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CFPA oversight limited to CUs with 10B assets

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WASHINGTON (12/3/09)—The head of the House Financial Services Committee has agreed to exclude credit unions with $10 billion or less in assets from the examination and supervision authority of the proposed Consumer Financial Protection Agency (CFPA), a move strongly advocated by the Credit Union National Association (CUNA). An earlier version of the bill set the threshold at $1.5 billion. Committee Chairman Barney Frank (D-Mass.) said he would modify the current language of his CFPA bill so that credit unions with $10 billion or less in assets would not be subject to examination and supervision by the CFPA. Instead, their primary regulator would enforce rules established by the CFPA. CUNA has learned that the bill is being modified at the request of many Democratic members. This change boosts the current carve out up from $1.5 billion in assets and puts credit unions on equal footing with community banks, who were given the higher exemption under a recently adopted amendment. CUNA President/CEO Dan Mica thanked Frank, saying that Frank’s decision, which “effectively eliminates more than 99% of all credit unions from direct examination and supervision” by the CFPA, “is a clear indication he recognizes credit unions did not ‘start the fire’ of the current financial debacle and that their current regulatory regime, coupled with their cooperative structure, argues against credit unions contributing to a financial crisis in the future.” CUNA Senior Vice President of Legislative Affairs John Magill also today lauded Frank’s action, calling it “a very significant and positive development.” However, Magill added that credit unions must “bear in mind that legislation is a process not an event, and that process continues.” CUNA has opposed unnecessarily dividing credit unions by asset size in the legislation. “However,” Magill said, “once it became apparent that the legislation was going to move forward with an asset threshold, CUNA fought to secure parity for credit unions with the higher level established for banks.”

Kanjorski seeks House help on CU MBL cap

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WASHINGTON (12/3/09)--Rep. Paul Kanjorski (D-Pa.) has asked Reps. Nancy Pelosi (D-Calif.) and George Miller (D-Calif.) to help credit unions assist small businesses by including portions of H.R. 3380, the Promoting Lending to America’s Small Businesses Act of 2009, addressing member business lending (MBL) in their still-developing jobs creation legislation. In the letter sent today, Kanjorski said that “credit unions are already helping their members start businesses, as well as helping their members with established businesses.” He added that credit unions could “do even more if Congress raised the member business lending cap.” “Unfortunately, an arbitrary restriction imposed in 1998 has so far limited their ability to promote greater economic growth during the current economic downturn. Prior to the enactment of this statute, credit unions had no cap on their member business lending activities,” he added. Credit Union National Association (CUNA) President/CEO Dan Mica thanked Kanjorski for his support and called the letter “a significant indication of Representative Kanjorski's continued support of credit unions and increasing the MBL cap.” H.R. 3380, which was introduced by Kanjorski and Rep. Ed Royce (R-Calif.) earlier this year, would increase the MBL cap to 25% of a credit union's total assets, would raise the "de minimis" threshold for a loan to be considered a "member business loan" to $250,000, and would exempt loans made to non-profit religious organizations as well as loans made in qualified underserved areas from the cap. CUNA estimates that if the cap were eased, approximately $10 billion could be provided in new small business loans.

Inside Washington (12/02/2009)

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* WASHINGTON (12/3/09)--The House Financial Services Committee approved legislation Wednesday that will put an end to “too big to fail” financial firms. The Financial Stability Improvement Act, H.R. 3996, aims to prevent the failure of large institutions from becoming a systemwide crisis and ensure that taxpayers are not responsible for the collapse of large banks. Under the bill, any costs for dismantling a failed financial company will be repaid from the assets of the failed firm at the expense of shareholders and creditors. Any shortfall would then be covered by a dissolution fund pre-funded by large financial companies with assets of more than $50 billion and hedge funds with assets of more than $10 billion. Big banks will be affected the most by the legislation, observers said. It requires big banks to retain more capital, hold convertible debt instruments, pay assessments to a systemic risk insurance fund and pay more in deposit insurance premiums. Karen Shaw Petrou, Federal Financial Analytics managing partner, said prior to the legislation’s approval that if such measures were enacted, some of the largest banking organizations would “pull themselves apart” because the legislation would force them to undergo “strategic reassessment” (American Banker Dec. 2) ... * WASHINGTON (12/3/09)--The Treasury Department has announced that it will sell its warrants for Capital One common stock today. The auction will begin at 8 a.m. EST and will end at 6:30 p.m. The Treasury is selling 12,657,960 warrants, all of which expire on Nov. 14, 2018. The Treasury will not receive any proceeds from the sale ... * WASHINGTON (12/3/09)--A longtime debate regarding industrial loan companies (ILCs) may be ended with the approval of a regulatory reform bill by the House Financial Services Committee The bill would prohibit new commercial owners of banks and subject existing ILCs to holding company restrictions (American Banker Dec. 2). The ILC issue surfaced two years ago when Wal-Mart submitted an application for an ILC. Opponents demanded legislation to prevent Wal-Mart from ownership of a depository institution. The bill, by House Financial Services Committee Chairman Barney Frank (D-Mass.), includes provisions that ban the creation of new ILCs. Commercial firms would not be able to apply to own depository institutions. Nonfinancial companies that own a bank could keep it, but ILC owners would be subject to tougher scrutiny ... * WASHINGTON (12/3/09)--Sen. Christopher Dodd (D-Conn.), head of the Senate Banking Committee, convened a meeting Saturday evening with his committee to try and revive legislation that would reform the financial regulatory system (The New York Times Dec. 2). Dodd assigned one Democrat and one Republican to each of the legislation’s main chapters to forge compromises and bring back the measure. Dodd said he hoped that the debate over financial regulation overhaul would reach a turning point. Dodd’s approach to financial legislation is opposite that of House Financial Services Committee Chairman Barney Frank (D-Mass.), who spent months going through each chapter of the legislation with his committee. He said in a recent interview that he hopes to take the legislation to the floor later this month. Dodd has been unable to earn support from Republicans and some Democrats with ties to industry groups affected by the bill ... * WASHINGTON (12/3/09)--The Federal Reserve Board issued a prompt corrective action against Bank of Illinois in Normal, Ill., to raise its capital ratios. The bank failed to submit a capital restoration plan to the Fed and now must raise its equity. Bank of Illinois is required to submit a progress report to the Fed within 30 days, detailing its plan to comply with the Fed’s directive ...

Kohls payday loan bill means better access to CUs

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WASHINGTON (12/3/09)—Sen. Herb Kohl (D-Wis.) on Wednesday introduced legislation aimed at increasing access to mainstream financial institutions by encouraging credit unions and community banks to provide low-level loans to low- and moderate-income Americans. The legislation, known as the Safe Affordable Loan Act, would “mitigate some of the risk associated with offering small dollar loans” by allowing financial institutions to recover as much as 60% of a lost loan through a to-be-created central loan-loss reserve fund. To be granted access to the fund, financial institutions would be required to offer loans that are under $2,500 in value, with “reasonable” interest rates. The loans must also be free of prepayment penalties, with repayment periods of over 60 days. The proposal applies primarily to community development financial institutions, but other credit unions may be able to apply. A Federal Deposit Insurance Corp. (FDIC) study has found that 21 million U.S. households, or 17.9%, reported that they have checking or savings accounts but use “nonbank money orders, nonbank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or refund anticipation loans at least once in the past five years.” Kohl said that the FDIC survey results were “not surprising,” as low-income Americans have “typically been left out of mainstream financial services for a variety of reasons.” “Without better access to banks or credit unions, consumers will continue to rely on other financial services which might be quicker, but often carry larger financial consequences,” he added. According to the FDIC survey, nine million U.S. households, or 7.7%, do not currently have a checking or savings account. In total, the FDIC found that one in four U.S. households are either unbanked or underbanked, with a disproportionately high number of those households being comprised of minorities or low-income citizens. The FDIC survey, which is conducted by the U.S. Bureau of the Census on the FDIC’s behalf, is the first to collect information on unbanked and underbanked households and the first to provide estimates of the national, regional, state and metropolitan distribution of these households. In a statement accompanying the release, FDIC Chairman Sheila Bair said that “better understanding” unbanked and underbanked households will help the FDIC be “better positioned” to help them take “an important first step toward achieving financial security--the opportunity to conduct basic financial transactions, save for emergency and long-term security needs, and access credit on affordable terms." FDIC Vice Chairman Martin Gruenberg said the survey "breaks new ground in the effort to expand access to basic financial services" and "will provide the information base for future efforts to address the financial services needs of unbanked and underbanked households in the U.S." Households with income under $30,000 account for 71% of unbanked households, with the amount of unbanked households declining “considerably” as household income increases. Under 1% of households with yearly income of $75,000 or higher are unbanked, according to the survey. Households with yearly incomes of $30,000 to $50,000 were almost as likely as lower-income households to be underbanked, the survey found. A similar FDIC survey, published in February, found that the majority of financial institutions were aware of opportunities to serve unbanked and underbanked individuals in their area, but admitted that more could be done to serve these individuals. Additional data from the survey, including state-by-state and regional breakdowns of the data, can be found at the link.