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NCUA liquidates NYC OTB FCU

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ALEXANDRIA, Va. (2/24/11)--The National Credit Union Administration (NCUA) on Wednesday placed NYC OTB FCU into liquidation after the credit union was judged to be insolvent. The New York, N.Y.-based credit union was chartered in 1972 and held $1.45 million in assets from 868 members. The credit union served employees of the New York City Off Track Betting Corporation, which shut down late last year. The corporation laid off 1000 workers and closed 50 betting parlors throughout New York City in early December after the N.Y. State Senate did not pass legislation that would have saved it, The New York Times reported on Dec. 8. The NCUA said that it’s Asset Management and Assistance Center would issue checks to individuals holding verified share accounts in NYC OTB FCU within one week. There have been two other liquidations and one federal credit union conservatorship so far this year.

CUs legislators alike wary of interchange changes

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WASHINGTON (2/24/11)—By the time the Federal Reserve’s comment period for its interchange fee regulation proposal closed on Feb. 22, over 5,200 credit unions and credit union backers had contacted the Fed via the Credit Union Nation Association’s Operation Comment to express their concerns with the proposal. The Fed's interchange provisions, which were released for public comment late last year, would cap debit card interchange fees that are paid by merchants to large debit card issuers at no more than twelve cents per transaction. By law, issuers with under $10 billion in assets are entitled to be exempted from the interchange fee rate setting provisions. Credit union comments on the interchange proposal included criticisms of the proposal’s arbitrary cap, which many said does not fully account for the costs of running debit card programs. One respondent said that his credit union would be forced to increase some fees, eliminate certain products and services, and could go so far as cutting staff members or closing down branches. These drastic actions would reduce the level of service provided to members and could prevent some current credit union members from having access to the banking system in general, the letter adds. Legislators, including Sen. Claire McCaskill (D-Mo.), commented on the interchange proposal when it was first released late last year. The most recent comments from members of Congress came in a Tuesday letter from Sens. Charles Grassley (R-Iowa) and Tom Harkin (D-Iowa). In that letter, Grassley and Harkin, both of whom supported Sen. Richard Durbin’s (D-Ill.) interchange proposal when it was added to the Dodd-Frank Act last year, encouraged the Fed to ensure that the small institution exemption works as intended. House Financial Services Chair Spencer Bachus (R-Ala.), Senate Banking Committee ranking minority member Richard Shelby (R-Ala.) , Rep. Barney Frank (D-Mass.) and other legislators have also expressed concern over the potential issues that the interchange changes could cause small issuers. Fed Chairman Ben Bernanke in testimony submitted last week said that he could not ensure that the planned small issuer exemption would work as planned. Several legislators during a pair of recent House and Senate hearings said that the interchange regulations, which would come into effect in July, should be delayed to allow for further consideration. CUNA this week suggested that the Fed should work with Congress to delay interchange regulation implementation by up to 24 months to allow more time for discussion and consideration of how the interchange regulations would impact credit unions. (See related Feb. 23 story: CUNA: Two-year delay needed for interchange study)

CUNA seeks transparency in tech assistance program

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ALEXANDRIA, Va. (2/24/11)--The Credit Union National Association (CUNA) urged the National Credit Union Administration (NCUA) to further improve the transparency of its supervisory and examination appeals process in a Tuesday comment letter. CUNA added that it supports giving the NCUA’s Supervisory Review Committee the authority to review TAG denials, as credit unions previously had no forum to appeal these NCUA decisions. However, the NCUA could clarify how credit unions can appeal other supervisory and examination matters outside of the Supervisory Review Committee’s review, CUNA said. CUNA also approved of the NCUA’s move to allow committee decisions to be appealed from the date that the credit union receives their decision. The proposal, which combined two other previously published IRPS’s, also updates some titles and explains that Supervisory Review Committee meetings will be held on an as-needed basis going forward. TAGs are used to assist low-income credit unions under NCUA’s Community Development Revolving Loan Fund. The NCUA’s TAG proposal, Interpretive Ruling and Policy Statement (IRPS) 11-1, came into effect on January 20. For the full comment letter, use the resource link.

Directors fin. lit. requirements may be extensive

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WASHINGTON (2/24/11)--Larger, more complex federal credit unions may need to demonstrate a higher level understanding of financial risk to be in compliance with the National Credit Union Administration’s (NCUA) newly adopted director fiduciary duties rule, Credit Union National Association (CUNA) Senior Vice President of Compliance Kathy Thompson has said. The NCUA late last year established a new set of financial literacy guidelines for federal credit union directors which held that those directors should have the ability to examine their credit union's balance sheet and understand specific financial activities that their credit union takes part in. The NCUA will not test individual directors to assess their financial literacy, but will examine the training programs that federal credit unions have set up for their directors. The NCUA has specifically said that directors should have complete knowledge of risks, including credit risk, liquidity-related risks, and interest rate, compliance, strategic, transaction, and reputation risks. The NCUA’s Office of Small Credit Unions will be conducting board training workshops this spring, and the material covered in those sessions will be appropriate for credit unions that aren’t into more complex business lines, Thompson said. However, Thompson added that it appears that credit unions will need to develop training on more complex issues on their own. Thompson suggested that training policies for more complex credit unions should include specifics on more unconventional activities, and should specifically state that their board will be trained on the financial risks raised by those activities and the steps that the credit union takes to “limit and control” those risks. A credit unions training policy should also reflect a commitment to additional training to address new situations that may arise if and when that credit union adds a new product or service that is expected to impact its business practices. Directors may gain the needed financial understanding through their own in-house credit union training, external training, on the job experience, or online training, the NCUA said. Directors may also train through CUNA's own Center for Professional Development. For the full NCUA letter and more on CUNA's training sessions, use the resource links.

FinCEN reports on outreach to small FIs

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VIENNA, Va. (2/24/11)--The Financial Crimes Enforcement Network (FinCEN), in a newly released report, unveiled the findings of its outreach initiative to smaller depository institutions, defined as those with less than $5 billion in assets. FinCEN’s report is the third in a series on the agency’s outreach effort and is based on information gathered from FinCEN’s individual visits and town hall-style meetings with more than 70 depository institutions including credit unions and community banks. Among its key findings, FinCEN reported that:
* Depository institutions are increasingly integrating their anti-fraud and anti-money laundering efforts. Even in cases where the two functions may not be housed in the same department, there is close collaboration on fraud and money laundering issues; * There is significant engagement with law enforcement, but many institutions do not take full advantage of existing information sharing enabled by Section 314(b) the USA PATRIOT Act to share information with their business peers; and * Institutions expressed comfort with their procedures and ability to promptly search and respond to FinCEN inquiries with respect to investigations of terrorist financing and significant money laundering.
Overall the report noted similarities between the observations of credit unions and other depository institutions that participated in the outreach events, and observations by credit unions are mentioned throughout the report. However, one unique circumstance discussed by credit unions highlighted a number of ongoing Bank Secrecy Act (BSA) compliance concerns with regard to shared branching, such as being able to track and aggregate multiple transactions at different credit unions for Currency Transaction Report purposes. Credit unions have asked that the National Credit union Administration and FinCEN provide additional guidance on BSA responsibilities in the shared branching context. Credit unions also advised FinCEN of the difficulties of expelling members that have engaged in suspicious activity that results in Suspicious Activity Report filings. Credit unions request that FinCEN and/or their regulators provide additional guidance on this issue. Use the resource link for FinCEN’s report.

Inside Washington (02/23/2011)

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* WASHINGTON (2/24/11)--Observers are divided on whether the financial system reforms outlined by the Dodd-Frank Act will be undermined by missed regulatory deadlines (American Banker Feb. 23). Regulators are required to complete roughly 170 new rules by July, one year after Dodd-Frank’s enactment, but many still-unfinished rules must be done by April. Many rules that are the responsibility of a single agency have already been adopted, but those involving multiple agencies remain a concern, according to observers. Seven agencies, for example, are writing the risk-retention rule, and they remain deadlocked on whether it should include national servicing standards. Regulators have indicated they may fail to meet many deadlines. John Walsh, the acting comptroller of the currency, said that a joint rule curbing risky incentive-based compensation structures may not make its April deadline, and it is not the only rule in such jeopardy. Observers said regulators may be able to extend the process if they can at least issue a proposal before the deadline for a final rule … * WASHINGTON (2/24/11)--The Federal Deposit Insurance Corp (FDIC) has issued letters to former executives of the failed bank Washington Mutual (WaMu), advising them of possible legal action (American Banker Feb. 23). Among the purposes of such letters, which can be a precursor to a lawsuit, is to encourage executives to reach a settlement under their directors’ and officers’ liability insurance. The FDIC has reportedly talked about potential damages of $1 billion in a lawsuit against WaMu, according to a person familiar with a matter. The size of such a claim would likely be announced in the next month, the person said. The executives who would be charged in any legal action have not been identified. WaMu was largest institution to be seized by regulators during the financial crisis, and the largest-ever U.S. bank failure …

CFA urges Feds close attention to small FIs especially CUs

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WASHINGTON (2/24/11)--While raising concerns about how the current interchange system affects consumers and supporting the general intent of legislation passed last year, the Consumer Federation of America (CFA) also urged the Federal Reserve Board to “pay close attention to the effect” that parts of its implementation plan could have “on smaller depository institutions, especially credit unions." CFA in a comment letter urged the Fed to ensure that financial institutions be reimbursed for legitimate incremental costs associated with debit card services, as required by the statute. If the Fed requires an interchange rate scheme too low to cover incremental debit card program costs, it could harm consumers by leading financial institutions to “significantly increase costs for debit card or other banking services.” The consumer group added it is particularly concerned about the effects on (low- and moderate-income) accountholders of such increases, “especially if the increases lead some accountholders to leave their bank or credit union entirely.” The Fed interchange plan offers a dual framework for determining interchange fees. One plan would provide issuers with a safe harbor of seven cents per transaction, and set a maximum interchange fee cap of 12 cents per transaction. A second alternative framework would cap the maximum interchange fee at 12 cents per transaction. These safe harbors and/or caps would be reevaluated by the Fed every two years. Citing data from Navy FCU that the seven-to-12 cent rate won't cover all incremental costs, the CFA letter recommended that the Fed "broaden its pricing standard.” The Credit Union National Association (CUNA) also had multiple dialogues with CFA on interchange issues, as has Doug Fecher, president/CEO of Wright-Patt CU, Inc. in Fairborn, Ohio, who serves on the CFA board. CFA said pricing could include, for example, network processing fees for each transaction processed, charge-backs involving billing errors, and fraud losses over which the Fed determines the issuers had no ability to prevent. As noted, the consumer group urged the Fed to "pay close attention to the effects of particular options on smaller depository institutions, especially credit unions," which often have higher incremental costs. The Fed has proposed an exemption to the interchange rule for credit unions and small institutions with under $10 billion in assets, but CUNA and others have questioned whether it would be effective in the marketplace. The CFA letter noted that the exemption has prompted VISA to indicate it will bifurcate interchange rates. “If smaller institutions receive higher interchange rates, it could help them cover the higher incremental costs they normally pay because they lack economies of scale,” noted CFA. “However,” the CFA letter continued, “Federal Reserve Chairman (Ben) Bernanke has stated that market competition might nonetheless cause these institutions to receive lower interchange income. “We urge the Federal Reserve to closely monitor how the debit interchange market for small institutions develops and how the financial viability of these institutions is affected. Credit unions especially often provide a safe, lower-cost alternative for many Americans.” The CFA called on the Fed to launch "a broad, balanced study of the effects of the rule it implements upon implementation.” This study should evaluate a number of factors, including its impact on the following:
* Whether, and to what extent, retailers pass through interchange savings to the cost of goods and services paid by all consumers. * The cost of debit card and all banking services. * The structure and practices of payment card networks. * The financial viability of smaller financial institutions, “especially credit unions."
The CFA letter did criticize the current interchange fee system, for instance saying there is poor competition among payments networks, and alleging hidden interchange pricing and cross-subsidies being paid by low and moderate income (LMI) consumers who generally don't use debit cards to the more affluent ones who do. The comment period on the Fed interchange rule ended Tuesday and the agency received more than 4,000 communications from interested parties, including CUNA, state leagues, and credit unions. News stories have characterized the letters as predominately negative. CUNA, noting a myriad of problems with the Fed’s implementation plan, is seeking a delay from the anticipated July implementation date so Congress can “stop, study, and start over” on the interchange issue.