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Inside Washington (12/10/2009)

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* WASHINGTON (12/11/09)--Lawmakers are working on a policy that could reverse two major thrift deals of 2008 if enacted (American Banker Dec. 10). Rep. Barney Frank’s (D-Mass.) reform legislation includes a provision that would require regulators to consider thrift deposits when analyzing whether a merger would violate a federal ban that prevents institutions from holding more than 10% of the nation’s deposits. The measure would close a “loophole,” Frank said. Financial observers said if the provision had been enacted earlier, it would have blocked the purchases of Washington Mutual and Countrywide Financial Corp. Last year, Bank of America bought Countrywide to prevent it from failing. JPMorgan Chase and Co. bought Washington Mutual, which had failed. However, Ralph MacDonald, partner at Jones Day law firm in Atlanta, said if the reform is enacted, it may not have a large effect. There aren’t that many big thrifts to worry about, he said ... * WASHINGTON (12/11/09)--Treasury Secretary Timothy Geithner testified before the Congressional Oversight Panel about the Troubled Asset Relief Program (TARP). During his testimony, Geithner presented a TARP exit strategy. The strategy had four elements: terminating and winding down programs that support large financial institutions; limited new investments to housing, small business, and securitization markets that facilitate consumer and small business loans; maintaining the capacity to respond to potential financial threats; and continuing to manage equity investments acquired through TARP in a commercial manner while protecting taxpayers and unwinding the investments as soon as practicable, Geithner said. He announced Wednesday that TARP would be extended to Oct. 3 ...

Grant requests for Native American program jump

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WASHINGTON (12/11/09)—One credit union was among the 61 lenders applying to the U.S. Treasury Department's Community Development Financial Institutions (CDFI) Fund applications for the fiscal year (FY) 2010 funding round of the Native American CDFI Assistance (NACA) Program. The applications represent a 27% increase over the 48 the fund received in the original application solicitation of the FY 2009 round. Applicants requested more than $23.7 million in financial and technical assistance for FY 2010, and that is up 30% over the $18.3 million requested last year. The application process began in August and the deadline was Oct. 7. The CDFI Fund intends to award $12 million this round. A House-Senate conference panel earlier this week voted to adopt a higher CDFI funding level than proposed by the House, as well a more money for the National Credit Union Administration’s Community Development Revolving Loan Fund. The appropriations were ratified yesterday by a House vote and the Senate is expected to take up the legislation soon. (See related story: CDFI, CLF, CDRLF funding moves forward). The increase would provide the $12 million in 2010 NACA funds, up from $10 million last year. “The NACA Program is vital for reaching and helping our nation’s most distressed Native communities, helping them start to move toward economic recovery and economic self-sufficiency,” said CDFI Fund Director Donna Gambrell in a release. “The $23.7 million is the most funding ever requested in the history of the program and clearly demonstrates the critical need for these resources.” Applications were received from 19 states and in addition to the credit union, 31 applicants were loan funds, three were a bank, thrift or holding company, and 26 were sponsoring entities.

Co-ops unite in support of MBL increase

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WASHINGTON (12/11/09)--The National Cooperative Business Association (NCBA) has joined the Credit Union National Association (CUNA) to advocate for lifting the current 12.25% cap on credit union member business loans (MBL). In a recent action alert, the NCBA called upon its members to “help stimulate business lending” and come to the aid of “businesses and cooperatives around the country” by “urging” their Congressional representatives to support H.R. 3380, the Promoting Lending to America's Small Businesses Act. Rep. Paul Kanjorski (D-Pa.) is working with Reps. Nancy Pelosi (D-Calif.) and George Miller (D-Calif.) to include his MBL cap legislation, which would, among other things, increase the cap on credit union member business lending to 25% of a credit union's total assets, in a developing jobs bill. CUNA has estimated that expanding the capacity of credit unions to make business loans could result in $10 billion in new business loans through credit unions and at least 108,000 new jobs in the first year after enactment, with no additional costs to taxpayers. NCBA Spokesman Adam Schwartz told News Now that the NCBA “has seen firsthand the need for credit and loans to businesses,” adding that lifting the MBL cap for credit unions would serve as a “very positive development for job creation and cooperative growth.” The NCBA is the latest in a growing number of trade associations to back the MBL cap lift. These organizations, including the National Farmers Union, the National Cooperative Grocers Association and the National Association of Manufacturers, spoke in support of the vital role that credit unions play in providing capital to underserved communities and small businesses in an "open letter" ad published on Wednesday in various D.C.-based publications. CUNA has also communicated directly with legislators and the Obama Administration to state its case for lifting the MBL cap.

Supreme Court debates when student debt is dischargeable

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WASHINGTON (12/11/09)—In a case of interest to credit unions, Espinosa v. United Student Aid Funds (USAF), Inc., the U.S. Supreme Court last week heard oral arguments involving a dispute on when non-dischargeable student loan debt may be discharged in bankruptcy proceedings. Under the bankruptcy law, student loans cannot be discharged unless denying such relief would impose an “undue hardship.” However, the U.S. Courts of Appeals are sharply divided on whether debtors can discharge student loan debt through a Chapter 13 plan. The federal bankruptcy rules require that the debtor’s effort to discharge student loan debt be an “adversary proceeding,” requiring that the lender be served with a summons and complaint. In this case, the debtor in a Chapter 13 plan proposed to repay $13,000 in principal over five years but to have all accrued and post-petition interest on the student loan discharged. USAF had filed a claim for the full amount including interest. The trustee told the lender that it would be paid what was listed in the plan, and USAF did not object to the plan. The bankruptcy court confirmed the plan as submitted. The court did not make an undue hardship finding, and the debtor never initiated an adversary proceeding with the lender. The debtor completed the plan over five years and received a discharge, but three years later USAF attempted to collect the remaining amount due under the student loan contract by garnishing the debtor’s federal income tax refunds, setting off a volley of conflicting rulings. In reopening the case, the bankruptcy court ruled that USAF had violated the discharge order, and directed the lender to cease all collection activities, saying that the plan became final when it was confirmed and USAF should have objected to any procedural defect prior to confirmation. The federal district court reversed the bankruptcy court, ruling that USAF had been denied due process. The Ninth Circuit Court of Appeals reversed that decision, ruling in favor of the debtor’s discharge and directing the bankruptcy court to determine if USAF had willfully violated the discharge order. In oral argument to the Supreme Court last week, USAF attorneys argued that student loan debt cannot be discharged without a showing of undue hardship in a court proceeding, and that the bankruptcy court did not apply the statute properly. The U.S. Justice Department entered the case on the side of the lender, noting that there is an important public interest at stake here because the U.S. Department of Education is reinsuring student loans. The borrower’s attorney, while acknowledging that the bankruptcy court violated the law, said that once the plan is confirmed, it is final and creditors cannot later – perhaps years later – object. This case was one of two on bankruptcy laws taken up by the high court last week. The other involved a bankruptcy law restriction on attorneys’ advice to clients to incur more debt in anticipation of bankruptcy. (See News Now 12/8/09: Supreme Court hears case on bankruptcy attorneys’ advice restriction.)

CDFI CLF CDRLF funding moves forward

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WASHINGTON (12/11/09)—The House voted 221-202 to approve funding legislation covering the Community Development Revolving Loan Fund (CDRLF), the Central Liquidity Facility (CLF), and Community Development Financial Institutions (CDFI) Fund for 2010. The Senate is expected to vote soon. Some of the targeted appropriations are higher than first proposed in the House, with a House-Senate conference committee nudging funding levels up while working out differences between the two chamber’s bills prior to a final vote. For instance, the conference bill agreed to $1.25 million for the National Credit Union Administration’s (NCUA) CDRLF through fiscal year 2011, up from $1 million in the House bill. The compromise also sets $246.75 million for the U.S. Treasury Department’s CDFI Fund program, while the House had proposed $243.6 million. Of the CDFI Funds, $80 million will be transferred to the Capital Magnet Fund, authorized under the Housing and Economic Recovery Act (HERA) of 2008 to support affordable housing. The conference agreement provides this funding in lieu of contributions from Fannie Mae and Freddie Mac. The conference report stated that the Congress intends the funding to provide the start-up capital for the magnet fund, and that it expects it to operate without additional appropriations in the future when Fannie Mae and Freddie Mac begin their required contributions as outlined in HERA. Also, of the total amount CDFI amount, $4. 15 million is included for a competitive grants pilot program aimed at providing financial counseling services to prospective homebuyers, as authorized by HERA. The funding increase also provides $12 million, up from $10 million, in funds for assistance to the Native American, Native Hawaiian and Alaskan Native communities. (See related story: Grant requests for Native American program jump.) Regarding the NCUA’s CLF, the compromise bill allows the liquidity facility to lend in FY2010 up to the maximum provided for by section 307(a)(4)(A) of the Federal credit Union Act.

Kanjorski Bachus Royce join GAC lineup

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WASHINGTON (12/11/09)--The Credit Union National Association this week added further starpower to its upcoming Governmental Affairs Conference (GAC), with Reps. Paul Kanjorski (D-Penn.), Spencer Bachus (R-Ala.), and Ed Royce (R-Calif.) agreeing to speak at the event. Kanjorski and Royce, longstanding friends of the credit union movement, recently collaborated to introduce H.R. 3380, a bill that would lift the current cap on member business lending for credit unions. Bachus has also backed credit unions by working to maintain credit union independence in this year’s ongoing regulatory reform process. All three are senior members of the House Financial Services Committee; Bachus is the panel's ranking Republican and Kanjorski is the number-two Democrat behind Chairman Barney Frank (D-Mass.) The GAC, which will take place between Feb. 21 and 25 in Washington, D.C., will give credit union leaders the opportunity to learn the latest, first hand, from influential policymakers, as well as a platform to advocate for credit union issues. Financial Accounting Standards Board Chairman Robert Herz, Larry Kudlow, economist and host of CNBC's The Kudlow Report, former Federal Reserve Chairman Alan Greenspan, and Richard Phillips, Captain of the Maersk Alabama, which was hijacked by Somali pirates earlier this year, are also scheduled to speak at the event. A political point-counterpoint discussion between Joe Scarborough, former Congressman and current host of MSNBC's Morning Joe, and Presidential candidate and former Democratic National Committee Chairman Howard Dean, will also liven up the GAC. The festivities will begin on Feb. 21 with a CUNA Council-sponsored concert by the World Classic Rockers, featuring member of Santana, Journey, Boston, Steppenwolf, Toto and Lynyrd Skynyrd. Use the resource link below for more 2010 GAC information.

New low-income FCU chartered in New York

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ALEXANDRIA, Va. (12/11/09)--The National Credit Union Administration (NCUA) on Thursday announced that it has approved the charter of Queens, New York’s East River Development Alliance FCU, a credit union that will serve the citizens of Queens Districts 1 and 2. East River, which will open in April 2010, will offer regular shares, club accounts, share certificates, personal loans, credit builder loans, credit repair loans, and share secured loans, according to the release. The credit union will also provide direct deposit, money orders, and check cashing services, and will offer share draft accounts, ATM services, online banking with bill payment, audio response and wire transfers by 2013, the NCUA said. East River, which is the second new federal credit union chartered this year, was organized by the East River Development Alliance, a Long Island, New York-based non-profit that seeks to improve public housing neighborhoods within New York City through “educational, support, counseling, and referral services to encourage youth development, workforce development, wealth building, and community revitalization.” In a statement accompanying the release, NCUA Chairman Debbie Matz said that the credit union, which is “clearly well-positioned to reach out, to serve and to fill a need for fairly priced alternative financial services,” will “serve a vital role in assisting low- and moderate-income consumers in an area that has been unfortunately overlooked by traditional financial institutions.”

Cramdown to stand alone as big reform progresses

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WASHINGTON (12/11/09)--The House Rules Committee has elected not to marry cramdown language with Rep. Barney Frank's (D-Mass.) manager's amendment to H.R. 4173, the Wall Street Reform and Consumer Protection Act. The decision came after several credit unions leagues and credit union advocates in Washington for the National Hike the Hill reached out to Members of the House to object to combining the two measures. The cramdown amendment, which was presented by Rep. John Conyers (D-Mich.) earlier this week, would modify the bankruptcy code to permit judicial mortgage modification in Chapter 13 bankruptcy proceedings. However, the Rules Committee on Thursday did make the Conyers Amendment in order during debate of H.R. 4173 as a stand alone amendment, and there will be a vote on the cramdown amendment during the regulatory restructuring debate. CUNA President/CEO Dan Mica on Thursday reached out to members of Congress on the cramdown issue, saying in a letter that CUNA considers the Conyers Amendment vote “a key credit union vote.” “H.R. 4173 has been delicately balanced to meet the needs of the proponents of financial regulatory reform and address several of the concerns that credit unions and others have raised throughout the process,” and CUNA is “deeply concerned that adoption of the Conyers Amendment could upset the balance that we feel has been achieved in H.R. 4173.” CUNA recognizes “the need for Congress to take steps to help keep people in their homes” and has attempted to work with proponents of this proposal on a compromise that would address foreclosures. However, Mica added, “the Conyers Amendment has the potential to do long-term damage to the mortgage market and undermine the safety and soundness of credit unions, and therefore we must oppose it.” CUNA recently communicated with Rep. Louise Slaughter (D-N.Y.), telling the legislator that including cramdown language in Frank's manager's amendment could force credit unions to strongly oppose the broader regulatory restructuring measures proposed in H.R. 4173. Credit union league representatives from across the nation also spoke out against the cramdown legislation, meeting directly with legislators during CUNA's National Hike the Hill, which concluded yesterday. Thirty five additional amendments are also expected to be considered during debate on H.R. 4173. A final vote, and, possibly, final passage of H.R. 4173 could happen as soon as Friday, but the legislation may also linger into early next week.