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Inside Washington (04/16/2008)

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* WASHINGTON (4/17/08)--Policymakers are moving ahead with plans to help the student loan market (American Banker April 16). A proposal by the Senate and House Education Committees, which would require the Education Department to loan money to students in the secondary market by buying Federal Family Education Loan Program loans, is set for a vote today. Sen. John McCain (R-Ariz.) said this week that the department should work with state governors to back loans. On Wednesday, Sen. Christopher Dodd (D-Conn.) called on the Treasury Department and the Federal Reserve Board to add liquidity to the market ... * WASHINGTON (4/17/08)--The Treasury Department has released its best practices for hedge fund participants. The best practices for asset managers call on hedge funds to adopt comprehensive best practices in all aspects of business--including critical areas of disclosure, valuation of assets, risk management, business operations, compliance and conflicts of interest. The best practices for investors include a Fiduciary’s Guide and an Investor’s guide. The Fiduciary’s Guide provides recommendations to individuals charged with evaluating the appropriateness of hedge funds as a component of an investment portfolio. The Investor’s Guide provides recommendations to those who execute and administer a hedge fund program once it is added to the investment portfolio. Both will be open for 60-day comment periods ... * WASHINGTON (4/17/08)--The Federal Deposit Insurance Corp. (FDIC) is aiming to increase the use of covered bonds by providing investors with access to assets from a failed financial institution within 10 days in some situations. Although covered bonds are widely used internationally, a U.S. law requires a 90-day delay before creditors can collect assets from failed institutions--which keeps away some investors (American Banker April 16). The FDIC’s action is immediate, but it is open to a 60-day comment period. Covered bonds applicable for the waiver can not be more than 4% of an institution’s liabilities ... * WASHINGTON (4/17/08)--Though they’ve made improvements, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are still a supervisory concern, the Office of Federal Housing Enterprise Oversight (OFHEO) said Tuesday. The enterprises worry OFHEO because of increased mortgage market and credit risk, the agency said. However, OFHEO commended the two for making improvements and filing their 2007 annual statements on time. OFHEO Director James Lockhart said Fannie and Freddie committed to work on GSE reform legislation, and “the time to act on the legislation is now” ... * WASHINGTON (4/17/08)--States cannot tax the money businesses earn from investments in other states, the Supreme Court ruled Tuesday. The ruling reversed a decision made by the Appellate Court of Illinois, which upheld that the state could tax money Ohio-based MeadWestVaco Corp. made from Illinois-based Lexis-Nexis. MeadWestVaco argued that the state did not have the right to tax its earnings, and sued for a refund of the $4 million it paid in taxes. Justices referenced a 1992 opinion that led some states to conclude they could tax liabilities “generated by assets that served an operational rather than an investment function” (The New York Times April 16). The opinion, however, was not intended to give states new grounds to tax businesses, said Justice Samuel A. Alito Jr. ... * WASHINGTON (4/17/08)--The Financial Crimes Enforcement Network’s Annual Report for 2007 has been released ...

Federal state CU regulators hold annual meeting

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WASHINGTON (4/17/08)—The economic outlook for credit unions, along with compliance and examination standards, were among the hot topics when federal and state regulators convened April 13-15 in Tampa. Representatives from 38 state agencies and the National Credit Union Administration NCUA) were among the conferees during the annual regulatory meeting sponsored by leaders of the NCUA and National Association of State CU Supervisors (NASCUS). NCUA board member and NASCUS liaison Gigi Hyland said the conference was especially valuable because of the opportunities for state and federal regulators “to share concerns and perspectives.”

CUNA seeks comment on NCUA honesty standard

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WASHINGTON (4/17/08)—-The Credit Union National Association (CUNA) is asking credit unions to comment on a federal regulatory proposal designed to clarify a law that bans dishonest persons from working at credit unions. It requested comments by May 22. The proposed rule by the National Credit Union Administration (NCUA) seeks to explain more precisely the meaning of a section of the Federal Credit Union Act intended to accomplish that objective The relevant section now prohibits from participating in the affairs of a credit union, persons convicted of a criminal offense involving dishonesty, or breach of trust, or who have entered into a pretrial diversion or similar program, unless given a special waiver by the board. The NCUA’s clarification, in the form of an Interpretive Ruling and Policy Statement, would exclude certain minor offenses, juvenile offenses, and expunged convictions, while also prohibiting NCUA from providing consent to those individuals who have engaged in certain other criminal offenses. The proposed policy statement was adopted on March 20. The board requested comments by June 3. NCUA’s interpretation would establish specific procedures credit unions must follow in order to achieve NCUA consent to waive the prohibitions in the law for an individual. These include:
* The credit union must explain the circumstances surrounding the conviction or pre-trial diversion program, and evidence of rehabilitation; * It must demonstrate that the individual is fit to participate in the credit union affairs without posing a safety and soundness risk; and * If the NCUA consent is denied, the credit union may appeal the decision within 30 days.

Plastic card processor reporting requirement delayed

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WASHINGTON 94/17/08)—A House and Senate conference committee on a farm reauthorization bill agreed to drop a controversial plan to require credit and debit card payment processors to report to the Internal Revenue Service (IRS) the aggregate annual payments made to merchants. The Credit Union National Association (CUNA) lobbied vigorously to get the provision removed because of the detrimental effect it could have on credit unions. The provision was slated to be used as a revenue raising measure to offset increased spending in the omnibus legislation reauthorizing federal farm programs for five years. Billed as a means to close the "tax gap”--the difference between the amount of taxes owed the federal government and the amount actually collected—this provision originated in the President's FY 2009 budget outline. The proposal would have required merchant acquiring banks and credit unions, those institutions that make card payment reimbursements to merchants, to report to the IRS total merchant payments on an annual basis. In a letter to the House and Senate farm bill conferees, CUNA President/CEO Dan Mica wrote,”CUNA recognizes that the intent of the reporting provision is to close the “tax gap” and to collect taxes that are legitimately owed to the Internal Revenue Service. However, this objective can be met through the IRS’s traditional auditing process, with fraud and underreporting subject to stiff IRS fines and criminal penalties." Mica continued, "For affected institutions, this provision (would) add to the substantive compliance burden they already face. Credit unions make every effort to minimize loan rates and fees to consumers, and federal credit unions operate under a loan rate ceiling under the Federal Credit Union Act. As a result, this proposal will place a disproportionate burden on credit unions covered by its provisions." CUNA lobbyists have been informed that this card reporting proposal will be resurrected again and possibly attached to any number of pieces of future legislation. However, based on Mica's letters and an intense lobbying effort, CUNA has been invited to congressional tax staff discussions on the provision. These tax staffers have indicated a willingness to mitigate the proposal's effect on credit unions. CUNA lobbyists will continue to work with congressional tax writers to remove credit unions from the application of the reporting proposal. Mica also urged that the Congressional tax writing committees hold hearings to discuss the cost/benefit analysis of the proposal, as well as any unintended consequences the plan might generate.