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NCUA Guidance Clarifies Supervisory Expectations on Private Student Loans

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ALEXANDRIA, Va. (12/10/13)--The National Credit Union Administration Monday released  a supervisory Letter to Credit Unions (13-CU-15) intended to clarify the regulators' expectations about direct and indirect private student loan (PSL) products.
The NCUA noted it has observed steady growth in the PSL market since the agency began collecting Call Report data on them in December 2011. "PSLs are unlike other consumer-based loan products, and it is critical that credit unions have sound processes and controls in place to address their unique characteristics and risks," the agency said in an introduction to the letter.
The guidance addresses unique issues with PSLs, such as:
  • The postponement of repayment;
  • The fact that borrowers often have little credit history;
  • That repayment is often dependent on future employment; and,
  • That PSLs are often structured as a line of credit that is converted to a closed-end line.
Credit Union National Association Deputy General Counsel Mary Dunn said Monday that the guidance is well done and should be helpful to examiners and credit unions that provide private student loans to their members. 
For instance, she noted that Appendix A of the letter specifically addresses the differences between private and federal student loans. "This should be helpful because credit unions experiencing problems with their examiner's understanding of their private student loan programs often indicate the examiner failed to distinguish between PSLs and federally guaranteed SLs," Dunn said.
However, Dunn added that the guidance may nonetheless result in continued concerns that CUNA and the leagues will want to monitor with affected credit unions and the CUNA Lending Council. 
For example, the guidance directs examiners to consider whether the credit union's methodology for funding its Allowance for Loan and Lease Losses (ALLL) has fully considered relevant PSL default rate trends.  The way in which credit unions fund their ALLLs is an ongoing issue for many credit unions and whether the ALLL properly reflects PSL risks may remain an issue even after this guidance.
"Another issue is that examiners are directed to consider factors, such as concentrations of loans involving one school, that could have a broad impact on a PSL program. While such concerns may be fully appropriate in most circumstances, credit unions should have flexibility to extend loans that have a higher risk profile when the credit union can manage the risk," Dunn noted. 
Nonetheless, she added, the guidance acknowledges that PSLs can be an important loan product for credit unions that can handle the risks, have a strong asset liability management program, develop and maintain appropriate loan policies, engage in sound underwriting, and implement effective collection practices.

Senators Vote 57-41 for Watt as FHFA Leader

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WASHINGTON (12/11/13)--Rep. Mel Watt (D-N.C.) has been confirmed by a 57 to 41 vote in the U.S. Senate to become the director of the Federal Housing Finance Agency.
Earlier in the day, the Senate approved a series of procedural votes that cleared the way for the final approval of Watt's nomination.
The Obama administration's success in getting its nominee for FHFA director through the confirmation process owes a nod to the recent changes in the Senate's filibuster rules. 
The chamber voted a reported 57 to 49 to move Obama's FHFA choice forward. Prior to the filibuster rule changes, it would have required 60 votes to move ahead—a near impossibility in Watt's case where support and opposition were clearly delineated along party lines.
Watt was nominated by President Barack Obama in May. Watt has served in the U.S. Congress since 1992, and is a veteran member of the House Financial Services Committee. If confirmed by the Senate, he would replace FHFA Acting Director Edward DeMarco, who has led that agency since Sept. 1, 2009.

As Adjournment Approaches, Congress Moves to Complete Work

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WASHINGTON (12/10/13)--With a scheduled adjournment approaching at the end of the week, Congress will race to wrap up unfinished business this week, which could include the confirmation of Rep. Mel Watt (D-N.C.) to lead the Federal Housing Finance Agency.

Conference reports on the Farm bill, the Defense bill and the budget could be considered before the House adjourns on Thursday or Friday of this week. The Senate may consider these bills as well. Also in the Senate, votes on pending judicial nominations are scheduled to be held.

Consideration of the defense authorization bill could also take place, and CUNA Senior Vice President of Legislative Affairs Ryan Donovan said CUNA is following that bill closely "because of its history of being an incubator, of sorts, for financial services policy."

Hearings scheduled for this week include:
  • A Tuesday Senate Finance Committee hearing on John Koskinen's nomination to oversee the U.S. Internal Revenue Service;
  • A Tuesday Senate Banking Committee hearing entitled "Housing Finance Reform: Fundamentals of Transferring Credit Risk in a Future Housing Finance System.";
  • A Tuesday House Energy and Commerce manufacturing and trade subcommittee hearing on the state of online gaming and the Internet Poker Freedom Act (H.R. 2666). H.R. 2666 would establish a program for the licensing of Internet poker by States and federally recognized Indian tribes;
  • A Wednesday House Financial Services Committee hearing on international finance, during which U.S. Treasury Secretary Jack Lew will testify;
  • A Wednesday Senate Banking Committee hearing on rebuilding American manufacturing; and
  • A Thursday House Financial Services Committee hearing entitled "Rethinking the Federal Reserve's Many Mandates on Its 100-Year Anniversary."
When the House goes out this week, it is expected to adjourn until Jan. 6. The Senate has not announced an adjournment date, and may be in session next week.

CUNA has also released a new webcast to help credit unions keep track of Congress. For more on the webcast, see News Now story: New Monthly CUNA Webcast Keeps CUs Updated On Congress.

Inspector General: Aggressive Agency Audits, Board Oversight Could Have Helped G.I.C. FCU

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WASHINGTON (12/10/13)--The systemic losses created by the failure of G.I.C. FCU, Euclid, Ohio, could have been mitigated with more aggressive National Credit Union Administration oversight, the NCUA Office of the Inspector General (OIG) wrote in a recent material loss review.

G.I.C. FCU served 3,476 members and had assets of approximately $15.5 million before it was closed in December 2012. The agency said it liquidated the credit union after determining it was insolvent and had no prospect for restoring viable operations.

The OIG material loss review reported that G.I.C. FCU failed due to an overstatement of $8.1 million in assets, primarily investments in certificates of deposit and cash, allegedly due to fraud.

Questionable management integrity and performance, weak supervisory committee oversight and weak board oversight "created an environment in which assets could be vastly overstated," the review said. Specifically, the review found that:
  • G.I.C. FCU senior management displayed a lack of integrity and did not manage the credit union in the best interest of its members;
  • The credit union's supervisory committee failed to obtain supervisory committee audits for fiscal years 2009, 2010, and 2011; and
  • G.I.C. FCU's board failed to keep complete and accurate minutes, did not to obtain board packets with information sufficient to execute its duties, and did not act as control over the supervisory committee by providing a forum for receiving the audit report and minutes of the Committee meetings.
The above issues could have been detected, and losses could have been prevented, if the NCUA had been more aggressive in requiring the completion of supervisory committee audits, confirmed account balances directly with institutions, and addressed risks related to supervisory committee and board of director failures, the OIG wrote in the review.

To prevent similar situations in the future, the NCUA OIG recommended the agency:
  • Reinforce certain policies and procedures to ensure examiners document, communicate, and follow-up on incomplete or otherwise unacceptable external auditor reports;
  • Revise policies and procedures to require that examiners gain an understanding through direct communication with external auditors of procedures performed to verify account balances, specifically the cash, investments, brokered CD's, and member accounts;
  • Consider requiring examiners to obtain audit reports directly from independent auditors rather than receiving them from credit union management to avoid potential manipulation; and
  • Revise examination guidelines to include a step requiring examiners to obtain independent verification of significant balances (e.g., greater than 10% of total assets) directly from third parties.
For the full material loss review, use the resource link.

New Monthly CUNA Webcast Keeps CUs Updated on Congress

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WASHINGTON (12/10/13)--This month, the Credit Union National Association debuts yet another tool to help keep credit unions up to speed on the latest developments from the U.S. Congress: CUNA's Legislative Affairs audio webcast.

The first 15-minute webcast has been posted to the site and is hosted by CUNA Senior Vice President of Legislative Affairs Ryan Donovan. It addresses the ongoing threats to the credit union tax status and how they can be combatted. Other topics in the audio webcast include:
  • The level of productivity of the U.S. Congress through October of this year;
  • The late 2013 and early 2014 congressional agenda;
  • The outlook for housing finance reform;
  • Regulatory relief measures that could help credit unions; and
  • Advice on how credit unions can advocate their priorities as they meet with members of Congress.
CUNA legislative staff will update the audio webcast on a monthly basis.

"The webcasts will be a valuable tool for credit unions, and can be played at board meetings, and used as pre-Governmental Affairs Conference and Hike the Hill briefing materials," Donovan said.

The next webcast will be offered as Congress returns for the second session of the 113th Congress. A February webcast will focus on GAC preparation.

To listen to this month's audio webcast, use the resource link.

Senator Asks FTC to Investigate Payday Lender Lead Generators

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WASHINGTON (12/10/13)--Sen. Edward Markey (D-Mass.) has requested that the Federal Trade Commission investigate websites operating as "lead generators" for payday lenders.

Markey in a release noted that the lead generator sites collect personal data such as account numbers, social security numbers and routing numbers from consumers and provide that information to predatory lenders, without consumer consent or knowledge. Many consumers provide this information when they seek short-term loans. Once their information is passed on by lead generators, they may receive several unwanted loan offers.

"These business practices raise a number of concerns about what these lead generator websites do with consumers' personal information, whether they store and secure it and whether these websites sell this personal information without consumers' knowledge or consent," Markey said in a letter to FTC Chairwoman Edith Ramirez.

The Consumer Financial Protection Bureau in early November began accepting complaints on payday lenders. The Credit Union National Association praised the move, and maintains the agency should focus more attention on unregulated entities (News Now Nov. 7).

CUNA remains concerned that the agency not over-regulate in this area, and inadvertently put credit union alternatives out of commission for those members who need this service.

Under federal rules, credit unions are allowed to make short-term, small-amount loans with an annual interest rate of no more than 18%, with some exceptions. Under National Credit Union Administration guidelines, federally chartered credit unions are allowed to charge no more than 10 percentage points above the established usury ceiling--currently, the statutory maximum is 28%. 

Most credit unions that offer alternatives to conventional payday loans also limit fees, encourage members to open savings accounts and provide financial counseling.

FSOC Puts Spotlight on Cybersecurity Legislation

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WASHINGTON (12/10/13)--The Financial Stability Oversight Council (FSOC) met in open session Monday to discuss cybersecurity, as well as to receive a presentation from the Office of Financial Research on financial market developments, among other things.
Politico reported that officials from the U.S. Treasury Department told FSOC members that there is a significant need for cybersecurity legislation that goes beyond the Obama administration's executive order on "critical infrastructure" cybersecurity.  That order, when issued, incorporated some changes suggested by the Credit Union National Association to the agency. Cybersecurity legislation is supported by CUNA, and widely across the financial services industry.

Politico reported that a Treasury official said at the FSOC meeting that although work under the Executive Order is vital, it is not a substitute for legislation and that the administration hopes to work with Congress to keep laws apace with evolving cyber threats.

The National Credit Union Administration is an FSOC member.