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Inside Washington (03/05/2010)

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* WASHINGTON (3/8/10)--On Thursday, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) attempted to mitigate criticism regarding his proposal to place a consumer division in the Federal Reserve Board. Financial observers have said the division would equal the status quo (American Banker March 5). However, Dodd said he is advocating for an independent regulator in the Fed that isn’t controlled by the bank. Lawmakers have questioned Dodd’s logic regarding the proposal ... * WASHINGTON (3/8/10)--National Credit Union Administration (NCUA) Board Member Michael Fryzel visited Northern CU, Chicago. He met with CEO Ed Berg and Board Chairman Jim Poskozim. He also spoke with credit union staff and toured the corporate headquarters. “First Northern’s innovative approach to member service is impressive,” Fryzel said. “Despite the current economic recession, the credit union continues to have a positive impact on its community and is able to meet the needs of its members through its financial services and financial education efforts. First Northern also has established an excellent presence at its Rockford, Ill., branches where they are an active participant in the Bank on Rockford program.” Pictured are, from left: Poskozim, Fryzel and Berg. First Northern has $2.8 million in assets. (Photo provided by the National Credit Union Administration) ...

NCUA-Federation reach 122 in LICU funding call

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ALEXANDRIA, Va. (3/8/10)—In a jointly sponsored audio conference, the National Credit Union Administration (NCUA) and National Federation of Community Development Credit Unions reached 122 participants with specifics about the U.S. Department of the Treasury’s new Community Development Capital Initiative (CDCI). The CDCI program, announced Feb. 3, ix designed to increase lending in low-income communities. It gives Treasury a means to invest low-cost capital in specific financial institutions, including certain certified Community Development Financial Institution (CDFI) credit unions. Participants were told that time is of utmost importance, the application deadline is just weeks away. Low-income credit unions must apply for funding by April 2, and uncertified LICUs must apply for CDFI certification by April 16. “As the (program) rules are being finalized, NCUA wants to facilitate participation by the credit union community in every way possible,” noted NCUA Chairman Debbie Matz. “NCUA’s audio conference and the new efforts announced underscore my commitment to work closely with the industry in order to ensure the broadest and fullest benefit from this innovative program.” The new efforts announced by NCUA during the call include:
* The availability of technical assistance grants to assist eligible credit unions develop a Secondary Capital Plan for the purpose of meeting the application requirement for CDCI funding; and * A notice to eligible credit unions indicating whether, per NCUA’s preliminary analysis, the credit union will require matching funds in order to access CDCI funding.
The CDCI program enables low-income credit unions to apply for up to 3.5% of total assets, but not more than 50% of capital and unimpaired surplus. CDCI capital investments will carry an initial 2% rate, three percentage points lower than the rate offered by Treasury’s prior Capital Purchase Programs. Program inquiries may be directed to For application and program materials, use the resource links below.

CUNA to NCUA CUs need help dealing with NCUSIF costs

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WASHINGTON (3/8/10)--In a letter to National Credit Union Administration (NCUA) Chairman Debbie Matz, the Credit Union National Association (CUNA) called on the NCUA to “work within its current statutory authority to help credit unions bear the burden” of “unprecedented National Credit Union Share Insurance Fund (NCUSIF) costs.” While CUNA commended the NCUA for helping credit unions “spread out the costs associated with the funding of the Corporate Stabilization Fund,” CUNA suggested that the NCUA temporarily reduce the normal operating level of the NCUSIF from the current 1.3% to no lower than 1.2%. This move could reduce the amount of funds that credit unions must pay into the insurance fund, according to CUNA. CUNA also proposed allowing insured credit unions to spread out their NCUSIF costs over several years, “even if the normal operating level is at or above 1.2%, consistent with a restoration plan to ensure the NCUSIF is properly funded.” CUNA also commended Matz for her open communication with U.S. Treasury Secretary Tim Geithner on the issue of member business lending, and CUNA President/CEO Dan Mica said that this letter was referenced both in his conversation with Geithner and CUNA-backed House testimony that was delivered in late February. CUNA is developing a white paper on alternative capital for credit unions and will share that paper with the NCUA, the National Association of Credit Union Supervisors, and the credit union system once it is completed. CUNA will also comment on the NCUA’s recently proposed corporate credit union rule changes in a letter to be released next week. CUNA will also provide the NCUA with input on its current process for handling credit union mergers through its newly founded Mergers Task Force. CUNA’s recommendations will be provided to the NCUA by May 1.

2.6M-asset FCU in Pa. is liquidated

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ALEXANDRIA, Va. (3/8/10)—With $2.6 million in assets and 1,085 members, Lawrence County School Employees FCU(Lawrence FCU) of New Castle, Pa. was liquidated by the National Credit Union Administration Friday. This is the fourth federally insured credit union liquidation in 2010. First Choice FCU, also of New Castle, purchased and assumed a portion of Lawrence FCU’s assets, loans and shares, enabling Lawrence FCU’s members to receive uninterrupted service. The NCUA announcement said the agency retained the remaining assets, loans, and shares, and it attributed the liquidation to Lawrence FCU’s “declining financial condition.” The purchaser, $22.3 million-asset First Choice, is described as a full-service credit union with a broad array of financial services. It already served approximately 4,415 members who either live, work, worship, or attend school in Lawrence County or work for one of the companies in its field of membership.

UBIT task force says Bellco decision shows the way

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WASHINGTON (3/8/10)--The U.S. District Court’s summary judgment decision on one of the issues in the recently concluded Bellco CU case “represents ‘substantial authority’ under federal tax law” for the position that financial products and services that are sold by credit unions to their members are exempt from unrelated business income taxes, Foley & Lardner LLP has concluded. Judge Christine M. Arguello, who is presiding over the case, ruled last November that investment products that Bellco sold to its members, including stocks, bonds, mutual funds and annuities, were "substantially related" to Bellco's tax-exempt purposes, and therefore the income from those activities was, under the law, exempt from UBIT. The Foley & Lardner law firm, who represented Bellco in its case against the U.S. government, stated in its memorandum that credit unions would not be subject to civil tax penalties if they file UBIT tax returns “treating income from selling financial products and services to members as exempt from UBIT.” “Also, professional tax return preparers can prepare Form 990-T for a credit union treating income from selling financial products and services to members as exempt from UBIT without risking the separate civil tax penalty that can be imposed on preparers,” according to the release. However, the firm mentioned that it believes that the U.S. Internal Revenue Service “will still assert that financial product sales to members are unrelated business activities at credit unions” and “may well claim that additional tax is due if a credit union does not report income from such sales as unrelated business taxable income” on their income tax returns. Additionally, Bellco would not represent substantial authority if the summary judgment is successfully appealed. Since the judge has not yet rendered a decision on other issues in the case following a trial on those issues in December, an appeal is still possible. Also, the release noted that “the court in Bellco decided that income from selling financial products and services to non-members is subject to UBIT.” The memo was prepared at the request of the UBIT Steering Committee (consisting of representatives from the Credit Union National Association, the American Association of Credit Union Leagues, the National Association of State Credit Union Supervisors, and CUNA Mutual Group). The UBIT Steering Committee does not give tax advice, but said the Foley and Lardner memorandum contains general information that may be helpful to state-chartered credit unions' legal, tax, and accounting professionals in determining whether this decision constitutes “substantial authority” for their credit union to not pay, or to seek a refund of, UBIT paid on income from sales of brokerage or annuities products. Bellco last year challenged the IRS’s assertion that UBIT was due on three of its products, and sought $199,293 in tax refunds from the IRS.

Realtor group pens its support of MBL cap lift

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WASHINGTON (3/8/10)--The National Association of Realtors last week joined the growing chorus of supporters urging a lift of the credit union member business lending cap by strongly urging congressional representatives to "follow the lead" of Reps. Paul Kanjorski (D-Pa.) and Ed Royce (R-Calif.) and increase "the ability of our nation's credit unions to make commercial loans and provide much needed financial support to our fragile economy." In a letter that was delivered to all House members, the NAR specifically spoke up in support of H.R. 3380, which would increase the current MBL cap of 12.25% to 25% of a credit union’s total assets and raise the “de minimis” threshold for MBLs to $250,000. The NAR was one of several business organizations included in a dear colleagues letter sent earlier this week by Reps. Ed Royce (R-Calif.) and Paul Kanjorski (D-Pa.). The legislators, along with 58 fellow congressional representatives, also last week urged House leaders Nancy Pelosi (D-Calif.) and John Boehner (R-Ohio) to include member business lending provisions in any potential job creation packages that pass through the House in the near future. Current estimates predict a total of 90 co-signors for any potential MBL legislation. CUNA has also advocated for lifting the MBL cap through grassroots action as well as House and Senate testimony in recent weeks, and late last month directly discussed MBLs and other credit union issues with U.S. Treasury Secretary Tim Geithner and other high-ranking Treasury officials.

Know-your-member rules are clarified

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VIENNA, Va. (3/8/10)—The Financial Crimes Enforcement Network (FinCEN) said it worked closely with federal regulators to hammer out new guidance for financial institutions regarding the beneficial ownership of accounts. On Friday, FinCEN released “Guidance on Obtaining and Retaining Beneficial Ownership Information,” which not only clears up some confusion associated with the rules, it also consolidates regulatory expectations. The guidance reiterates that credit unions and all financial institutions are obliged to know if a member or customer presents a risk under the Bank Secrecy Act (BSA), which calls upon financial institutions to help fight such crimes as money laundering, terror financing, tax evasion, and sanctions evasion. If an accountholder appears to be a heightened risk, an institution should conduct enhanced due diligence. According to a report by the Government Accountability Office (GAO), law enforcement officials are concerned that criminals are increasingly using United States shell companies to conceal their identity and their illicit activities, FinCEN notes. “Information on beneficial ownership in account relationships provides another tool for financial institutions to better understand and address money laundering and terrorist financing risks, protect themselves from criminal activity, and assist law enforcement with investigations and prosecutions. FinCEN Director James Freis, Jr. said of the new guidance, "While much of the document consolidates previously issued regulatory guidance, by synthesizing the disparate obligations, FinCEN is highlighting how the rules can be mutually reinforcing in mitigating risks." Use the resource link below to access the guidance.