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NCUA meets to discuss corporate capital issues

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ALEXANDRIA, Va. (11/6/09)—At a National Credit Union Administration (NCUA) meeting Thursday on corporate credit union issues, Credit Union National Association (CUNA) President/CEO Dan Mica urged the agency to allow a process that would leave the door open to future capital recoveries if the magnitude of losses at the corporate credit unions is not as great as the NCUA has estimated. The meeting was called by NCUA Chairman Debbie Matz to conduct a wide-ranging discussion of issues related to the treatment of corporate capital and the upcoming NCUA corporate rulemaking. About 40 representatives of corporate credit unions, natural person credit unions, CUNA and the leagues, and others, attended the meeting. The session facilitated an open and frank discussion of the NCUA's decision to deplete capital in Western Corporate CU and U.S. Central CU and the consequences of that decision, according to CUNA Deputy General Counsel Mary Dunn, who attended the meeting. Also discussed were possible approaches to mitigate the impact of that decision. After the meeting at NCUA headquarters here, Matz said in a statement that the agency will immediately begin analysis of the information gathered, “take a fresh look at the capital depletion issue and its component parts, and make certain that NCUA is proceeding in a way that satisfies all legal, policy and accounting requirements.” She said the corporate review will be completed in a way that will “enable all stakeholders to move forward with full transparency of corporates’ financial statements and full confidence in the stability of the credit union industry.” The NCUA is expected to come out this month with its anticipated draft plan for restructuring corporate credit union regulations. Among those attending the Thursday meeting were California League President Bill Cheney, Utah League President Scott Simpson, CUNA Accounting Task Force Chair Scott Waite, CUNA General Counsel Eric Richard, and Senior Economist Mike Schenk.

Community First UBIT decision backs other exemptions claims

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WASHINGTON (11/6/09)--The decision in the Community First CU v. United States case constitutes “substantial authority” for the position that the products covered in the case are not subject to unrelated business income tax (UBIT) for credit unions that are situated similarly to Community First, law firm Foley & Lardner LLP concluded in a recent memo to credit unions and credit union legal, tax, and accounting advisors. The memo provides general information about the Community First case and tax law, and notes that each individual state-chartered credit union—in consultation with its accountant and other advisors—must determine for itself whether the Community First decision constitutes “substantial authority” sufficient for the credit union to not pay UBIT on sales of credit insurance and GAP products without penalty. A jury on May 14, 2009 found in favor of Community First’s refund claim for a total of $54,604 in UBIT taxes that the credit union paid on sales of credit life insurance, credit disability insurance, and Guaranteed Asset Protection products to its members, plus costs. The Justice Department at that time asked a trial judge to overturn the jury's verdict, and a judge in July upheld the jury verdict in a written opinion. The government did not appeal this decision. The Internal Revenue Service’s UBIT policy addresses income that is deemed to be "substantially unrelated to the purpose of a tax-exempt organization." State-chartered credit unions with more than $1,000 in UBIT must report the tax on an IRS 990-T form. However, federally-chartered credit unions are not subject to UBIT. Foley & Lardner LLP is counsel to the UBIT Steering Committee, which is composed of representatives from the Credit Union National Association (CUNA), CUNA Mutual Group, the American Association of Credit Union Leagues and the National Association of State Credit Union Supervisors. To read the Foley & Lardner LLP memo in full, use the resource link.

Inside Washington (11/05/2009)

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* WASHINGTON (11/6/09)--House Financial Services Committee Chairman Barney Frank (D-Mass.) wrote in a letter Tuesday to the Commodity Futures Trading Commission and Securities and Exchange Commission that he would continue to strengthen his bill on derivatives. Frank said he would draft amendments that would address who has the power to decree that a derivative should be cleared and to determine which derivative users can be exempted from clearing requirements (American Banker Nov. 5). Originally, Frank’s bill would have given for-profit clearing platforms the ability to decide what contracts to clear. But observers have said clearinghouses would base their decisions on their own interests ... * WASHINGTON (11/6/09)--Guidelines released Friday by the Federal Deposit Insurance Corp. provided needed clarification for banks on how they should handle troubled credits when modifying commercial real estate (CRE) loans, financial observers said (American Banker Nov. 5). The guidance includes a series of examples of CRE loan workouts. It also aims to cover examiners who would penalize banks for not marking down poor performing loans. Though the guidance will provide clarity for banks, it’s unknown if it will stabilize the housing market, observers said. Richard Spillenkothen, former Federal Reserve Board director, said the guidance is helpful, but it’s also a reiteration that for certain borrowers, restructuring can be helpful for both the borrower and lender. But judging that is “tricky and difficult,” he said. Ron Glancz, partner at Venable LLP, said the guidelines could have a big impact on the CRE market. If examiners apply the guidelines, it could be a great help to banks with large CRE portfolios, he said ...

House clears CARD Act acceleration bill

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WASHINGTON (11/6/09)--The House this week passed H.R. 3639, the "Expedited CARD Reform for Consumers Act of 2009," by a 331 to 92 vote. The legislation would accelerate the effective date of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act to Dec. 1 of this year, rather than the Feb. 22, 2010 deadline originally proposed in the bill. The committee also approved an amendment, offered by Rep. Betty Sutton (D-Ohio), that would place a moratorium on raising interest rates between the date of enactment and the original February 22, 2010 deadline. "We are grateful that the House retained language we were able to secure at mark-up to limit the accelerated effective dates to card issuers with more than 2 million credit cards in circulation. However, we are concerned that an amendment placing a moratorium on raising interest rates on credit cards between the date of enactment and February 22, 2010, was adopted. This proposes an unnecessary restriction where credit unions are concerned and we will be raising this issue with the Senate," Credit Union National Association Vice President of Legislative Affairs Ryan Donovan said. The Associated Press on Thursday reported that the legislation’s Senate prospects are “dim,” as many lawmakers are concerned by the negative effects that the bill could have on the industry and credit availability for consumers.

Homebuyers tax credit extension OKd by House

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WASHINGTON (11/6/09)--The House on Thursday passed by a 403-12 vote legislation that would extend access to the $8,000 first-time homebuyer tax credits that were set to expire at the end of the month. The homebuyer tax credit, which also creates a new $6,500 tax credit for current homeowners that purchase a new home between Dec. 1, 2009 and April 30, 2010, was attached to H.R. 3548, the Worker, Homeownership, and Business Assistance Act of 2009. The bill will extend unemployment insurance benefits for a 14-week period. 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. It will not be available for home purchases totaling more than $800,000. The homebuyer will need to close by 60 days to be eligible for the credit. The bill also extends the tax credit to individuals who are in the market for a new home but have owned their current home for five years or longer. H.R. 3548 passed the Senate on Wednesday by a 98-0 vote. To become law, it must be signed by the president. Elsewhere in the Senate, it is widely reported that Senate Banking Committee Chairman Chris Dodd (D-Conn.) could introduce his own comprehensive regulatory restructuring legislation as a draft bill as early as Monday. The Wall Street Journal on Thursday reported that Dodd's legislation would remove the supervisory authority of the Federal Reserve and Federal Deposit Insurance Corporation and create a new single agency for bank and holding company supervision. The committee has also announced a Nov. 10 hearing, entitled Protecting Consumers from Abusive Overdraft Fees: The Fairness and Accountability in Receiving Overdraft Coverage Act, and Pentagon FCU President/CEO Frank Pollack will be among those testifying. Other witnesses scheduled to testify during the hearing on S. 1799, The FAIR Overdraft Coverage Act, include the Consumer Federation of America's Travis Plunkett and the Center for Responsible Lending's Eric Halperin. The Senate may announce further witnesses at a later date, according to a release. The legislation, introduced by Dodd, would limit the fees that financial institutions can charge on overdraft protection services. Potential changes to overdraft legislation were discussed in a House Financial Services Committee hearing held in late October, and witness President/CEO Rodney Staatz, of SECU of Maryland, speaking on behalf of the Credit Union National Association, advised members of the panel to conduct an "independent, unbiased" survey of consumer opinions on overdraft before they act on any legislation. He also stated that responsible overdraft protection plans are an important service to members, and oversight should remain in the regulatory arena. National Credit Union Administration Chairman Debbie Matz has also recently spoken out on overdraft issues, saying that she supports overdraft protection plans that are carefully done with minimal impact on members.