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NEW: NCUA derivatives proposal could be released 'soon,' Matz says

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ALEXANDRIA, Va. (UPDATED: 3:35 p.m. ET, 2/5/13)--National Credit Union Administration staffers continue to examine credit union derivatives issues, and a proposed rule on derivatives could be released in the first half of 2013, NCUA Chairman Debbie Matz said in a joint NCUA/Consumer Financial Protection Bureau webinar today.

She noted that the agency is considering allowing well-run credit unions with the necessary expertise to use simple derivatives to hedge against interest rate risk (IRR).

She said managing interest rate risk is a key concern for the agency and the proposal would be issued "soon."

The agency will also address clarity in member business lending waivers, she said. An agency letter that addresses blanket waivers, guarantees and when a waiver is required for a structured or balloon loans is in the works. The NCUA will also release credit ratings and troubled debt restructuring guidance, Matz added.

The NCUA chairman launched her joint webinar with CFPB Director Richard Cordray by noting the challenges of "the smallest" credit unions, and noting agency tools available to those credit unions.

Matz, after reviewing trends in the general economy said that credit union health overall is "very encouraging" with a solid average capital level of 10%. She noted that delinquencies and chargeoffs continue to decline.

However, Matz added that some of the smallest credit unions, those with $10 million or less in assets, are struggling with a return-on-assets of zero, which in fact is an improvement over recent negative numbers. She said the pressures on these smallest credit unions are spurring a number of mergers.

"The NCUA is concerned about the health and survival of some small credit unions," Matz told the webinar audience. She added that the agency has come up with a number of plans and tools to support their operations, such as:
  • Reducing the number of examinations hours to around 40;
  • Providing more services through the agency's Office of Small Credit Union Inititiatives, such as consulting and helping with net worth restructuring plans; and
  • Increasing the use and availability of web tutorials.
She also noted the recent significant change, advocated by the Credit Union National Association, that increased the threshold that defines a small credit union to $50 million in assets, up from $10 million.

CFPB Director Cordray is now addressing the webinar participants.

MLO rule impact on CUs detailed by CUNA

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WASHINGTON (2/5/13)--The impact of Consumer Financial Protection Bureau Mortgage Loan Originator (MLO) rule changes of course will vary depending on a credit union's own unique circumstances, Credit Union National Association Deputy General Counsel Mary Dunn wrote in a final rule analysis.

The new rule is intended to prevent unscrupulous MLOs from generating higher compensation for themselves by steering borrowers into risky and high-cost loans.

The CFPB's final rules:

  • Broaden the application of prohibitions on compensation that varies with the loan terms. For instance, an MLO should not be paid more if the consumer takes a loan with a higher interest rate, a prepayment penalty, or higher fees;
  • Prohibit "dual compensation": Under the CFPB's rules, the loan originator cannot get paid by both the consumer and another person such as the creditor; and
  • Set qualification and screening standards: An MLO must meet character, fitness, and financial responsibility reviews, pass a criminal background check, be screened for felony convictions; and undertake training to ensure they have the knowledge about the rules governing the types of loans they originate.
The final rule also implements Dodd-Frank provisions that, for mortgage and home equity loans, generally prohibit mandatory arbitration of disputes related to mortgage loans and the practice of increasing loan amounts to cover single premium insurance premiums.

The provisions on mandatory arbitration and credit insurance premium financing will take effect in June 2013. The remaining provisions are effective in Jan. 2014.

Credit unions and other residential mortgage lenders are required to be in compliance with the rule, but a number of the provisions are already required for financial institutions, CUNA notes. The impact on credit unions will generally be confined to areas such as training for mortgage loan originators, and to the extent credit unions engage in such practices, provisions regarding mandatory arbitration and the financing of credit insurance premiums.

Credit unions will also need to make sure they establish compliance procedures and recordkeeping requirements addressed in the rule, Dunn wrote.

For the full final rule analysis, use the resource link.

Charter enhancement bills on the horizon

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WASHINGTON (2/5/13)--Credit union charter enhancement legislation, such as member business lending and supplemental capital bills, are expected to be unveiled in the coming weeks, and the Credit Union National Association is setting the table for these bills by seeking congressional support now.

CUNA has discussed the upcoming bills in recent meetings with Senate Banking Committee members, and the bipartisan appeal of both bills has been a consistent point of emphasis during those meetings, CUNA Senior Vice President of Legislative Affairs Ryan Donovan said. CUNA is asking senators how the appeal of the bills could be maximized through additional tweaks, he noted.

Both bills met banker opposition last year, but "CUNA anticipates the merits of the bills will be considered, and that those merits will win the day," Donovan said.

Rep. Ed Royce (R-Calif.) is preparing the MBL legislation, and Rep. Peter King (R-N.Y.) is readying the supplementary capital bill. Both pieces of legislation will be virtually identical to bills that were introduced last year, Donovan noted. There may be some changes to portions of the supplemental capital bill that address transparency and disclosures, he said.

Last year's House and Senate MBL bills, H.R. 1418 and S. 509, sought to increase credit unions' current 12.25%-of-assets MBL cap to 27.5% of assets. The bills, if enacted, would help credit unions lend an additional $13 billion to small businesses. This money, which would be made available at no expense to taxpayers, would in turn help small businesses create over 140,000 new jobs in the first year after enactment.

The 2012 supplemental capital legislation (H.R. 3993) would have permitted the National Credit Union Administration to allow credit unions to accept additional forms of capital, provided it does not alter the cooperative ownership structure of credit unions.

"The point we make when discussing MBL legislation is this: There are credit unions that served business-owning members before and during the financial crisis. Now that the crisis is over, they want to keep working with those members," Donovan said.

CUNA Senior Vice President of Political Affairs Richard Gose noted that a coalition of small business groups continue to support increasing the MBL cap for credit unions.

Banker groups strongly objected to both bills last year, and CUNA pushed back, successfully opposing legislation that would have extended the Transaction Account Guarantee (TAG) for banks. Bankers have also harmed their own bills to prevent credit union legislation from moving forward. "Banks may realize that they need to abandon this scorched-earth policy if they want to get their own legislation passed through Congress," CUNA Executive Vice President of Legislative Affairs John Magill pointed out.

ABA writes NCUA on Thrivent FOM

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WASHINGTON (2/5/13)--The National Credit Union Administration noted Monday that if an association's membership changes subsequent to the effective date stated in the federal credit union's charter, the credit union must submit revised bylaws for NCUA approval prior to serving any additional members that might result from the change.

The NCUA was responding to a letter from the American Bankers Association. The ABA contacted the federal credit union regulator earlier in the day to express concerns that the parent company of Thrivent FCU, Thrivent Financial for Lutherans, may expand its membership beyond Lutherans to include all Christians.

Thrivent FCU, chartered late last year, was the fourth newly chartered credit union of 2012 and the second bank-to-credit union charter conversion in U.S. history.

ABA Senior Economist Keith Leggett wrote that the ABA is concerned that if Thrivent Financial for Lutherans' members were to vote to expand the common bond, it "would be a considerable and problematic expansion of the credit union's membership." He said that, "while Christians may share reasonably similar beliefs, the different and sometimes conflicting doctrinal variations among different denominations suggest that all Christians do not share a meaningful affinity or interaction."

In her response to the ABA, NCUA Office of Consumer Protection Director Gail Laster said that as of the time of her letter, the agency has not received "any indication" from Thrivent FCU that the scope of its sponsor's membership is in the process of change.

In the event a change occurs, she wrote, Thrivent FCU would be required to submit the sponsor's revised bylaws to her office for review to "ensure the sponsor continues to meet NCUA's associational common bond requirements."

Thrivent FCU has approximately $500 million in assets.

Homeland Security may get greater cybersecurity role

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WASHINGTON (2/5/13)--The Obama administration is developing an executive order that will give the U.S. Department of Homeland Security (DHS) and the Department of Commerce increased authority to address distributed denial of service (DDoS) attacks and other cybersecurity issues.

"The executive order will not address financial institutions specifically, but credit unions will want to watch out because the order will have an impact on the financial institution sector," Credit Union National Association Deputy General Counsel Mary Dunn said. The administration has reached out to the National Credit Union Administration as it works to finalize the executive order, she noted.

CUNA has met with the U.S. Treasury's Financial Services Sector Coordinating Council (FSSCC) for Critical Infrastructure Protection and DHS to ensure credit unions' interests are represented in the federal government's efforts to help deal with any future attacks. The FSSCC was formed to prepare for such issues, and the financial services sector is more prepared than most to deal with cybersecurity issues as a result of Y2K preparations, Dunn noted.

CUNA continues to work with credit unions, the FSSCC, BITS and other entities on cybersecurity issues.

At least two credit unions have been victims of recent DDoS attacks. The attacks took down the websites of $3.8 billion asset Patelco CU, Pleasanton, Calif., and $1.6 billion asset University CU, Austin Texas, for hours. The credit unions emphasized that no member data was compromised during the attacks.

Bank of America, Wells Fargo & Co., Capital One, Citibank and JPMorgan Chase are among the larger institutions that were subject to similar attacks by the same group, Izz ad-Din Al Qassam. The group last week said it suspended the attacks after YouTube removed a trailer advertising an anti-Muslim film, "The Innocence of Muslims."

Credit unions have been advised to monitor and be vigilant on their cyber security and risk management systems to cope with DDoS attacks and other cybersecurity threats. Financial institutions should also follow federal financial regulations on Internet and data security, as well as Federal Financial Institution Examination Council (FFIEC) guidance on Internet authentication methods, risk assessment, and customer verification.

For more information about cyber security, please visit the CUNA members-only website.

Tester joins list of 2013 GAC speakers

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WASHINGTON (2/5/13)--Credit union friend and past Credit Union National Association Governmental Affairs Conference guest Sen. Jon Tester (D-Mont.) has joined the list of star speakers at this year's conference.

At last year's GAC, Tester said credit unions and small businesses are "the backbone of America," and declared his commitment to serve the needs of rural Americans--and credit unions' role within that vision.

Tester has worked closely with CUNA, the Montana Credit Union Network and Montana credit unions to address interchange issues and other credit union concerns. He also successfully defended his senate seat in November with the help of credit unions, CUNA and the league. CUNA President/CEO Bill Cheney just after the November elections noted "there are a lot of people in Washington that said it was impossible for Tester to be reelected in one of the reddest of red states." However, he said, credit union efforts helped push Tester over the top.

Tester will speak during the morning general session on Feb. 27.

Other legislators on the GAC speaking schedule include: Speaker of the House Rep. John Boehner (R-Ohio), Democratic National Committee Chairman and credit union supporter Rep. Debbie Wasserman Schultz (D-Fla.), and credit union champions Sen. Mark Udall (D-Colo.), Rep. Ed Royce (R-Calif.) and Rep. Brad Sherman (D-Calif.). House Financial Services Committee Chairman Jeb Hensarling (R-Texas), House Financial Services Committee Ranking Member Maxine Waters (D-Calif.), House Majority Whip Kevin McCarthy (R-Calif.), House Financial Services Committee senior member Spencer Bachus (R-Ala.), Rep. Gregory Meeks (D-N.Y.), Sen. Elizabeth Warren (D-Mass.), Rep. Peter King (R-N.Y.) and Rep. Blaine Luetkemeyer (R-Mo.) are also slated to speak at the 2013 GAC.

CUNA's 2013 GAC will take place Feb. 24-28 at the Washington Convention Center in Washington, D.C. This year's GAC theme, "Powerful Cause, Positive Effect," reflects the credit union commitment to the 95 million working Americans who rely on credit unions every day.

For more information, follow the @CUNAverse twitter hashtag #CUNAGAC. Use the resource link to register for the GAC.