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CUNA details how CFPB could address ATM issue

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WASHINGTON (4/17/12)--The Consumer Financial Protection Bureau has "more than sufficient authority" under the Dodd-Frank Wall Street Reform Act and the Electronic Fund Transfer Act to amend Regulation E and eliminate the requirement for on-machine ATM fee disclosure notices, Bill Cheney, president/CEO of the Credit Union National Association (CUNA), said in a recent letter to the agency.

Regulation E currently requires credit unions and other financial institutions that provide ATM services to display a notice on the ATM that a fee will be charged. More detailed ATM fee information must also be provided before the transaction is completed, either by showing it on the ATM's screen or providing the ATM user with a small printed disclosure before the consumer is committed to paying the fee.

CUNA has noted that credit unions and others have found that the outside notices on ATMs are, in some cases, being intentionally removed or destroyed, without the financial institution's knowledge, and that pictures are then taken of the ATM to show noncompliance. Some ATM users may then use this as evidence of apparent non-compliance and as grounds for lawsuits, and the number and cost of these lawsuits continues to climb. CUNA in the letter estimated that the total number of these lawsuits could be in the hundreds.

CUNA in its letter to CFPB Director Richard Cordray said "Congress has provided the agency with general and specific authority to relieve the burdens of Regulation E for certain service providers, consistent with sufficient consumer protection.

"We believe Congress intended for the agency to use this authority to ensure those institutions that are not abusing consumers may be relieved from certain burdens under the rule—and we believe this congressional intent applies to the regulation of remittances as well as to ATM fee notices," the letter added.

"Moreover, sound public policy supports removal of the on-machine ATM fee notice requirements given that these notices are replicated on-screen and are of questionable utility to ATM users," Cheney wrote.

The letter follows a recent meeting between Cordray and CUNA's Executive Committee and senior staff in which the CFPB director asked for CUNA's analysis of how the CFPB could address the ATM issue. CUNA has also discussed this issue on several occasions with the CFPB director and has written about it in comment letters and other communications to the agency.

CUNA is also pursuing a legislative remedy to this ATM problem, working with other financial advocacy organizations to forestall litigation related to ATM fee disclosure notices.

CFPB overdraft plan needs more comment time says CUNA

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WASHINGTON (4/17/12)--Overdraft protection is an extremely important topic for credit unions, which offer a variety of related programs, and the Credit Union National Association (CUNA) has asked the Consumer Financial Protection Bureau (CFPB) to extend a comment period for its overdraft fee initiative, which is scheduled to end on April 30.

In a communication to Dan Sokolov, CFPB deputy associate director for research, markets and regulations, CUNA requested an additional 30 to 45 days to develop comments on the issue. "We want to make sure the agency has the information it needs," CUNA Deputy General Counsel Mary Mitchell Dunn told Sokolov.

The CFPB earlier this year announced a new overdraft fee initiative, under which the bureau distributed questionnaires to large banks in an effort to evaluate how those institutions' overdraft policies affect consumers.

The CFPB has said it is particularly focused on the practice of re-ordering purchases and payments to maximize overdraft fee charges, on whether consumers can anticipate and avoid overdraft fees, and on how differences in the way institutions explain and promote overdraft programs may affect opt-in rates.

The CFPB has said it plans to use overdraft comments from consumers, the financial services industry, and other interested parties to craft new overdraft fee disclosures and rules, assist with policymaking on overdraft practices, and to prioritize the bureau's regulatory and education work. (See related Feb. 23 News Now story: CUs represented in CFPB overdraft discussion.)

The CFPB is also considering requiring a so-called "penalty- fee box" – which would add information on the amount overdrawn  and total overdraft fees charged each month to a consumers monthly checking account statement.  The bureau also is developing a consumer overdraft fee education project.

Robert Allen, president/CEO of Long Island, N.Y.'s Teachers FCU, and CUNA Regulatory Counsel Jared Ihrig were among those that met with the CFPB earlier this year to discuss the overdraft fee project and other issues with CFPB staff.

Allen told the CFPB that credit unions support meaningful overdraft fee disclosures, but added that the CFPB needs to consider the costs that credit unions and other institutions would bear as it addresses overdraft fee issues. He noted that credit unions routinely charge lower overdraft fees than those charged by banks, and said his credit union refunds many account fees and makes financial counseling available to members.

Fed seeks summary judgment in interchange case

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WASHINGTON (4/17/12)--The Federal Reserve in a brief filed Friday asked the U.S. District Court for the District of Columbia to declare summary judgment in its favor in a case brought against the regulator by a coalition of retailer organizations seeking to invalidate the Fed's debit card interchange rule.

NACS, National Retail Federation, Food Marketing Institute, Miller Oil Co. Inc., Boscov's Department Store LLC, and the National Restaurant Association filed their own motion early last month, seeking a summary judgment ruling declaring the interchange rule and a network non-exclusivity regulation invalid.

The Fed's initial interchange proposal originally would have set a per-transaction debit interchange fee cap of between 7 and 12 cents per transaction. However, after receiving more than 11,500 comments, the Fed decided to add many costs related to debit card use, such as network connectivity, hardware, software, and labor costs, in the calculation of the final debit card interchange cap, and settled on a final debit interchange rule that caps fees for issuers with assets of $10 billion or more at 21 cents.

The merchants' motion claimed the Fed's interchange rule exceeds the authority granted to it by Congress, arguing that the final rule is "arbitrary, capricious" and "an abuse of process." (See related March 6 News Now story: Retailers file for summary judgment on interchange rule)

In its April 13 legal brief, the Fed argued that its final interchange fee regulation "complies in all respects" with the authority granted to the Fed by the U.S. Congress "to promulgate regulations regarding interchange transaction fees in debit card transactions and network exclusivity and routing."

The Fed also argued that Congress granted the Fed the authority to "consider other costs specific to a particular electronic debit transaction" as it developed the interchange fee regulation.

"Congress provided only limited guidance on how the Board should fulfill its statutory mission, and thereby expansively delegated to the Board authority to fill statutory gaps in establishing the statutory standard," the Fed said.

The merchants' claims that fixed authorization, clearance, or settlement (ACS) costs, transaction monitoring costs, fraud losses, and network processing fees should not have been included in the final interchange fee calculation were also challenged by the Fed brief. Nothing in the interchange statute prohibits the Fed "from taking network processing fees paid by issuers as part of the ACS costs considered as part of the interchange fee standard," the Fed's brief said.

The merchant representatives are scheduled to reply to the Fed's request for summary judgment on May 11. The Fed is then scheduled to reply to that merchants' brief on June 1.

The Credit Union National Association (CUNA) this year joined the Financial Services Roundtable, the Clearing House Association, the National Association of Federal Credit Unions, the Midsize Bank Coalition of America, the Independent Community Bankers of America, the Consumer Bankers Association, the National Bankers Association and the American Bankers Association to file a friend of the court brief asking the court to dismiss the merchant's case.

The friend of the court brief maintains that the final interchange fee is too low, as it does not allow debit card issuers to cover their costs and receive a reasonable rate of return on their investments. The joint brief also described how small and large financial institutions are harmed by the Fed's tight fee ceiling, and underscores that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services. (See related March 16 News Now story: CUNA, coalition seek dismissal of merchant interchange suit)

CU CEO decries flood of regulations at field hearing

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CLEVELAND, Ohio (4/17/12)--Although credit unions did not cause the financial crisis, "they have been subjected to a flood of regulations that create an unnecessary burden without any measure of the effectiveness of these changes," Stan Barnes, president/CEO of Canton, Ohio-based CSE FCU said during a Monday House subcommittee on financial institutions and consumer credit field hearing in Cleveland, Ohio.

Barnes in his statement noted that Ohio credit unions have been subjected to more than 160 new rules and regulations from 27 different federal agencies since 2008, and added that there are at least 27 rulemaking proposals pending at various agencies, including the National Credit Union Administration (NCUA), the Federal Reserve, and the Consumer Financial Protection Bureau.

He said credit unions have told the NCUA that the agency's examiners "are practicing regulatory micromanagement and overreach," and "are dictating the business of operating a credit union."

Steps to stem this tide have been suggested by the Credit Union National Association (CUNA) and credit unions, and Barnes repeated this call in his testimony, suggesting that the NCUA impose a moratorium on new regulations for at least the next six months and reinstate the Regulatory Flexibility Program, "which provides well-managed and well-capitalized credit unions an exemption from regulations that are not statutorily required."

The credit union CEO also told members of the committee that the Financial Institution Examination Fairness and Reform Act (H.R. 3461), which is sponsored by the subcommittee chair, Rep. Shelly Moore Capito (R-W. Va.), and its ranking subcommittee member, Rwp.  Carolyn Maloney (D-N.Y.), "would be a positive step in balancing the relationship between the regulated and the regulator."

The hearing also featured testimony from Bill Blake, senior vice president and associate general counsel for KeyBank; Courtney Haning, chairman, president and CEO of Peoples National Bank; Steven Fireman, president and general counsel of the Economic and Community Development Institute; and Martin Cole, president and CEO of Andover Bank.

For more testimony from the hearing, use the resource link.

Inside Washington (04/16/2012)

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  • WASHINGTON (4/17/12)--The working relationship of the Federal Deposit Insurance Corp. board marked a time of change as Thomas Hoenig and Jeremiah Norton officially took their seats on the board Monday (American Banker April 16). Martin Gruenberg took over as acting chairman for the departed Sheila Bair, who resigned in 2011. Thomas Curry left for the Office of Comptroller of Currency. Bair, Gruenberg and Curry were largely united in their votes as board members. Gerard Comizio, a partner at Paul Hastings and a former official at the Office of Thrift Supervision expects the new board will have more view points and will have to work harder to gain consensus …
  • · WASHINGTON (4/17/12)--The Treasury Department's investments made during the financial crisis are expected to return $179 billion to U.S. taxpayers, according to a report issued by the department Friday. Among the Treasury's investments were the Troubled Asset Relief program, which will earn a gain on its investment in banks but is expected to result in a net loss largely due to funds spent to rescue Chrysler and General Motors and to help troubled homeowners. Treasury also bailed out Fannie Mae and Freddie Mac, an investment which is projected to result in a net cost to taxpayers of $28 billion through fiscal year 2022. Treasury also estimated that it will earn a total of $26 billion from its money market fund guarantee program and its mortgage-backed securities purchase program. "Collectively, these programs--carried out by both a Republican and a Democratic administration--were effective in preventing the collapse of the financial system, in restarting economic growth, and in restoring access to credit and capital," the report said. "They were well-designed and carefully managed. Because of this, we were able to limit the broader economic and financial damage" …

NCUA bans former FCU employee for theft

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ALEXANDRIA, Va. (4/17/12)--The National Credit Union Administration (NCUA) Monday issued an order prohibiting Nicole M. Vincent, a former employee of Bangor (Maine) FCU, from participating in the affairs of any federally insured financial institution.

The NCUA reported that Vincent was convicted of theft by unauthorized taking or transfer and was sentenced to 15 days in prison.

It is a felony offense to violate a prohibition order; such a breach is punishable by imprisonment and a fine of up to $1 million.

Use the resource link to view NCUA enforcement orders.

Sherman boosts CU capital bill in iRoll Calli

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WASHINGTON (4/17/12)--A bill to broaden credit unions' ability to build capital would simply fix a flaw in current law that unfairly punishes healthy credit unions for growing to meet the needs of their members and their communities, writes Rep. Brad Sherman (D-Calif.) in an op-ed in the Monday issue of Roll Call.

Sherman and Rep. Pete King (R-N.Y.) introduced the Capital Access for Small Businesses and Jobs Act (H.R. 3993) in February to allow credit unions additional sources of capital.  Currently capital can only be built from retained earnings.

"This bipartisan legislation simply gets the government out of the way, allowing credit unions to expand consumer access to their affordable financial services while improving the overall safety and soundness of the credit union system.

"The bill makes a simple fix to current law to boost economic growth without spending a dime of taxpayer dollars or adding to the deficit," the Sherman op-ed says.

Sherman says the result of the current law's inflexibility on capital for credit unions results in credit unions of all sizes being forced to turn away deposits and scale back on lending to limit their growth.

"(The current) capital-based standards were never intended to discourage manageable asset growth by well-managed, financially healthy credit unions, yet that is exactly what is happening in every part of the country.

"As consumers and small-business owners will tell you, this is a real problem that harms everyone looking for reasonably priced financial services," Sherman writes.

Sherman notes that H.R. 3993 ensures adequate safeguards. It gives the National Credit Union Administration the flexibility to adjust capital requirements in response to changes in economic conditions. That flexibility, Sherman adds, is something the U.S. Congress has already provided to every other financial regulator.

"Credit union access to supplemental capital does not cost the taxpayer a dime and would not disturb the cooperative and mutual structure fundamental to the credit union model, and it has no bearing on the federal tax status of credit unions. By definition, our bill excludes any form of supplemental capital that would alter the cooperative nature of the credit union.

"Best of all, unlike other financial institutions, no credit union ever accepted a taxpayer bailout or Troubled Asset Relief Program money, and today we are eager to put more of their capital to work to help sustain the recovery," Sherman writes.

Roll Call is a widely read publication covering Capitol Hill.

CUNA asks Fitch to revise MBL statements

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WASHINGTON (4/17/12)--The Credit Union National Association (CUNA) asked Fitch Rating Services to revise or reconsider a statement critical of credit union business lending that the ratings agency issued late last week, pointing out information about credit union lending that the statement's authors "may not have been aware" of in preparing their message.

"I would hope that you might consider revising or extending your remarks after reviewing this additional information," CUNA Chief Economist Bill Hampel said in an email to the statement's authors.

In preparing his comments, Hampel underscored that credit union member business lending (MBL) is a safe and sound activity and that pending legislation to increase the MBL cap includes provisions that allow only safe and measured growth.

He noted that to ensure that pending legislation does not increase risk to credit unions by lifting the MBL cap to 27.5%, both the House (H.R. 1418) and Senate (S. 2231) bills explicitly contain the following three provisions a credit union must meet to go beyond the current 12.25% cap. The credit union:

  • Must have at least five years of experience making business loans;
  • Must have been above 80% of the cap for at least four consecutive quarters; and
  • Would be allowed to increase business lending by no more than 30% in any one year, under a tiered approach.  
Hampel also reminded that credit unions are not novices to member business lending, with some credit unions having been engaged for decades.

To assuage any doubt regarding whether a shortage of small business credit has existed throughout the recession and its aftermath, Hampel cited the monthly survey results generated by the National Federation of Independent Business, which show a reading of negative 11 for availability of credit.

Hampel reiterated a CUNA point that the NFIP has also made: any time there is an increase in the supply of a product, small business loans in this case, users of that product will find more of it available, on better terms, and more of it will be consumed.

"In other words, small businesses would benefit from this bill," Hampel noted.

Hampel also warned to be wary of banking groups' "analysis" of the number of credit unions that are impaired by the current low lending cap.

In assessing the need for a higher MBL cap to further help small businesses, CUNA classifies as:

  • "At the cap" all credit unions with MBL to asset ratios of 10% to 15%.  For example, for a $100 million credit union with MBLs equal to 11% of assets, just four or five average-sized loans would put them over the cap.  Credit unions in this group essentially have to eschew any new business, keeping their limited remaining cap authority available for existing member borrowers.  There are about 140 such credit unions;
  • "Approaching the cap" those credit unions with between 7.5% and 10% of assets in MBLs.  On average, these credit unions will reach the cap in about two-and-a-half years at recent growth rates.  There are about 170 such credit unions; and,
  • "Feeling initial constraints of the cap" those credit unions with MBL to asset ratios of between 5% and 7.5%.  At their recent fairly rapid growth rates, these credit unions too would be capped in about two-an- a-half years.  There are about 210 such credit unions.
In total, these roughly 500 credit unions account for about 75% of credit union business loans subject to the cap and they have to progressively retard their business lending the closer they get to the cap.

To the Fitch writer's stated concern that smaller credit unions with limited resources might find it difficult to successfully compete in a larger business loan environment, Hampel reminded that MBL legislation would not require--nor would allow-- all credit unions, of all sizes, to ramp up business lending facilities. 

"Any significant increase in business lending at credit unions would come only from those credit unions that already have extensive experience in business lending," Hampel said, and pointed out that National Credit Union Administration rules already require a credit union to use the services of an experienced individual (at least two-years) before even setting up a business lending program. 

The CUNA communication, which was also distributed to the legislative directors of every U.S. House and Senate office, also noted that credit union member business loan net charge-off rates have been significantly lower than bank rates year-in and year-out for over a decade.  In fact, CUNA said that since 1997, credit union member business loan net charge-off rates have averaged 0.23%, a figure that is one-fourth the 0.91% bank average over the same period.