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Inside Washington (11/29/2009)

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* WASHINGTON (11/30/09)--National Credit Union Administration Board Member Michael Fryzel visited First Trust CU, Valparaiso, Ind., where he met with CEO Ronald Budzinski and Board Chair Arnold Bass, and Indiana Credit Union League President John McKenzie. Fryzel said he was pleased with the efforts First Trust has made to serve its diverse field of membership and reach out to the community with school programs and financial education. Pictured (from left) are Budzinski, Fryzel and Bass. First Trust has $77 million in assets. (Photo provided by the National Credit Union Administration) ... * WASHINGTON (11/30/09)--The banking industry managed to profit and boost capital during the third quarter, but it has backed off from risk and lending to small businesses (American Banker Nov. 25). While Federal Deposit Insurance Corp. Chair Sheila Bair applauded banks for “charging off problem loans and building reserves and capital,” she said banks need to make more loans to their business customers to help economic recovery. The Credit Union National Association has been in contact with representatives from the Senate and House, and key Obama administration officials, urging that credit unions’ member business lending cap be raised. CUNA reasons that credit unions, which are restricted from lending more than 12.25% of their assets, can bridge the gap created by banks pulling back credit from small businesses in the struggling economy ... * WASHINGTON (11/30/09)--The Federal Reserve Board is working on a plan to help banks repay the money they received in the government bailout as a part of the Troubled Asset Relief Program. Nine banks that were part of a stress test the Fed conducted this year have not yet paid back their funds. The Fed has asked the institutions to submit plans for repayment. The banks include GMAC Inc., Wells Fargo, Bank of America and Citigroup (American Banker Nov. 25). In other news, the Fed is working on a strategy to extract the cash it injected into financial markets during the crisis. According to meeting minutes released Tuesday, there are three options: increasing the interest the Fed pays on reserves, reversing repurchasing agreements, and creating separate accounts for banks to hold their reserves. The Fed also has been debating whether it should sell the assets that boosted its balance sheet to $2.2 trillion last week. Selling the assets “would help reinforce the effectiveness of paying interest on excess reserves,” the minutes stated ... * WASHINGTON (11/30/09)--Federal Reserve Board policymakers have become more optimistic about the economic recovery, but they predict that unemployment will remain above 9% next year. Minutes the Fed released last week from a meeting earlier this month indicate that policymakers also are unsure whether the recovery is strong enough to survive without government stimulus measures. The Fed is expected to raise the overnight interest rate--which has remained at zero since last December--and also is expected to end its program to boost mortgage lending by buying $1.25 trillion in securities. The Fed’s minutes hinted at a debate among policymakers on ending the securities program, raising interest rates, and selling securities, but no start dates were noted ...

NCUA supervisory letter provides guidance on CU earnings reviews

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ALEXANDRIA, Va. (11/20/09)--In a National Credit Union Administration (NCUA) supervisory letter published on Wednesday, Office of Examination and Insurance Director Melinda Love said that “examiners must evaluate each credit union’s earnings level relative to net worth needs, financial and operational risk exposures, the current economic climate, and the institution’s strategic plans,” when reviewing the adequacy of credit union earnings. Love in the letter also recommended that NCUA staff “continue to utilize a balanced approach in assessing earnings,” as there is “no simple metric for determining what an individual credit union’s earnings level should be.” A glut of restatements “will make the evaluation and trending of earnings more challenging,” the letter added. The letter also encourages examiners to review prior guidance on earnings adequacy reviews and “stresses the importance of communication with credit union officials and management regarding earnings deficiencies.” Specifically, the letter recommends that examiners consider the adequacy of net worth given the risk profile of the credit union and the quality and sources of the credit unions’ earnings structure. The letter also states that examiners must consider the risk profile, the operational structure, and the strategic plans of the credit union while they complete their earnings review. Examiners should also ensure that credit unions can “realize an adequate level of earnings in a safe and sound manner.” For the full NCUA release, use the resource link.

NCUA CU net worth remains above 10 in 3Q 2009

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ALEXANDRIA, Va. (11/30/09)--In its comprehensive report on third-quarter numbers for credit unions, the National Credit Union Administration (NCUA) disclosed increases in membership and lending from its 2008 levels and reported that the net worth of credit unions remained above 10 percent. First mortgage real estate loans, credit cards, and used auto lending “gained momentum in the third quarter,” the NCUA added. The call report data, which was gathered from all 7,637 federally insured credit unions, also showed a 7.7% increase in assets, an 8.4% increase in shares, a 24.7% increase in investments, and a 1.9% increase in membership, when compared with the numbers reported as of Dec. 31, 2008. However, the NCUA also noted some less fortunate news, reporting a “modest” 0.28% return on average assets and a slight increase in delinquent loans as a percentage of total loans, which were up to 1.68% as of Sept. 30, 2009. Net charge-offs to average loans also increased to 1.17 percent during the quarter, according to the NCUA. Federally insured credit unions increased provisions for loan and lease losses by 30.7% and have set aside a total of over $2 billion to cover losses on real estate loans. This data strengthens “the case for increased regulatory oversight as credit unions deal with adverse economic conditions," NCUA Chairman Debbie Matz said. The environment for financial institutions and consumers is still challenging, and Matz said that “credit unions must consider the unemployment rate, housing market weakness and overall economic volatility as they continue serving member needs.” “Likewise, NCUA is enhancing our supervision, and increasing the number of examiners and frequency of examinations, all of which reflect our strong commitment to assisting credit unions during this difficult time," Matz added. For the full NCUA report, use the resource link.

CUNA issues comment call on Fed gift card rules

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WASHINGTON (11/30/09)—The Credit Union National Association (CUNA) has issued a regulatory comment call on the Federal Reserve Board’s proposed rules that will restrict the fees and expiration dates that apply to gift cards and certificates. The Fed rules will restrict dormancy, inactivity, and service fees on gift cards and will require that cards not expire until at least five years after the date of issuance or five years after the date when funds were last loaded. However, under the rule, dormancy, inactivity, and service fees will be allowed to be assessed on gift cards that have been inactive for at least one year, provided that no more than one such fee is charged per month and the consumer is given clear and conspicuous disclosures about the fees. The proposal generally covers retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and also covers network-branded gift cards that are redeemable at any merchant that accepts the card brand. The proposed rules are issued under Regulation E, the Electronic Fund Transfers Act and implement the gift card provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009. Comments are due to CUNA by Dec. 11. Comments are due to the Fed by Dec. 21. To view the CUNA comment call, use the resource link.

Hinojosa withdraws support for House overdraft reform bill

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WASHINGTON (11/30/09)—Rep. Rubén Hinojosa (D-Texas) last week officially withdrew his name as a sponsor of Rep. Carolyn Maloney’s overdraft reform bill, H.R. 3904, "The Overdraft Protection Act of 2009." Maloney’s bill, which was referred to the House Committee on Financial Services in late October, would, according to, "amend the Truth in Lending Act to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions." Reps. Barney Frank (D-Mass.), Luis Gutiérrez (D-Ill.), Gary Ackerman (D-N.Y.), Michael Capuano (D-Mass.), Keith Ellison (D-Minn.), Anna Eshoo (D-Calif.), Paul Hodes (D-N.H.), Walter Jones (R-N.C.), Paul Kanjorski (D-Penn.), Daniel Maffei (D-N.Y.), Brad Miller (D-N.C.), Gwen Moore (D-Wisc.), Jackie Speier (D-Calif.), and Maxine Waters (D-Calif.), remain sponsors of the bill. The Federal Reserve Board earlier this month introduced a final rule that would require credit unions and other financial institutions to obtain consent from consumers before they could be charged overdraft fees for ATM and one-time debit transactions. The rule, which will go into effect on July 10, also requires credit unions and other financial institutions to fully disclose the overdraft services, the fees, and the consumer's right to opt-in, and ensures that members or customers that do decide to take part in the overdraft protection service may cancel the service at any time. Credit Union National Association Senior Vice President of Legislative Affairs John Magill said of Hinojosa’s action, “I think the congressman’s decision to withdraw from the bill once the Fed rules were out reflects what CUNA has been saying all along. To the degree that changes need to be made to the consumer protections attached to overdraft plans, let the federal rule makers--those most familiar with the service--make them.” “We do not believe this needs a statutory sledgehammer at this time,” Magill added. National Credit Union Administration Chairman Debbie Matz earlier this month said that 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.

Committee to consider financial stability UIGEA

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WASHINGTON (11/30/09)—This week the House Financial Services Committee has a vote on its calendar for H.R. 3996, the Financial Stability Improvement Act, and will conduct hearings on two Internet gambling bills. The vote is scheduled for Wednesday, and the committee intends to vote on H.R. 2609, Federal Insurance Office Act of 2009 as well. Also on Wednesday, the panel has planned a hearing on the FY09 FHA Actuarial Report. H.R. 3996 would create a stabilization resolution fund, located at the Federal Deposit Insurance Corporation, 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 Credit Union National Association (CUNA) backed an important amendment to the bill which was offered by Rep. Brad Sherman (D-Calif.) and adopted by the committee. Any institutions with less than $50 billion in assets are exempt from providing initial funding for the new fund, thereby excluding all credit unions from the assessment. On Thursday, the committee is scheduled to conduct a hearing spotlighting Internet gambling. Both H.R. 2266, the Reasonable Prudence in Regulation Act and H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act will be discussed. Both bills were introduced by the committee chairman, Rep. Barney Frank (D-Mass.).The Reasonable Prudence in Regulation Act would push back implementation of the Unlawful Internet Gambling Enforcement Act (UIGEA) by a year. It's currently due to take effect on Dec. 1. CUNA supports this bill. Frank's second bill, the Internet Gambling Regulation Consumer Protection and Enforcement Act, would allow Internet gambling companies to accept bets from persons in the United States if they are licensed by the U.S. Treasury Department and maintain effective protections against underage and compulsive gambling and money laundering and fraud. CUNA hasn't taken a position on this legislation.

UIGEA compliance pushed back to June 1

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WASHINGTON (11/30/09)—Just days before the compliance date rolled around—and months after urgings to delay implementation of the Unlawful Internet Gambling Enforcement Act (UIGEA)—the Federal Reserve and U.S. Department of Treasury announced they were pushing back the law’s Dec. 1 compliance date. The new compliance date is June 1 for the rules requiring credit unions and other financial institutions to establish and implement policies and procedures to identify and block restricted Internet gambling transactions, or rely on those procedures established by the payments system. The Federal Register document states that the effective date of the final rule published Nov. 18, 2008 (73 FR 69382) remains Jan. 19, 2009—the new rule just gives more compliance leeway. The Credit Union National Association has backed a delay of the compliance date, as have certain lawmakers. A bi-partisan coalition of 19 lawmakers urged the Fed and Treasury to give financial institutions more time to comply with the complicated law. House Financial Services Committee Chairman Barney Frank (D-Mass.) and 18 other members of that panel sent an Oct. 1 letter to the heads of the U.S. Treasury Department and the Federal Reserve Board, CUNA President/CEO Dan Mica applauded lawmakers’ efforts when in October House Financial Services Committee Chairman Barney Frank (D-Mass.) and 18 other members of that panel sent a letter to the heads of the Treasury Department and the Fed noting that at a time of economic crisis, it is too great a burden on regulators and the financial services industry to move ahead with rules to UIGEA. CUNA opposes the agencies' draft implementation proposal. Also, CUNA testified against the plan at a House Financial Services Committee hearing in April. CUNA witness Harriet May, president/CEO of GECU, El Paso, Texas, reiterated CUNA's concerns that aspects of the proposal would be difficult, if not impossible, to implement. May also said financial institutions could be swamped by the compliance burdens associated with UIGEA. The current plan to implement the complicated law, she said, lacks clarity and sufficient definition of terms. House Financial Services, prior to the regulators’ announced delay, already had scheduled hearing this week on two internet gambling bills. (See related story: Committee to consider financial stability, UIGEA.) Use resource link to read more about the Fed-Treasury action on UIGEA delay.