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Inside Washington (03/31/2009)

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* WASHINGTON (4/1/09)--Rep. Barney Frank’s (D-Mass.) bill to prevent risky mortgages could negatively impact the mortgage market, financial observers say. The bill would include a risk retention standard of 5%, provide liability protection to loans with 30-year fixed rates and provide a safe harbor for borrowers that meet certain guidelines (American Banker March 31). However, the bill also should provide safe harbors for borrowers with 15- to 20-year fixed-rate mortgages, said Scott Talbot, Financial Services Roundtable senior vice president. The legislation’s risk retention standard also could keep mortgage financing a bank-only business, according to Laurence Platt, K&L Gates LLP partner. Non-depository institutions will be put out of business because they won’t have the capital to hold the risk, he said ... * WASHINGTON (4/1/09)--The Obama Administration’s plan to help the secondary market for Small Business Administration loans is being jeopardized by the limits on executive compensation for companies participating in the Troubled Asset Relief Program. Because the program is funded by Treasury Department money, participants would have to abide by the compensation limits--and most have said they will not participate because of the limits, industry observers said. If those institutions do not participate, the program is unlikely to be successful (American Banker March 31). The administration is aware of potential participants’ concerns and is looking at options, said Anthony Wilkinson, president, National Association of Government Guaranteed Lenders. The program was scheduled to begin by this week, according to a fact sheet the Treasury released March 17 ... * WASHINGTON (4/1/09)--Two congressional members have expressed their intent to draft legislation to modernize the financial regulatory system. In a letter sent to President Barack Obama this week, Sen. Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.) announced that they would begin working on legislation to create a framework for regulation to enhance financial stability and protect consumers and investors. The two have already held a series of hearings, briefings and meetings on reform, they said. Dodd also said he would work with Sen. Richard Shelby (R-Ala.) to “build upon our bipartisan record” ... * WASHINGTON (4/1/09)--President Barack Obama Tuesday announced that he intends to nominate three individuals to posts at the Treasury Department: Helen Elizabeth Garrett as assistant secretary for tax policy, Michael S. Barr as assistant secretary for financial institutions and George W. Madison as general counsel. Garrett currently serves as vice president for academic planning and budget at the University of Southern California. Barr previously served as a special assistant to former Treasury Secretary Robert Rubin. Madison is a former executive vice president and general counsel of the Teachers Insurance and Annuity Association, College Retirement Equities Fund, and is a member of its executive management team ...

GAO FinCEN needs to further develop form revision

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WASHINGTON (4/1/09)--The Financial Crimes Enforcement Network (FinCEN) needs to further develop and document its form revision process, according to a Government Accountability Office (GAO) report released this week. Last year, FinCEN developed a new process for revising Bank Secrecy Act forms, including Suspicious Activity Reports (SARs). The revisions to the SAR form were intended to reduce the number of duplicate reports filed for a single suspicious transaction. The revised form would have provided necessary data blocks and instructions for completing a jointly filed SAR, although accompanying instructions limit joint filing to those suspicious activities that do not involve insider abuse (News Now April 27, 2007). However, implementation of the 2006 revision of the SAR form was delayed due to information technology limitations. In 2008, FinCEN developed a new process for revising BSA forms, including the SAR form. GAO said the limited documentation on the revised process does not provide details to determine how it will incorporate GAO best practices for enhancing and sustaining federal agency collaboration. The process also does not specify roles and responsibilities for stakeholders or depict monitoring, evaluating and reporting mechanisms. According to the report, "FinCEN could achieve some potential benefits--such as greater consensus from all stakeholders on proposed SAR revisions--by incorporating some of the key collaboration practices suggested by the GAO."

CUNA seeks balance in card protections

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WASHINGTON (4/1/09)—The Credit Union National Association (CUNA) said Tuesday it supports the intent of a Senate Banking Committee bill to protect consumers from abusive practices, but warned that a balance must be maintained to prevent unintended consequences to consumers. The committee voted 12 to 11 in favor of the bill (S. 414) that would amend the Consumer Credit Protection Act to ban abusive credit practices, enhance consumer disclosures and protect underage consumers. (See related story: Senate card bill includes NCUA emergency borrowing.) CUNA President/CEO Dan Mica sent a letter to Chairman Christopher Dodd (D-Conn.), prior to his committee’s vote, asking lawmakers’ caution to avoid unintended consequences which “would ultimately be adverse to consumers, including making credit more expensive and less available for consumers.” Mica noted new rules promulgated last year by the Federal Reserve Board, the Office of Thrift Supervision, and the National Credit Union Administration. Those rules restrict and prohibit a number of credit cards practices considered unfair or deceptive under the Unfair and Deceptive Acts and Practices Act (UDAP) and the Fed’s Reg Z. “Credit unions are just beginning the long process of working with their forms suppliers, data processors, statement providers and training resources to ensure they will be in compliance with the new Reg. Z rules and UDAP requirements by their effective date of July 1, 2010. “We encourage the committee to give the new rules time to work before imposing additional burden on credit unions,” Mica wrote.

Mica tests waters Higher borrowing longer write-off

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WASHINGTON (4/1/09)—An amendment to improve the National Credit Union Administration (NCUA) borrowing position with the U.S. Treasury, as well as allow credit unions to spread out their impending premium payment, is a “significant step” toward relief for credit unions, according to the Credit Union National Association (CUNA). After the Senate Banking Committee voted unanimously to adopt the amendment Tuesday, CUNA President/CEO Dan Mica sent a letter to its sponsors, Sens. Mike Crapo (R-Idaho) and Bob Corker (R-Tenn.), commending their actions. The language was added to a bill on best credit card practices. The amendment would: increased NCUA borrowing authority to $6 billion; triple that to $18 billion in times of emergency; and allow credit unions to spread out realizing the premium cost associated with NCUA’s corporate credit union stabilization efforts over five years. (See related story: Senate card bill includes NCUA emergency borrowing.) Mica wrote that CUNA, however, would welcome an opportunity to discuss whether a seven- or eight-year repayment period, similar to what the Federal Deposit Insurance Corp. has requested for banks, might be considered by Congress. He also tested the waters for a congressional appetite to consider a higher borrowing authority for the NCUA. The agency has requested $30 billion in borrowing authority, and has proposed legislation that would allow credit unions to spread realization of the premium over as many as seven years. The Mica letter noted that credit unions are being buffeted by circumstances in the economy that are beyond their control. They also are facing significant costs related to the NCUA’s actions concerning corporate credit unions, and are funding losses as a result of declines in the values of mortgage-backed securities in which corporates had invested when prudent. “We appreciate your efforts to address theses matters in this legislation and look forward to working with you on these issues,” Mica wrote.

Senate card bill includes NCUA emergency borrowing

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WASHINGTON (4/1/09)—Voting 12 to 11 in favor of a credit card best practices bill, the Senate Banking Committee passed legislation Tuesday that included consideration of amendments important to credit unions, including creating National Credit Union Administration (NCUA) emergency lending authority. S. 414 would amend the Consumer Credit Protection Act to ban abusive credit practices, enhance consumer disclosures and protect underage consumers. During the committee’s consideration of the bill, the panel voted unanimously to adopt the Crapo-Corker Federal Deposit Insurance Corp. (FDIC) and NCUA Borrowing Authority amendment. Offered by Republican Sens. Mike Crapo (Idaho) and Bob Corker (Tenn.), the amendment would increase NCUA's authority to borrow from the U.S. Treasury to $6 billion from $100 million and the FDIC's authority to $100 billion from $30 billion. Equally significant, or perhaps even more so, the amendment would establish for NCUA an emergency borrowing authority of $18 billion—or three times the $6 billion that would be available during normal times. While nowhere near the $30 billion requested by the agency, NCUA Chairman Michael Fryzel noted after the unanimous vote that the Crapo amendment represents the first time any language on NCUA emergency borrowing authority has appeared in this Congress. Addressing another huge issue for credit unions, the amendment also would provide express authority for NCUA to spread out the impending premium assessment on credit unions over five years, which the NCUA feels it cannot do under current law. Fryzel said the strong and accompanying discussion sent “a strong indication that the Senate wants to address the need for NCUA to have greater borrowing authority and have greater flexibility on premium assessments.” He said he is encouraged for future action on the NCUA-drafted Corporate Credit Union Stabilization Fund legislation, which would allow credit unions to spread the cost of the National Credit Union Share Insurance Fund (NCUSIF) replenishment over as many as seven years. The Credit Union National Association (CUNA) also called the amendment a significant step forward in providing credit unions relief from the immediate impact of the premium assessment to fund NCUA’s actions to stabilize the corporates. However, in letters to Crapo and Corker, CUNA President/CEO Dan Mica said CUNA would welcome an opportunity to discuss further legislative steps that cold be taken to address corporate credit union issues. (See related story: Mica tests waters: Higher borrowing, longer write-off.) Also of interest to credit unions, the banking panel considered, then withdrew, an amendment to clarify that the bill does not expand the Federal Trade Commission's mortgage-lending rulemaking powers to credit unions or other depository institutions. The amendment would also have specified that the bill does not increase state attorneys’ general authority to enforce the Truth-in-Lending Act, the amendment notes. That amendment, backed by CUNA, was also co-offered by Crapo and Corker. On the Senate floor during debate on an omnibus spending bill, senators including Christopher Dodd (D-Conn.), Daniel Inouye (D-Hawaii) and Byron Dorgan (D-N.D.) promised the FTC issue would be addressed. At the heart of S. 414 are provisions to crack down on abusive credit card practices. CUNA supports efforts to end discriminatory, predatory, deceptive and abusive lending practices. Such efforts should be balanced, however, to avoid unintended consequences that ultimately would be adverse to consumers, including making credit more expensive and less available for consumers. (See related story: CUNA seeks balance in card protections.)