became law -- and today if there were any issues about their compliance efforts with the now-repealed 21-day notice requirement," said McLain. "There isn't any potential liability, because the technical correction made clear that the 21-day notice provision in the CARD Act was always intended to only apply to credit card accounts."

NCUA opens registration for MBL webinar

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ALEXANDRIA, Va. (11/3/09)—Registration is now open for the Nov. 18 member business lending webinar announced recently by National Credit Union Administration board member Gigi Hyland. Entitled “Member Business Lending: Regulators’ Perspective,” the webinar is scheduled to begin at 1:00 p.m. (ET) and end at 2:30 p.m. ET. The webinar is free and open to the public. The free webinar will provide guidance, best practices and insight into examination of member business lending, from both federal and state credit union regulators’ perspectives. The webinar is designed to be interactive and Q&A will be an integral part of the presentation. Panelists include:
* Linda Jekel, director of credit unions for the state of Washington, Division of Credit Unions; * Erika Eastep, member business lending program officer, Office of Examination and Insurance, NCUA; and * Linda Vick, former agricultural and commercial lending specialist and current problem case officer, Region IV, NCUA.
Use the resource link to sign up for the online session.

Matz Consumers want overdraft protection

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ALEXANDRIA, Va. (11/03/09)—National Credit Union Administration (NCUA) Chairman Debbie Matz, speaking at a recent league chapter meeting, said she supports overdraft protection plans that are carefully done with minimal impact on members, such as limiting the number of transactions and corresponding fees per day. Having worked at a credit union that offers overdraft protection, she said that she realizes that consumers would not be happy if the service was eliminated. Credit unions can provide a service members want that also is balanced and pro-consumer, she said. Matz made her remarks last week to credit union representatives attending a Suburban/D.C. chapter meeting of the Maryland & D.C. Credit Union Association. The league also reported that Matz acknowledged that the NCUA’s Region II staffing changes have recently been in flux. She attributed this to needs in other regions, and said it is like “robbing Peter to pay Paul” to shift personnel resources. Matz added that the agency plans to bring Jane Walters back as Region 2 director in March 2010. Walters currently is serving as Acting Regional Director, Region V.

Congress this week More overdraft action arguments near

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WASHINGTON (11/3/09)--The House Financial Services Committee heard testimony regarding on overdraft fees late last week, and the Senate Banking Committee may also discuss the issue by the end of the year, according to the Credit Union National Association’s (CUNA) Vice President of Legislative Affairs Ryan Donovan. While the timing of potential legislation addressing overdraft protections is not known, Donovan said that the House leadership generally only brings legislation to the floor if they expect that that bill would pass. House Financial Services Chairman Rep. Barney Frank (D-Mass.) last week indicated that overdraft legislation would not be on the committee's agenda this week. Timing questions also surround the ongoing development of Consumer Financial Protection Agency (CFPA) legislation, and while the House may consider the CFPA legislation during the week of Nov. 16, there is not a definite timetable for the Senate version of the legislation. While the exact schedule is not known at this time, President Barack Obama this week could sign H.R. 3606, the CARD Act Technical Corrections Act. The legislation, which was approved by the House earlier last month, made its way through the Senate late last week. In a letter sent Friday, CUNA President/CEO Dan Mica urged Obama to swiftly sign the bill, which 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 not open-end credit in general, but only to credit cards. While there is not a great deal of credit-union specific legislation on the House or Senate floor this week, Senate legislation that would extend unemployment insurance benefits, which includes an amendment that would extend the homebuyers tax credit, was discussed on Monday. The House Financial Services Committee later today will also begin full mark-up sessions of H.R.3817, the "Investor Protection Act of 2009," H.R.2609, the "Federal Insurance Office Act of 2009," and the "Financial Stability Improvement Act of 2009."

NCUA update U.S. Central WesCorp coping with liquidity issues

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ALEXANDRIA, Va. (11/3/09)--In its latest update on the status of the corporates, the National Credit Union Administration (NCUA) reported that “normal operations continue without interruption” at U.S. Central FCU (U.S. Central) and Western Corporate FCU (WesCorp) and both corporate credit unions, with the help of the agency, “have been effective in managing the seasonal liquidity pressures that occur during this time of the year.” Average share balances for the corporates have “remained relatively flat, removing some measure of liquidity pressures,” the NCUA added. The corporates also reported on their Other-Than-Temporary-Impairment (OTTI) charges for the recently-passed third quarter of 2009, with U.S. Central reporting a total of $320 million and WesCorp reporting a total of $356 million. These charges “have fully exhausted Paid-in-Capital (PIC) I and PIC II balances and depleted MCS to $140 million as of September 30, 2009” for U.S. Central and “have fully exhausted all PIC and MCS balances, and created a retained earnings deficit of $4.6 billion as of September 30, 2009” for WesCorp, the NCUA reported. Both U.S. Central and WesCorp have issued medium term notes to fund a total of $8.2 billion in outflows that will occur due to Credit Union System Investment Program (CUSIP) funds that will mature in January, February, and March of next year. CUSIP funds are issued under the Temporary Corporate Credit Union Loan Guarantee Program (TCCULGP). The NCUA in the release also confirmed that it will present its in-development proposed corporate credit union rule at its upcoming board meeting, scheduled for November 19th. “The proposed rule reflects a comprehensive review of the existing corporate regulations,” and “incorporated feedback obtained” from recently held online and live town hall meetings, the NCUA said.