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Inside Washington (03/19/2009)

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* WASHINGTON (3/20/09)--The House Thursday approved legislation to get back the bonus money paid to bankers whose employers received money from the government. The move was in response to American International Group’s $165 million bonus package (American Banker March 19). The legislation would apply to companies who received $5 billion or more from the Troubled Asset Relief Program (TARP). It would tax bonuses given after Jan. 1 at 90%. Firms receiving more than $5 billion from TARP include GMAC, PNC Financial Corp., U.S. Bancorp, Goldman Sachs, Morgan Stanley, Wells Fargo, JPMorgan Chase and Co., Bank of America, and Citigroup ... * WASHINGTON (3/20/09)--Ohio Credit Union League President Paul Mercer and Vice President of Governmental Affairs John Florian are in Washington, D.C., this week to advocate for Ohio credit unions as Congress examines issues affecting credit unions including mortgage cramdown, community reinvestment, overdraft protection and member business lending. The league visited with Reps. Steve Driehaus (D-Cincinnati); Jim Jordan (R-Urbana); Mary Jo Kilroy (D-Columbus); Zach Space (D-Dover); Betty Sutton (D-Chardon); Charlie Wilson (D-St. Clairsville); and Sen. Sherrod Brown (D-Cleveland). Also, Doug Fecher, CEO of Wright-Patt CU, Fairborn, Ohio, was scheduled to testify before a subcommittee of the U.S. House Committee on Financial Services Thursday on abusive credit card practices ...

Balance is key to consumer protections says CUNA

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WASHINGTON (3/20/09)--Balance, the Credit Union National Association (CUNA) testified Thursday, will be the necessary key to successful legislation addressing overdraft protection programs and credit card practices. Doug Fecher, who is president/CEO of Wright-Patt CU in Fairborn, Ohio, gave what he termed the perspective of Main Street, on behalf of credit unions, on current bills drafted to improve consumer protections for both the services. He was testifying before the House Financial Services subcommittee on financial institutions and consumer credit. Fecher said credit unions back the intent of legislation to protect consumers from abusive and deceptive practices. But, he insisted any law must create an equitable balance between those protections and the needs of service providers to be fairly compensated for the service and not subjected to unnecessary regulatory burdens.
Click to view larger image CUNA witness Doug Fecher, president/CEO of Wright-Patt CU in Fairborn, Ohio (left), and CUNA Senior Vice President of Legislative Affairs John Magill greet Rep. Carolyn Maloney (D-N.Y.) , author of credit card and overdraft protection bills. Fecher testified that balance is the key to successful consumer safeguards. (CUNA photo)
Legislation that does not go far enough does not really help the consumer, Fecher said. But, he warned federal lawmakers, legislation that goes too far will have unintended consequences that could have the opposite effect than that intended. For instance, Fecher said, as drafted the Consumer Overdraft Protection Fair Practices Act (H.R. 1456) could drive consumers into the grasps of the very high-cost services the legislation is intended to eliminate. The proposed bill would classify overdraft protection products as lending products under the Truth in Lending Act (TILA) and include a service fee for the program to be within the APR calculation. Therefore, Fecher testified, H.R. 1456 could force federal credit unions out of offering the bounce-protection plans, highly favored by consumers, by forcing them to bump up against their statutorily prescribed 18% usury ceiling. The bill also has the potential to present significant operational issues for credit unions, Fecher noted, by requiring written agreement with the member prior to the extension of any overdraft coverage--even for those already used to being covered by protection plans. Just as with overdraft legislation, Fecher said balance must be achieved under the Credit Cardholders Bill of Rights Act (H.R. 627), which has been re-introduced this year after failing to be passed by the 110th Congress. CUNA recognizes there are legitimate concerns about abusive credit card practices and backs efforts to end discriminatory, predatory, deceptive and abusive lending practices engaged in by some lenders. But, the CUNA witness told the subcommittee, lawmakers must be vigilant to assure their action avoids unintended consequences that are ultimately adverse to consumers, including making credit more expensive and less available. Sheila Albin, associate general counsel, National Credit Union Administration, also testified. She cited results of a 2005 Woodstock Institute research that found federally insured credit union credit card products tend to have fewer fees, lower fees, and clearer disclosures. That study concluded there is a clear difference between credit cards issued by banks and those issued by federally insured credit unions. Federally insured credit union credit card programs show credit card lending is sustainable without exorbitant penalties and misleading terms and conditions, Albin said. Other witnesses included:
* Sandra Braunstein, director, division of consumer and community affairs, Board of Governors of the Federal Reserve System; * Montrice Yakimov, managing director, compliance and consumer protection, Office of Thrift Supervision; * Kenneth Clayton, senior vice president/general counsel, American Bankers Association Card Policy Council; * Linda Echard, president/CEO ICBA Bancard, on behalf of the Independent Community Bankers of America; * Ed Mierzwinski, senior fellow, Consumer Program, U.S. PIRG; and * Travis Plunkett, legislative director, Consumer Federation of America.
Use the resource links below to read CUNAs complete testimony on H.R. 1456 and H.R. 627, as well as to access NCUAs remarks.

Fryzel tells Senate Banking Preserve NCUA independence

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WASHINGTON (3/20/09)--National Credit Union Administration (NCUA) Chairman Michael Fryzel Thursday underscored the public policy benefits of a distinct federal credit union regulatory and insurance entity in testimony before the Senate Banking Committee. The committee was conducting its first in a series of 2009 hearings on modernizing the regulatory structure for the country’s credit unions, banks and thrifts. The Credit Union National Association will testify next Tuesday at the committee’s second hearing. Fryzel told the banking panel that credit unions deserve and require a separate regulator because they are fundamentally different in structure and operation than other types of financial institutions. “Our strong belief is that these unique and distinct institutions require unique and distinct regulation,” testified Fryzel. The chairman did back, however, the concept of a federal oversight entity, charged with establishing general safety and soundness standards, issuing principles-based guidance and monitoring systemic risk. According to NCUA, under that proposal the NCUA and other regulators would remain responsible for enforcement, and an independent NCUA and National Credit Union Share Insurance Fund (NCUSIF) would be in place to preserve the credit union regulatory structure “that has been tested and proven to work for almost 40 years.” National Association of State Credit Union Supervisors (NASCUS) Chairman George Reynolds also testified, as did federal and state bank and thrift regulators. Reynolds, who is senior deputy commissioner of the Georgia Department of Banking and Finance, outlined four principles that his group says must be considered in regulatory modernization legislation: preserve charter choice and dual chartering, maintain states’ role in financial regulation, modernize the capital system for credit unions and recognize the value of state authority in consumer protection.

CUNA urges Hill for changes to NCUSIF powers

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WASHINGTON (3/20/09)—Credit unions and other institutions that continue to do the right thing for the nation during its current tough economic times, should not be disadvantaged in the political process, the Credit Union National Association (CUNA) told federal lawmakers Thursday.
Click to view larger image Caption: VyStar CU President/CEO Terry West (second from left) testifies on CUNA’s behalf before a Senate Banking subcommittee. West urges action to give the National Credit Union Share Insurance Fund greater authority both to facilitate its operations and to help credit unions handle their expenses. Also pictured are ICBA Senior Vice President Steve Verdier (left), William Grant for the American Bankers Association, and NAFCU’s David Wright. (CUNA Photo)
Representing CUNA before the Senate Banking subcommittee on financial institutions, Terry West said that it is imperative that the U.S. Congress enact legislation to give the National Credit Union Share Insurance Fund (NCUSIF) additional authority. West, president/CEO of VyStar CU in Jacksonville, Fla., said in formal testimony that the insurance fund needs authority to address insurance issues and manage insurance costs, both to facilitate its operations and to help credit unions handle their expenses. West, who is chairman of CUNA’s Corporate Credit Union Task Force, was testifying at the subcommittee hearing titled, "Current Issues in Deposit Insurance.” West testified that the current financial crisis, and the federal regulator's corporate credit union stabilization plan that the crisis has necessitated, make the following legislative actions particularly important for credit unions:
* Continue share and deposit insurance coverage to accounts up to $250,000, as was authorized on a temporary basis under the Emergency Economic Stabilization Act of 2008; * Increase authority for the NCUSIF to borrow up to $6 billion for the U.S. Treasury Department to facilitate its ability to spread out insurance costs to credit unions. The authority is critically important, CUNA said, in light of the costs credit unions face to support the National Credit Union Administration’s (NCUA) corporate liquidity plan; * Give NCUSIF power to allow credit unions to spread out premium expenses for a period of eight years. CUNA also urged the subcommittee to encourage NCUA to use existing authority to spread out costs; * Broaden the NCUA’s Central Liquidity Facility’s (CLF) authority to provide liquidity to the credit union system to include corporate credit unions, as well as natural person credit unions; and * Include specific statutory language clarifying that NCUA has the same systemic risk authority as does the Federal Deposit Insurance Corp.
West highlighted in his testimony that credit unions need the requested legislative support to continue to help the country out of its economic freeze. He said his credit union, and state and federal credit unions in communities across the nation, are working to address the country’s credit crunch. As banks cut back on lending, credit union loans rose by 7% in 2008 to over $575 billion, up $35 billion from the previous year, as noted by a recent Wall Street Journal article. That article also noted that bank loans in the country decline about $31 billion during that time period. In spoken remarks to the subcommittee, West stressed the urgency of addressing NCUSIF assessments on credit unions. “I told the senators that credit unions must be afforded a way to either spread out or reduce the assessments, as the impact on their bottom lines--and ultimately service to members--could be very significant,” West said following the hearing. “However, I was very appreciative that a number of the senators grasped the urgency of the situation. I think we may have gotten their attention.” The subcommittee also heard testimony from NCUA Executive Director David Marquis. During the session, Sen. Christopher Dodd (D-Conn.), who is chairman of the subcommittee’s parent Senate Banking Committee, brought up the idea of expansion of powers by the CLF. Both CUNA and the National Association of Federal Credit Unions (NAFCU) support legislation to allow the CLF to make loans to corporate credit unions and make capital available to natural person credit unions. Dodd asked Marquis about the plan, and he responded that NCUA supports the concept but there remain some issues to be ironed out. However, Marquis also told Dodd that NCUA staff will have a proposal on these issues to NCUA Chairman Michael Fryzel by Tuesday. He added that the chairman would have to “vet it with (NCUA) Board members.” Also testifying were:
* Art Murton, director of the division of insurance and research, FDIC; * David Wright, CEO, Services CU, Yankton, S.D., on behalf of NAFCU; * William Grant, chairman/CEO, First United Bank and Trust, Oakland, Md., on behalf of the American Bankers Association; and * Steve Verdier, senior vice president, Independent Community Bankers of America.
In a related story, NCUA Chairman Michael Fryzel testified Thursday morning before the full Senate Banking Committee, which is currently considering modernizations to the country’s financial institutions regulatory structure. (See story: Fryzel tells Senate Banking: Preserve NCUA independence.) Use the resource link below to access complete CUNA testimony.

NCUA expands RegFlex time to occupy land for expansion

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ALEXANDRIA, Va. (3/20/09)--RegFlex-qualifying federal credit unions will have up to six years to occupy unimproved land acquired for expansion without a waiver under a final rule approved by the National Credit Union Administration (NCUA) board Thursday. Previously, a RegFlex FCU had to partially occupy the premises within three years or it was required to obtain a waiver from NCUA. NCUA recognizes that “real estate transactions are complex, time consuming, and can involve a host of wide-ranging issues . . . [t]his is especially true in the unimproved land context considering the addition of construction-related issues.” A federally insured credit union automatically qualifies for RegFlex under 12 C.F.R. part 742 if it has had a composite CAMEL rating of 1 or 2 for its last two examinations and has been “well capitalized” under NCUA rules for the previous six quarters. FCUs may apply for a RegFlex designation if they either received a composite CAMEL rating of 3 or better in their previous examination or have been “well capitalized” for the previous six quarters.

Overdraft fee disclosure rule OKd by NCUA

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ALEXANDRIA, Va. (3/20/09)--A proposed rule that would require credit unions to disclose on periodic statements the dollar amounts charged for overdraft fees and returned items was approved by the National Credit Union Administration (NCUA) board at its monthly meeting Thursday. It also would require credit unions to provide account balance information through an automated system that discloses only the amount of funds available for withdrawal, without including the additional funds that would be available under and overdraft program. The rule would amend NCUA’s Truth in Savings Act (TISA) to align it with the Federal Reserve Board’s Regulation DD. Electronic disclosure provisions would be effective within 30 days of a final rule. However, the provisions changing disclosure requirements for overdraft fees would not be effective until Jan. 1, 2010, to maintain parity with Regulation DD. Also at the meeting, the NCUA presented its monthly report on t he National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF’s equity level is at 1.28% and is expected to increase to 1.30% and remain at that level through 2009, precluding the possibility of an NCUSIF dividend to federally insured CUs, NCUA said.

Online CU data system to launch in third quarter

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ALEXANDRIA, Va. (3/20/09)--Federally insured credit unions will be able to submit reports and information through a Web-based system expected to be deployed in the third quarter of this year. Corporate credit unions will be able to use the system starting in 2010, according to the National Credit Union Administration (NCUA). NCUA approved the system at its monthly board meeting Thursday. The system will replace the software NCUA currently uses. Credit unions unable to access online systems will submit their information via a paper form. NCUA will no longer issue software to submit the reporting data. All data will be submitted and viewed through an online Credit Union Profile and Call Report. NCUA also is proposing amendments to Sections 741.6, 748.1 and Appendix A to Part 749 in order to conform these regulatory provisions to the new online system, effective when the system is implemented. Section 741.6 would clarify when federally insured credit unions must update their Credit Union Profiles and add a provision addressing corporate credit unions and NCUA Form 5310. Section 748.1 would clarify the compliance report filing requirements for federally insured credit unions using the online system and those filing reports manually, and Appendix A to Part 749 would be updated to include the new Credit Union Profile form as a key operational record that credit unions should keep.

Registration open for FCU Act symposium

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ALEXANDRIA, Va. (3/20/09)--The National Credit Union Administration announced that registration is open for a symposium marking the 75th anniversary of the Federal Credit Union Act June 9-10 in Washington, D.C. The event will celebrate federal credit union history and provide a forum to discuss the future of federal credit unions. The agenda will feature panel and open discussions on topics including:
* Is the cooperative financial system still relevant? * The Future of the Corporate Credit Union System--A Facilitated Discussion; and * Crafting a vision for the next 75 years: Sustainability, Collaboration and Growth.
For more information, use the link.

CUs still lending want to do more CUNA

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WASHINGTON (3/20/09)—For the record of a congressional hearing titled “Perspectives from Main Street on Small Business Lending,” the Credit Union National Association (CUNA) urged lawmakers to consider credit unions as a key part of the solution to the credit crunch. Submitting a statement for the hearing record, CUNA President/CEO Dan Mica told key U.S. senators that although credit unions are being hit by a financial crisis they did not cause, they continue to provide credit to lend “and have the capacity to do more.” The letter went to Sens. Mary Landrieu (D-La.), chairman, and Olympia Snowe of Maine, ranking member, of the House Small Business subcommittee on entrepreneurship, which conducted the hearing. Mica pointed out in the letter that last year as the country’s residential mortgage credit markets came to a virtual standstill, credit unions actually increased their lending. “We hope you will consider credit unions as a key part of the solution to the credit crunch facing America’s small businesses,” Mica wrote. He added, however, that credit unions are legally and unnecessarily restricted from similarly alleviating the credit crunch that grips America’s small businesses by an arbitrary statutory cap on member business lending of 12.25% of a credit union’s total assets. “Banking lobbyists convinced Congress to enact this cap in order to restrain credit unions,” the CUNA leader said. “However, there is no economic or safety and soundness rationale for this cap.” Mica underscored that credit unions have lower net charge-off rates for loans than banks, and the difference is significantly lower for small business loans. The CUNA letter thanked both senators for their co-sponsored legislation in the 110th Congress that would have provided credit unions relief from the business lending cap by increasing the cap from 12.25% of total assets to 20%. Mica asked the senators to join their colleague, Sen. Charles Schumer (D-N.Y.), in his efforts to create legislation to eliminate the cap. Use the resource link below to read CUNA’s entire statement.