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Small FI Reg Burden Is On House Financial Services' April Agenda

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WASHINGTON (3/22/13)--The regulatory burden faced by small financial institutions, like credit unions, is on the U.S. House Financial Services Committee agenda twice in April.

The April hearing schedule is in its early planning stages and few details are available. Credit unions are not named on the hearing schedule. However, a committee spokesman on Wednesday told News Now that the panel does intend to hold a hearing to study the regulatory burden of credit unions. That session will be part of a 2013 series to study, in part, the impact of the Dodd-Frank Act.

"We welcome the upcoming hearings on the regulatory burdens facing community-based financial institutions," Credit Union National Association Senior Vice President of Legislative Affairs Ryan Donovan said Thursday.

"We testified several times in the last Congress regarding what we've called the crisis of creeping complexity with respect to regulatory burden, and this has been the subject of several of our recent meetings with Committee members and staff. Sadly, this problem is not going away--in fact, it is getting worse.

"These hearings will give us the opportunity to shed more light on this problem and hopefully represent the beginning of the process in this Congress to move legislation to provide relief to America's credit unions," he added.

The first of these scheduled small financial institution hearings is set for April 10, before the financial institutions and consumer credit subcommittee. That subcommittee has set a second hearing on the same topic for April 16.

Other items on the committee agenda include:

  • An April 5 oversight and investigations subcommittee hearing on reports of waste, fraud and abuse at the U.S. Department of Housing and Urban Development;
  • An April 10 housing and insurance subcommittee hearing on the future of the Federal Housing Administration;
  • An April 11 monetary policy and trade subcommittee hearing on the U.S. role in the International Monetary Fund;
  • An April 11 capital markets and government sponsored enterprises subcommittee hearing to review legislation to reform derivatives provisions of the Dodd-Frank Act;
  • An April 5 oversight and investigations subcommittee hearing on "too big to fail" institutions;
  • An April 17 full committee hearing on impediments to private capital in the housing finance system;
  • An April 24 capital markets and government sponsored enterprises subcommittee hearing to review how Sallie Mae was successfully wound down; and
  • An April 24 monetary policy and trade subcommittee hearing which will, again, focus on the U.S. role in the IMF.
For a committee release on the schedule, use the resource link.

CUs Should Be Aware Of Upcoming Overdraft Actions: CUNA

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WASHINGTON (3/22/13)--TD Bank's account manipulation settlement, which was approved by a Florida judge this week, calls attention to the need for financial institutions to be aware of chaninging rules and regulations addressing overdraft practices.

The $62 million settlement follows a multi-district legal action that was brought by customers of TD Bank. The customers alleged that TD Bank re-ordered some of their debit card transactions to extract maximum overdraft account fees. Plaintiffs claimed the bank brought in hundreds of millions of dollars as a result of this practice.

The Consumer Financial Protection Bureau has been examining overdraft issues, and the order in which institutions pay items from a consumer's checking account. The Credit Union National Association reminds policymakers to consider that reasonable overdraft protection plans help assure consumers will have access to funds when they need them.

CUNA in a comment letter sent last year underscored that because of their cooperative structure, credit unions do not have financial incentives to charge members the high fees that banks frequently do in order to maximize profits for shareholders. CUNA encourages the CFPB to note this difference as it proceeds to write regulations governing overdraft protection programs.

CUNA Senior Vice President for Compliance Kathy Thompson said the bureau has certainly taken a look at a 2012 checking study by the Pew Charitable Trusts.

That study, which has been referenced publicly by CFPB officials, found in 2011 the median fee charged by credit unions when the credit union covered the item was less than three-quarters of that charged by banks. The median fee charged by credit unions when transferring funds from an account of the member to cover the overdraft was $5, compared to $12 charged by banks.

The Pew study called for:
  • A disclosure box for checking accounts;
  • Better disclosures on overdraft options;
  • Certain overdraft fee limits; and
  • Deposits and withdrawal postings that do not maximize overdraft fees.
Overdraft fees have also been addressed on the legislative front in recent days. Reps. Carolyn Maloney (D-N.Y.) and Maxine Waters (D-Calif.) on Wednesday introduced the Overdraft Protection Act of 2013, which would cap overdraft fees, impose a limit on the number of overdrafts that a member could use per year, and require financial institutions to post credits and debits in a particular order. CUNA said the bill "seems to address a problem that doesn't exist in the credit union system." (See March 21 News Now story: CUNA: Overdraft Bill Addresses Problems That Don't Exist At CUs.)

Very Large Banks Get Leveraged-Loan Guidance

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WASHINGTON (3/22/13)--Federal bank regulators released updated supervisory guidance Thursday on leveraged lending, which they say has been increasing since 2009 after declining during the financial crisis. It is important that banks provide leveraged financing to creditworthy borrowers in a safe and sound manner, the guidance says.

The guidance is targeted to large banks. It applies to all financial institutions supervised by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corp. that engage in leveraged lending activities. The guidance does not apply to credit unions.

However, as the directive itself notes, the number of community banks with substantial involvement in leveraged lending is "small," and the agencies expect community banks to be largely unaffected by this guidance. In fact, it says, given that most leveraged lending transactions exceed $50 million, leveraged loans are held primarily by "very large or global institutions."

The regulatory guidance outlines:
  • High-level principles related to safe–and–sound leveraged lending activities, including underwriting considerations;
  • Assessing and documenting enterprise value;
  • Risk management expectations for credits awaiting distribution;
  • Stress-testing expectations;
  • Pipeline portfolio management; and
  • Risk management expectations for exposures held by the institution.

The regulators defined leverage loans as those that involve:

  • Loans whose proceeds used for buyouts, acquisitions, or capital distributions;
  • Transactions where the borrower's Total Debt divided by EBITDA (earnings before interest, taxes, depreciation, and amortization) or Senior Debt divided by EBITDA exceed 4.0X EBITDA or 3.0X EBITDA, respectively, or other defined levels appropriate to the industry or sector;
  • A borrower recognized in the debt markets as a highly leveraged firm, which is characterized by a high debt-to-net-worth ratio; or
  • Transactions when the borrower's post-financing leverage, as measured by its leverage ratios (for example, debt-to-assets, debt-to-net-worth, debt-to-cash flow, or other similar standards common to particular industries or sectors), significantly exceeds industry norms or historical levels.
 Use the resource link to access the bank guidance.

CUNA Urges Senate To Pass Privacy Notice Relief Bill

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WASHINGTON (3/22/13)--In a joint letter with other financial trade groups, CUNA urged the Senate to vote on bipartisan legislation (S. 635) to end the redundancy of privacy notices "without further delay and amendment."

The bill, which was introduced by Senate Banking subcommittee on financial institutions Chairman Sherrod Brown (D-Ohio) and committee member Sen. Jerry Moran (R-Kan.) on Thursday, would eliminate a requirement that privacy notices be sent on an annual basis. It would instead allow the notices to be sent only when the privacy policy of a financial institution has changed.

The bill is similar to legislation that passed the U.S. House (H.R. 749) last week by voice vote and with broad bipartisan co-sponsorship. However, the Senate bill has some key differences: For instance, the Senate bill would require credit unions and other financial institutions to make their privacy policy always accessible in some form in order to qualify for the bill's exemption from sending annual privacy notices.

"Credit unions make every effort to provide the most effective and efficient services to their members, which includes ensuring their members are aware of their privacy rights. This legislation safeguards member awareness of those rights, but eliminates repetitive notices that are often ignored by consumers," CUNA President/CEO Bill Cheney said of the Senate bill.

He noted that the bill, and its companion in the House, "streamline the regulatory burden on credit unions by reducing the amount of diverted time and resources that a credit union's staff could be using for more important services to its members."

"Above all, the bill enhances consumer protection by ensuring that when a consumer receives a privacy notification, it has significance and is not redundant," Cheney said.

Indirect Auto Lenders Put On Notice By CFPB

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WASHINGTON (3/22/13)--The Consumer Financial Protection Bureau on Thursday reminded indirect auto lenders of their compliance responsibilities under the Equal Credit Opportunity Act (ECOA).

The Thursday bulletin was meant, in part, to clarify the CFPB's authority to pursue auto lenders whose policies can, at times, be used to harm consumers through unlawful discrimination.

ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status, and age. The CFPB has authority to examine large banks, and credit unions--and their affiliates--with more than $10 billion in assets.

Indirect auto lenders often allow auto dealers to mark up the interest rates that are offered to consumers, and lenders may then share part of the revenue from that increased interest rate with the dealer, the CFPB explained. These markups can generate compensation for dealers, and give dealers the discretion to charge different rates to different consumers, without taking their creditworthiness into account. Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases, the CFPB said.

"Consumers should not have to pay more for a car loan simply based on their race," CFPB Director Richard Cordray added.

To ensure they are in compliance with fair lending regulations, the CFPB recommended that indirect lenders:
  • Impose dealer markup controls or revise dealer markup policies;
  • Monitor and address the effects of markup policies as part of a robust fair lending compliance program; and
  • Eliminate dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction.
Other steps are also addressed in the bulletin. The CFPB said it "will continue to closely review the operations of both depository and non-depository indirect auto lenders, utilizing all appropriate regulatory tools to assess whether supervisory, enforcement, or other actions may be necessary to ensure that the market for auto lending provides fair, equitable, and nondiscriminatory access to credit for consumers."

Credit unions provide both direct and indirect loans to prospective motor vehicle purchasers, and 95% of credit unions nationwide are involved in the auto loan business. Consumers that use credit union loans instead of bank-originated loans to purchase a new vehicle worth $30,000 would save an average of $1,300 over the span of a five year loan, according to CUNA estimates.

For more on the CFPB bulletin, use the resource link.