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CUNA briefing covers CU advantage community work

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WASHINGTON (3/31/11)--Credit Union National Association (CUNA) Senior Legislative Representative Phil Drager highlighted the many benefits that credit unions offer their members, including lower interest rates and fees on loans and higher rates of return on deposits, during a recent congressional briefing on cooperative businesses.
Click to view larger image Rep. Fattah’s Deputy Chief of Staff Debra Anderson opens proceedings as CUNA’s Phil Drager, left, and National Cooperative Business Association President Paul Hazen look on. (NCBA Photo)
The briefing was sponsored by the offices of Reps. Chaka Fattah (D–Pa.) and Jo Ann Emerson (R–Mo.). The National Cooperative Business Association moderated a panel that included representatives from CUNA, the National Rural Electric Cooperative Association, food cooperative Weavers Way, and the Evergreen Cooperative Initiative. Drager in his briefing discussed the history of credit unions and covered the most defining difference between credit unions and banks: member, not shareholder, ownership. He noted the positive work that credit unions have done by reinvesting in their surrounding communities. One example is TruMark Financial CU’s work in Fattah’s own district of North Philadelphia. Trevose, Pennsylvania-based TruMark worked with community organization Asociación de Puertorriqueños en Marcha (APM) to open the first financial institution that the surrounding neighborhood had hosted in 60 years. TruMark said that the new branch would aid families in the neighborhood by providing them with access to check cashing services, money orders, and loans, without the high fees that can accompany those financial products. Drager also noted credit union work in Emerson’s district. Mid Missouri CU has provided credit counseling to over 6,000 military personnel and civilians in the Fort Leonard Wood, Missouri area.

CUNA engages on two fronts in interchange battle

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WASHINGTON (3/31/11)—The Credit Union National Association (CUNA) engaged in the interchange battle on two fronts Thursday: in a letter to Federal Reserve Board Chairman Ben Bernanke expressing concerns about a compressed timeframe for preparing for new rules, and in a Huffington Post article to debunk merchants' claims. In the letter to the Fed chairman, CUNA thanked Bernanke for his candid assessment to Congress that it is not possible for the agency to meet a statutory April 21 deadline for the issuance of debit interchange fee standards (See News Now March 30). However, CUNA President/CEO Bill Cheney underscored concerns that with the final rule being promulgated closer to the July 21 effective date, there will not be insufficient time for institutions, networks, and the marketplace to prepare for compliance with a final rule. “In light of all the concerns about the regulation of debit interchange fees, we firmly believe that a congressionally mandated delay is not only reasonable but also necessary in order to ensure small issuers will not be harmed and consumers that rely on them will not be disadvantaged,” Cheney wrote. And in a Huffington Post article published Wednesday, Cheney called it “grossly inaccurate” for retailers to claim to represent Main Street in the current interchange battle, and misleading to cast the debate as a fight between Main Street and Wall Street. Credit unions, which are aligned with banks in seeking a delay of pending interchange rules, are “cooperatives, locally based and owned by their 93 million members -- the people who do the saving and borrowing,” Cheney noted. “Many are teachers, firefighters, police officers, members of the military. That's as Main Street as you can get,” he said, and added that it is credit unions’ concerns for their members/owners that dictates the credit union position on interchange. Also, Cheney reminded, it is those consumers who can afford it least—low- and moderate-income Americans-- that are likely to be hurt the most if a current plan to limit fees goes forward. Cheney emphasized, “Our industry has no allegiance to the banks, which have a history of opposing pretty much everything credit unions try to do. We are only aligned with the banks on interchange because in this case our members will be harmed by the effects of the legislation and pending Fed proposal.” At the core of the interchange debate is a provision in the Dodd-Frank Wall Street Reform Act that requires the Federal Reserve to set limits on debit card interchange fees, the fees that card issuers charge merchants for use of this part of the payments system. “Credit unions receive on average about 44 cents per debit card transaction as interchange revenue. The Fed proposal would chop that to 12 cents, a figure that doesn't begin to account for the actual debit card service costs, such as those related to fraud and systems support,” Cheney noted. Credit union members will be hard hit by this change. As member-owned cooperative, the credit union business model passes savings onto its members--$6.5 billion just last year. “However, credit unions will have absolutely no choice but to pass the higher interchange costs on to their members, most likely by adding fees to debit cards or other services. And the people who can afford it least are the ones likely to be hurt most,” Cheney said. He also called an interchange law exemption for most community banks and credit unions--those with assets under $10 billion—“fatally flawed.” Overtime, he said, market pressures would force the interchange price that smaller institutions receive toward the lower, 12-cent rate, too. CUNA has called on Congress to order the Fed to halt work on its interchange proposal, and has urged lawmakers to go back and study the possible unintended consequences of the Dodd-Frank provision. Sen. Jon Tester (D-Mont.) has introduced a bill that would delay implementation, and in the House Rep. Shelley Moore Capito (R-W.Va.) has introduced a similar bill.

Regulators Incentive compensation proposal coming

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ALEXANDRIA, Va. (3/31/11)—The National Credit Union Administration (NCUA) has joined other federal financial regulatory agencies to release for public comment a joint proposed rule that would ensure that financial institutions account for risk when they design their individual incentive compensation arrangements, such as bonuses or commissions. The Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission also took part in the release. The joint proposal would implement a portion of the Dodd-Frank Wall Street Reform Act that requires financial regulators to adopt a rule to weed out incentive-based compensation practices that could expose an institution to great losses. The Dodd-Frank Act defines incentive-based compensation to mean any variable compensation, in any form, that serves as an incentive for performance. This compensation is in addition to any salary that is paid to executives or other certain staff members, such as loan officers. The proposal will be open for comment for 45 days after it is published in the Federal Register, and should be released soon, the regulators said. Under the joint agency proposal, financial institutions with $1 billion or more in assets would be required to ensure that their incentive-based compensation arrangements “appropriately balance risk and financial rewards,” are “compatible with effective controls and risk management,” and are “supported by strong corporate governance.” For-profit financial institutions with $50 billion or more in assets, and credit unions with $10 billion or more in assets, would be required to defer a minimum of 50% of their incentive-based compensation for at least three years, according to a joint agency release. The deferred amounts, when paid, should also “reflect losses or other aspects of performance over time,” the agencies added. Entities covered by the proposal would be required to cover the structure of their incentive compensation arrangements in yearly reports to their respective regulator. The proposal is part of the Dodd-Frank Act, and complements previously issued guidance and policies on incentive-based compensation. The NCUA released its own proposal in February. The Credit Union National Association at that time said that the NCUA should reconsider the proposed $10 billion asset threshold for credit unions, noting that credit unions are not known to have engaged in the kind of sketchy incentive-compensation practices that the Dodd-Frank Act seeks to address. (See related Feb. 18 story: NCUA proposes enhanced incentive-compensation rules) For the joint proposal, use the resource link.

CUNA concerned about risk-retention rule impact

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WASHINGTON (3/31/11)--Federal financial agencies this week are considering rules that would require a loan securitizer--but not most loan originators--to retain an economic interest in a material portion of the credit risk for any asset that it transfers, sells, or conveys to a third party. Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair has said that requiring issuers of securitized loans--such as Wall Street banks and other entities that issue asset-backed securities--to retain a 5% interest in the risk of loss “will encourage better underwriting by assuring that originators and securitizers cannot escape the consequences of their own lending practices.” Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said that CUNA has raised concerns about the potential impact of the 5% risk requirement on the credit union mortgage market even though the proposal would generally exempt originators from these requirements. So far, the credit risk retention proposal has been jointly released by the FDIC and the Securities and Exchange Commission, with other relevant agencies expected to approve it in the near future. Those agencies are the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, the SEC, the Department of Housing and Urban Development, and the Federal Housing Finance Agency (FHFA). Dunn said that the regulatory proposal aims to address abuses in the mortgage lending market that contributed to the financial crisis. “Credit unions did not participate in those abusive practices, but CUNA is concerned that credit union mortgage lending will be impacted by these rules and standards that develop in the marketplace,” Dunn added. Loan originators would generally be exempt from the credit risk retention requirements as long as they contribute less than 20% of the loans or other collateral to a given pool of asset-backed securities. This threshold will likely mean that credit unions would be exempt from the proposed rule unless the credit union contributes a high percentage of loans or other assets backing a particular asset-backed security issuance. If the originator’s loans make up 20% or more of a pool of asset-backed securities, the originator would then be required to take on a portion of the loan securitizer’s risk retention requirement in the same percentage amount as its contributions to the asset pool. Qualified residential mortgages and U.S. government guaranteed mortgages such as FHFA and Veterans Administration mortgages would be exempt from all risk-retention requirements under the proposal. Government-sponsored entities Fannie Mae and Freddie Mac would also be exempt from the securitzer risk-retention requirements for as long as they are held under government conservatorship. CUNA’s Examination and Supervision Subcommittee and its Lending Council will soon review the complex risk proposal. Once concerns are identified, CUNA will comment to all federal agencies involved in the rulemaking, Dunn said.

NCUA 2010 financial results preview 2011s challenges

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ALEXANDRIA, Va. (3/31/11)--The National Credit Union Administration (NCUA) on Wednesday warned that “elevated levels of credit risk, interest rate risk, and concentration risk” will continue to challenge credit unions in 2011. NCUA Chairman Debbie Matz in a release added that “credit unions still face challenges in overcoming the effects of the economic downturn,” and said that NCUA examiners are working to “help mitigate existing and potential risks” to credit unions and to help those credit unions “maintain stable balance sheets.” These comments accompanied the release of the NCUA’s 2010 credit union industry financial results. Real estate and business loan delinquencies increased during 2010, but the agency in its report noted that delinquent loans as a percentage of total loans dropped to 1.74%. Net loan charge-offs also declined during the year. Modifications for real estate, consumer, and business loans increased $3.1 billion since March of 2010, and Matz noted that these types of modified loans could still create a risk of delinquency into 2011. Matz in her statement added that the NCUA “will maintain close supervision of credit unions in this area.” The agency is also “considering ways to enhance the business lending regulation to better ensure safe and sound underwriting and credit risk management,” Matz said. Matz also noted that concentration risk “has been an area of emphasis for NCUA examiners in recent months,” saying that the “high level of real estate loans to assets coupled with the stresses in real estate values across the country highlight the need for sound concentration risk mitigation practices.” The agency is developing a proposal that would place more emphasis on concentration risk factors for purposes of its prompt correct action regulations. Overall, the NCUA noted increases in credit union assets and net worth during the year, with asset increases totaling $29.87 billion and net worth increases totaling $4.51 billion at the end of the year. Earnings also slightly increased, with the return on average assets ratio of all federally insured credit unions increasing from 0.18% to 0.51% during the year. For the full NCUA release, use the resource link.

Inside Washington (03/30/2011)

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* WASHINGTON (3/31/11)--The House Financial Services subcommittee on capital markets and government-sponsored enterprises has scheduled a hearing today to study eight bills unveiled Monday and intended to provide immediate reforms to Fannie Mae and Freddie Mac. According to the hearing announcement, the subcommittee will examine legislative steps that can be undertaken by Congress to “rebuild a stable housing finance system based on private capital.” The titles of the bills scheduled for subcommittee scrutiny are GSE Credit Risk Equitable Treatment Act, The Equity In Government Compensation Act, The Portfolio Risk Reduction Act, The GSE Subsidy Elimination Act, The GSE Mission Improvement Act, The Fannie Mae and Freddie Mac Accountability And Transparency For Taxpayers Act, The GSE Risk and Activities Limitation Act, and The GSE Debt Issuance Approval Act … * WASHINGTON (3/31/11)--The chairmen of the House Financial Services Committee and its subcommittee on financial institutions and consumer credit have asked Elizabeth Warren if she wants to “clarify or correct” her recent testimony regarding the Consumer Financial Protection Bureau’s (CFPB) role in the ongoing mortgage servicing settlement negotiations. Warren has been appointed by the Obama administration to help set up the CFPB, which was created under the Dodd-Frank Wall Street Reform Act. Reps. Spencer Bachus (R-Ala.) and Shelley Moore Capito (R-W.Va.), heads of the committee and subcommittee respectively, noted in a letter to Warren that during a subcommittee hearing panel members questioned her about CFPB’s involvement in ongoing settlement discussions between mortgage servicers and state and federal authorities. The letters said Warren responded that CFPB had offered “advice" and “expertise” to the authorities. The letter alleged that recent reports indicate a more extensive role, and invited Warren to respond … * WASHINGTON (3/31/11)--In a largely symbolic gesture, the House of Representatives Tuesday voted to end the controversial Home Affordable Modification Program (HAMP)Politico March 30). In February 2009, President Barack Obama launched HAMP, saying it would help three million or four million American renegotiate the terms of their mortgages, but the program had only 522,000 ongoing mortgage modifications as of Dec. 31. Even with a 252-170 House vote, largely along political lines, to eliminate the program, the legislation will likely fail in the Senate. Also, the White House has said the president would veto the bill if it were to reach his desk … * WASHINGTON (3/31/11)--The Federal Reserve Board on Wednesday requested comment on a proposed rule that implements two provisions of the Dodd-Frank Act related to the supervision of financial market utilities (FMUs) designated as systemically important by the Financial Stability Oversight Council. FMUs, such as payment systems, central securities depositories and central counterparties, provide the essential infrastructure to clear and settle payments and other financial transactions. The proposed rule establishes risk-management standards governing the operations of payment, clearing, and settlement activities of FMUs, except those registered as a clearing agency with the Securities and Exchange Commission or as a derivatives clearing organization with the Commodity Futures Trading Commission. The proposed risk-management standards are based on the existing international standards that the Fed has incorporated previously into its policy on payment system risk. Second, the proposed rule establishes requirements and procedures for advance notice of material changes to the rules, procedures, or operations of a designated FMU for which the Board is the primary supervisor … * WASHINGTON (3/31/11)--Lenders would be required to offer mortgages with at least a 20% down payment if they want to securitize loans, according to a proposal released the Federal Deposit Insurance Corp. (FDIC) on Tuesday. Some observers fear the requirements will hamper the mortgage lending market (American Banker March 30). But FDIC Chairman Sheila Bair said the qualified residential mortgage requirement would apply to only a “small slice” of the mortgage market. While critics said the rule was narrow, Bair said the limitations were appropriate. Dodd-Frank requires issuers of securitized loans to retain a 5% interest in the risk of loss. The law provides an exception to that rule and directs the agencies to set a standard for underwriting and product features that result in a lower risk of default so risk retention is not necessary. Government-sponsored enterprises would be considered already in compliance because they retain all of the credit risk … * WASHINGTON (3/31/11)--The Federal Deposit Insurance Corp. (FDIC) on Tuesday issued a proposal requiring that the largest financial services companies provide plans for winding down in the event of a financial crisis (American Banker March 30). The draft rule requires companies to submit resolution plans, or “living wills,” with regular updates and reports on the firms’ credit exposures. The Federal Reserve, which co-wrote the rule, is expected to vote on it later this week. The proposal will then be open to public comment for 60 days, after which regulators will revise it and approve a final rule. The Dodd-Frank Act gave federal regulators authority to seize and break up troubled financial companies deemed “too big to fail” because of the risk their demise would present to the financial system. The proposal would require financial companies to provide information on credit exposures, funding, capital and cash flows. The plans are designed to help firms “rationalize” their business models and mitigate some of the risks that created the credit crisis in 2008. Under the proposal, part of a joint rulemaking with the Federal Reserve, plans would be required from U.S. bank holding companies $50 billion or more in assets and foreign-based lenders of similar size with U.S. operations …