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FASB acts on mark-to-market OTTI

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WASHINGTON (4/3/09)—The Financial Accounting Standards Board (FASB) Thursday adopted rule changes on mark-to-market accounting and on treatment of the "other-than-temporary impairment" (OTTI) of assets. The Credit Union National Association (CUNA) said FASB’s action is generally a positive development on the OTTI changes and will help credit unions and other financial institutions deal with some of the current market issues. However, CUNA added, FASB could have done more. For instance, as FASB indicated in its March 17 proposal, the OTTI changes are not retroactive for 2008 financial statements. The accounting changes do ease somewhat the rules for financial institutions regarding securities that must be treated as OTTI and in that sense are a step forward, according to CUNA. However, the trade group said it was unfortunate the changes will likely have minimal impact on asset-backed securities held by U.S. Central FCU and Western Corporate FCU, the two corporate credit unions recently put into conservatorship by the National Credit Union Administration (NCUA). Because of that, the change may have little bearing on the cost to credit unions of NCUA’s corporate stabilization plans, CUNA noted. Final language hasn’t been released yet, but CUNA said key points based on today’s action include:
* As noted, the changes are not retroactive for 2008 financial statements. CUNA and others urged that changes apply beginning with year-end 2008. The decision may have been FASB’s attempt to find a middle ground between those promoting changes that reflect today’s economic reality and those calling on FASB to resist and preserve the status quo. * Prior to Thursday’s action, financial institutions with securities determined to be OTTI had to record the entire impairment in their earnings, whether it was based on credit, liquidity or other factors. FASB did not change the requirement to record the amount of impairment in earnings based on credit losses. * Impairment losses on debt instruments resulting from other factors, such as liquidity, would be reported as other comprehensive income (OCI) and won’t have to be reflected in earnings. This will be useful for reporting assets where the market is not functioning normally but that still are performing and have positive cash flows. * Whether separation of credit from other losses is permitted depends on the likelihood that the security will be held until it recovers in value; * On fair value, FASB adopted guidance for determining whether or not a market is active and whether or not a transaction is distressed—two key factors in applying fair value standards. However, CUNA believes there is still room for substantial improvement here and will continue to press this point with FASB.
Under FASB’s action, compliance is mandatory after June 15, 2009. Early adoption is allowed for periods ending after March 15, 2009. Final changes should be out the second week of April.

Inside Washington (04/02/2009)

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* WASHINGTON (4/3/09)--Karen Mills, President Barack Obama’s nominee to lead the Small Business Administration (SBA), said during her confirmation hearing, that she will reach out to non-SBA lenders to revive lending. New technology could be used to connect borrowers and lenders more efficiently, she added. The hearing was before the Senate Small Business Committee Wednesday (American Banker April 2) ... * WASHINGTON (4/3/09)--National Credit Union Administration Vice Chairman Rodney E. Hood yesterday addressed the American Credit Union Mortgage Association (ACUMA) Spring Conference in San Francisco. During the event, Hood stressed that credit unions should seize this opportunity to engage in responsible mortgage lending. He emphasized the importance of pre- and post-purchase counseling as well as rent-to-own strategies that provide the financial education necessary to eventually sustain homeownership. From left are Hood and John Reed, chairman of ACUMA board of directors and president/CEO of Maine Savings FCU, Hampden, Maine. (Photo provided by the National Credit Union Administration) ...

Committee approves cardholders bill of rights

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WASHINGTON (4/3/09)--The House Financial Services subcommittee on Financial Institutions approved by voice vote Thursday H.R. 627, the Credit Cardholders’ Bill of Rights Act. Several amendments were included in the bill that could benefit credit unions. One would extend the effective date of the legislation to 12 months after the enactment or July 1, 2010--whichever comes first. “This was a key point that CUNA made in its testimony and represents a significant victory,” said Ryan Donovan, CUNA vice president of legislative affairs. CUNA testified on the legislation March 19 and encouraged the committee to extend the date to July 1, 2010. The subcommittee also approved a manager’s amendment that includes a change regarding statement dates. H.R. 627, as introduced, would prohibit creditors from considering a payment as late unless the consumer is provided with reasonable time to make payments. The bill would require statements to be mailed at least 25 days before the due date. CUNA encouraged the committee to consider a 21-day threshold because the 25-day requirement would be too close to the end of the billing cycle and could create logistical problems for credit unions. The manager's amendment includes the 21-day threshold that CUNA sought. The subcommittee also approved another amendment that would prohibit issuers from charging fees to consumers paying credit card bills online or by phone. Two amendments--offered by Rep. Jeb Hensarling (R-Texas), which deal with universal default and interest rates--were defeated. The first amendment would have allowed card companies to use universal default or double cycle billing if the company has at least one card that does not use double cycle billing or universal default. The second amendment would have permitted issuers to raise rates on a consumer who failed to pay three times in a year. The full committee or the House of Representatives could consider the bill when Congress returns from the spring district work period, Donovan said.

CUNA issues comment call for TISA rules

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WASHINGTON (4/3/09)--The Credit Union National Association (CUNA) has issued a regulatory comment call on the National Credit Union Administration’s (NCUA) proposal to amend Regulation DD, the Truth in Savings Act (TISA), to incorporate two recent final rules issued by the Federal Reserve Board. Comments are due to CUNA by May 15. NCUA’s proposal would require credit unions to disclose on periodic statements dollar amounts charged for overdraft fees and returned item fees--for the month and year-to-date. Currently only credit unions that promote or advertise the payment overdrafts are required to disclose this information. The effective date for the overdraft rule is Jan. 1, 2010. The electronic disclosures rule aims to make standards fore electronic delivery of TISA disclosures consistent. It deals with a rule the Fed issued in October 2007 about uniform disclosure standards. The effective date will be 30 days after the final version of the rule is issued. TISA requires that the NCUA adopt regulations similar to those of the Fed, taking into account the unique nature of credit unions and the limitations under which they may pay dividends on member accounts. For more information, use the link.