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Hearing on student loans set for today

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WASHINGTON (3/28/12)--Student loan debt will be one of the top topics at today's Senate Appropriations subcommittee on financial services and general government hearing, which will feature testimony from Treasury Secretary Tim Geithner.

The hearing is second in roughly a week to feature the topic of student lending. Sen. Richard Durbin (D-Ill.), who heads the subcommittee, last spring introduced legislation that would treat privately issued student loans the same as other privately issued debt in bankruptcy proceedings. The bill, known as the Fairness for Struggling Students Act (S. 1102), "would help address the looming student debt crisis by restoring a pre-2005 provision in the bankruptcy code allowing for discharge of privately-issued student loans – like other forms of private debt, including credit cards--in bankruptcy," according to a Durbin release.

Consumer Financial Protection Bureau (CFPB) student loan ombudsman Rohit Chopra last week said that combined national student loan debt hit the trillion dollar mark several months ago, and noted that students borrowed $117 billion in federal student loans in 2011. Students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans, he added, saying that "if current trends continue, there will be consequences not just for young people, but for all of us." He said one consequence could be a slow housing market recovery.

The CFPB says it is tackling the student debt problem from a number of fronts, such as working with the U.S. Department of Education and launching the "Know Before You Owe" project to help borrowers, including student borrowers, understand debt implications.

The agency has also asked credit unions and other financial institutions, students, the higher education community, and others in the student loan industry to provide information on the role of schools in the private student loan marketplace, student loan underwriting criteria, repayment terms and behavior, loan servicing and loan modification, and financial education and default avoidance. The full results of this study on the private student loan market will be released this summer. (See March 23 News Now story: CFPB ombudsman blogs on 'sobering' student debt)

The number of credit unions offering student loans continues to increase, and CBS MoneyWatch recently recommended that college students seeking additional financial assistance "turn to a credit union." (See March 16 News Now story: CBS Moneywatch: Turn to CUs for student loans).

CFPB files amicus brief in Truth-in-Lending case

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WASHINGTON (3/28/12)--Borrowers that do not receive Truth in Lending Act (TILA) mandated disclosures from mortgage lenders may cancel those loans, provided they inform the lender of their intent to cancel the loan within three years, the Consumer Financial Protection Bureau (CFPB) said in an amicus brief filed this week in Colorado.

The amicus brief was filed in the United States Court of Appeals for the Tenth Circuit in Denver, Colo., and is tied to the case of Jean C. Rosenfield v. HSBC Bank, USA, which is being heard in that court.

Rosenfield in 2006 purchased a home, using Ownit Mortgage Solutions, which eventually sold her mortgage to HSBC. Ownit allegedly violated TILA by failing to notify Rosenfield of her right to rescind the loan and by providing incomplete disclosures regarding the adjustable interest rate. Ownit also inaccurately stated the total finance charge, according to the CFPB filing.

TILA permits borrowers that do not receive these disclosures to cancel their loans within three years, the CFPB noted. Borrowers that cancel mortgage loans due to disclosure errors by their lenders are released from any liens against their home. The borrowers must return the loan he or she received from the lender, according to the CFPB.

The homeowner contacted HSBC in a bid to end the contract, but did not receive a response from the bank, and eventually sued the bank around 37 months after the mortgage was signed, seeking an injunction to bar HSBC from foreclosing on her home. Rosenfield also included a declaratory judgment that she had rescinded the loan, and sought damages, the CFPB wrote.

Rosenfield's suit was dismissed, with the court finding that mortgageholders must notify and sue the lender within three years of the moretgage being signed. This ruling has been appealed, and the CFPB has backed the appeal, calling for the dismissal to be reversed.

The CFPB, which implements and interprets TILA, said in a release that "TILA specifies that consumers can cancel a loan under this provision by notifying their lenders of their cancellation within three years of signing their loan documents.

"If the lender ignores the consumer's timely notice or refuses to cancel the loan, the courts can determine in subsequent litigation whether the consumer's exercise of the right to rescind was valid, even if that litigation starts after the three-year timeframe has expired," the CFPB added.

CFPB Director Richard Cordray said the agency is "committed to making sure that borrowers can exercise their rights to the full extent allowed," and added "the consumer's right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices."

The CFPB in a release called amicus briefs "an important way for the CFPB to ensure that the statutes it oversees are correctly and consistently interpreted" by courts, and said it "is committed to filing amicus briefs in litigation involving the federal consumer financial protection laws that it oversees and in which the CFPB determines its views will assist the courts in correctly resolving the matters."

For more on the CFPB's brief, use the resource link.

MBL advocacy critical during recess CUNA

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WASHINGTON (3/28/12)--Credit Union National Association (CUNA) President/CEO Bill Cheney Tuesday called on credit unions to continue--and to redouble--their member business lending (MBL) advocacy efforts during an upcoming April Congressional District Work Period.

Cheney emphasized the importance of credit union meetings with federal lawmakers in their home offices, town hall meetings, and other venues available only when the U.S. House and Senate members are working in-district. The two-week April work period begins next week and lawmakers will return to Washington, D.C. the week of April 16.

Mobilizing credit union representatives during a national call to the state credit union leagues Tuesday, Cheney reminded that U.S. Senate Majority Leader Harry Reid (D-Nev.) pledged earlier this month to hold a vote on a bill to increase the MBL cap to 27.5% of assets--up from 12.25%.

While precise timing of that vote is uncertain at this point, Cheney noted that it is likely to occur just after the April recess--making it imperative for credit unions--and small businesses--to ramp up their grass roots efforts now in support of an MBL cap increase.

A strong credit union/small business effort is particularly critical, Cheney noted, in light of the intensity of opposition the MBL measure is facing from the banking industry. He described the bankers as becoming unglued in their fight against credit union member business lending.

CUNA estimates that in the first year after enactment, the MBL legislation would bring an additional $13 billion in credit to the nation's small businesses and create 140,000 new jobs. In fact, the bill in the Senate is informally being called the Credit Union Small Business Jobs bill.

A state and local advocacy push at this time will back up a recent federal-level effort by credit unions to deliver their message to representatives from each of the 535 House and Senate offices as part of the advocacy effort launched in conjunction with the CUNA Governmental Affairs Conference (GAC), which attracted more than 4,100 credit union representatives to Washington last week.

Since the CUNA GAC, Reps. Karen Bass (D-Calif.), Joseph Heck (R-Nev.), Bill Huizenga (R-Mich.), and Anna Eshoo (D-Calif.) have added their names to the House MBL bill, bringing the number of co-sponsors to 127. The Senate bill has 21 co-sponsors.

During the district visits, credit union advocates should be urging their senators to vote for S. 2231, and ask House members to be ready to approve the House version of the bill (H.R. 1418), Cheney said.

"Senators who have been on the fence will have to make up their minds about who they want to support--credit unions and small businesses or banks," Cheney said on the call.

CUNA continues to maintain its MBL Action Alert with talking points and other tools to help credit unions contact federal lawmakers.

See the resource links below.

Inside Washington (03/27/2012)

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  • WASHINGTON (3/28/12)--During the 2012 Credit Union National Association (CUNA) Governmental Affairs Conference (GAC), Minnesota credit union representatives spent an afternoon on Capitol Hill, visiting all the offices of the state's congressional delegation. Of top concern were bills in the House and Senate regarding member business lending (MBL), which propose raising the credit union cap on lending to 27.5% of assets from 12.25%. Increasing the MBL cap would inject $13 billion in new funds into the economy, creating as many as 140,000 new jobs in the first year after enactment, estimates CUNA. Both House and Senate versions of the bill are expected to be voted on during the current session. Sen. Al Franken (D-Minn.) has signed on as a co-sponsor of the Senate bill, and Minnesota's GAC attendees worked to encourage more delegates to sponsor the legislation. They also discussed a bill allowing credit unions access to supplemental capital and financial institution exam reform. In the photo, Lynn Kothe of North Memorial FCU, Robbinsdale, Minn., (left) and Pat Brekken of Richfield-Bloomington CU, Richfield, Minn., (right) were among a group of Minnesota GAC attendees who met with Rep. Keith Ellison (D-5th District). (Photo provided by Minnesota Credit Union Network) …
  • WASHINGTON (3/28/12)--The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency are seeking comment on proposed revisions to the interagency leveraged finance guidance issued in 2001. The guidance covers transactions characterized by a borrower with a degree of financial or cash flow leverage that significantly exceeds industry norms as measured by various debt, cash flow, or other ratios. The three agencies said they observed tremendous growth in the volume of leveraged credit leading up to the financial crisis and in the participation of non-regulated investors. While there was a pull-back in leveraged lending during the crisis, volumes have since increased while prudent underwriting practices have deteriorated, the agencies said. As the market has grown, debt agreements frequently have included features that provide relatively limited lender protection, including a lack of maintenance covenants and other features that can affect lenders' recourse if borrowers fail to pay back loans. Capital structures and repayment prospects for some transactions, whether originated to hold or to distribute, have been aggressive, the agencies said. Management information systems at some institutions have not been accurate or timely in aggregating exposures, and many institutions have found themselves holding large pipelines of higher-risk commitments at a time when buyer demand for risky assets diminished significantly …
  • WASHINGTON (3/28/12)--The Federal Deposit Insurance Corp. (FDIC) extended until April 30, the comment period on a proposed rule to require banks with more than $10 billion in consolidated assets to conduct annual stress tests. The FDIC said the scope and complexity of the proposal required the comment period to be extended to allow interested parties more time to analyze the issues and prepare their comments. Originally, comments were due by March 23. The proposed rule, part of the Dodd Frank Act, was approved at the Jan. 17 FDIC Board meeting …

Avoid CU burdens in diversity policy CUNA to NCUA

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WASHINGTON (3/28/12)--The Credit Union National Association (CUNA) has urged the National Credit Union Administration (NCUA) to implement standards for "assessing the diversity policies and practices of entities regulated by the agency," as mandated by the Dodd-Frank Wall Street Reform Act, "in a manner that would minimize the information gathering and reporting burden on credit unions."

Section 342 of the Dodd-Frank Act requires the NCUA and other federal regulators to create work force diversity policies for their regulated institutions. Regulators are still developing these policies and rules on how they will assess compliance with these policies.

The NCUA's Office of Minority and Women Inclusion (OMWI), which began its work last year, will develop the agency's diversity policy.

In a comment letter, CUNA commended the NCUA and OMWI for their efforts to develop the standards, and said it is pleased that CUNA members were invited to participate in NCUA's first roundtable discussion on Feb. 29. CUNA also suggested OMWI carefully consider the challenges credit unions face in complying with any standards that the NCUA may develop under Section 342, especially relating to the difficulties involved in manually gathering diversity related data from employees, contractors and suppliers.

CUNA also asked the agency to limit any Section 342 assessment standards to collecting employment-related data from credit unions that are subject to Equal Employment Opportunity Commission reporting requirements. Credit unions should also be permitted to self-report any data under Section 342 assessments, rather than be subjected to additional examination burdens, CUNA added.

For the full comment letter, use the resource link.