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Inside Washington (04/30/2008)

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* WASHINGTON (5/1/08)--Financial institutions will be able to file notices, applications, and other materials to the Federal Reserve Board through an electronic system expected to be in place by the year’s end (American Banker April 30). The system is voluntary and would be available in the second quarter of 2008, with 20 participants. The Fed expects the system to be finalized during the fourth quarter and could be implemented next year ... * WASHINGTON (5/1/08)--The Federal Reserve Board’s efforts to curb abusive and deceptive credit card practices are not enough to protect consumers, Democrats said Tuesday. Sen. Robert Menendez (D-N.J.) and Rep. Carolyn Maloney (D-N.Y.) both issued statements on their websites reacting to the Fed’s proposed rules to curb double-cycle billing and universal default. “We can’t wait to act,” Maloney said in her statement. “It’s nice that the Fed has finally decided that something needs to be done,” but “by the time the Fed gets around to finalizing these credit card proposals, they will likely be watered down and come too little too late for consumers who need relief now,” she said. Maloney is the creator of the Credit Cardholders’ Bill of Rights. Menendez, who authored the Credit Card Reform Act, expressed his frustrations that federal regulators “never seem to be ahead of the curve and instead wait until the verge of a crisis or the onset of a crisis to take action.” The Fed plans to release its credit card proposal Friday ... * WASHINGTON (5/1/08)--Economic stimulus payments directly deposited into Individual Retirement Accounts (IRAs) and other tax-favored accounts may be withdrawn tax- and penalty-free, the Internal Revenue Service announced yesterday. The relief aims to help taxpayers who may not have known that by choosing direct deposit for their regular tax refund, they also were choosing to have their stimulus payment direct deposited. To qualify, funds must be taken out by April 15 ...

Dodd adds bill to credit card mix

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WASHINGTON (5/1/08)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) introduced broad credit card reforms Wednesday, just days before the Federal Reserve Board is expected to address abusive practices and consumer protections through regulation. Dodd’s bill would ban practices such as universal default, double-cycle billing, and charging interest on fees. It would also require card issuers to apply cardholder payments to balances with higher interest rates first and to give a 45-days notice prior to any rate increases. The bill also attempts to address consumer complaints regarding the proliferation of card solicitations many young people receive just after their eighteenth birthday, a marketing practice that some claim could threaten to lead young consumers into dangerous levels of debt. The bill would, for instance, limit prescreened offers of credit to young consumers under the age of 21. It would also require issuers soliciting to those under 21 to obtain an application that contains: the signature of a parent, guardian, or other individual who will take responsibility for the debt; proof that the applicant has an independent means of repaying any credit extended; or proof that the applicant has completed a certified financial literacy course. The bill also intends to strengthen credit card industry regulation and supervision by:
* Requiring banking regulators to evaluate the policies and procedures of card issuers to ensure compliance with card requirements and prohibitions; *Improving data collection related to rates, fees, and profits; and * Provides each federal financial regulator with the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions.
In related news, the Fed, along with the Office of Thrift Supervision, is expected to issue a proposal Friday that would define unfair and deceptive card practices. (American Banker April 30). The joint plan is expected to address many of the same issues as the Dodd bill, including prohibiting card companies from increasing interest rates on existing debt for reasons unrelated to the cardholder's behavior on that account. On the House side, Rep. Carolyn Maloney (D-N.Y.), who chairs the House Financial Services subcommittee on financial institutions, introduced a package of credit card reforms in February called the Credit Cardholder's Bill of Rights (H.R. 5244). The bill was introduced with 40 co-sponsors and also is intended to curb abusive credit card practices, such as some interest-rate increases and late fees. It features 45-day notice requirement for consumers before an interest rate could be executed. Cardholders would then have the right to cancel their card and pay off their existing balance at the existing rate and repayment schedule. H.R. 5244 would also prohibit the practice, known as "double-cycle billing," in which card companies charge interest on payments made on time during a grace period. It would also ban arbitrary changes in the credit card contract.

CUs need Hill action to help ease credit crunch

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WASHINGTON (5/1/08)—A Credit Union National Association (CUNA) witness testifying Wednesday on the effect of the credit crunch on small business access to capital said credit unions stand ready to support small businesses with more capital, but Congress needs to remove arbitrary legislative barriers. CUNA
Click to view larger imageCarl Sorgatz, president of Hawthorne CU, Naperville, Ill. and testifying on behalf of CUNA, urges lawmakers to remove barriers preventing credit unions from being of even greater help during the country's current credit crunch. (CUNA photo)
witness Carl Sorgatz,

testifying before a House Small Business subcommittee, said that despite the apparent “credit crunch” with respect to small business and other lending, the chief obstacle for credit union business lending is not the availability of capital. “Credit unions are in general very well capitalized. Rather, the chief obstacle for credit unions is the arbitrary statutory lending limits imposed by Congress in 1998 and the burdens associated with many of the SBA (Small Business Administration) lending programs,” he told the subcommittee on finance and tax. Sorgatz is president of Hawthorne CU, Naperville, Ill. The CUNA witness acknowledged that federal lawmakers “hear a lot of rhetoric surrounding credit union member business lending.” He then went on to provide accurate information regarding credit union member business lending (MBL) activity. He noted:
* Credit union MBLs are relatively small loans; in 2007, the average credit union MBL originated was $180,710; * Nationally, credit union business lending represents less than one percent of the depository institution business lending market; credit unions have about $28 billion in outstanding business loans, compared to $3.1 trillion for banking institutions; and * In general, credit unions do not finance skyscrapers or sports arenas; they make loans to credit union members who own and operate small businesses.
Under current law, credit unions are restricted from member business lending in excess of 12.25% of their total assets. “This arbitrary cap has no basis in either actual credit union business lending or safety and soundness considerations,” said Sorgatz. He noted a subsequent report by the U.S. Treasury Department, which found that business lending credit unions were more regulated than other financial institutions, and that delinquencies and charge-offs for credit union business loans were “much lower” than that for either banks or thrift institutions. “This cap is overly restrictive and undermines public policy to support America’s small businesses. It severely restricts the ability of credit unions to provide loans to small businesses at a time when small businesses are finding it increasingly difficult to obtain credit from other types of financial institutions, especially larger banks,” he added. Sorgatz urged the panel members to support legislation with provisions that would restore more MBL authority for credit unions, including:
* The Credit Union Regulatory Improvements Act (H.R. 1537), which would increase the current MBL limit from 12.25% to 20% of total assets, and permit the National Credit Union Administration to increase the threshold for defining a MBL from $50,000 to $100,000; * The Credit Union Regulatory Relief Act (H.R. 5519), which contains several provisions that would permit credit unions to make more small business loans available, although it does not address the overall cap; and * The Credit Union Small Business Lending Act (H.R. 1849), which recognizes the need to enhance credit union business lending through SBA programs.
The CUNA witness also reiterated CUNA’s strong support of SBA’s 7(a) loan program, which provides America’s 26 million small business owners with the capital and technical assistance needed to start and expand their businesses. Sorgatz reminded the House subpanel that several important factors, including the statutory MBL cap and SBA policies that, until 2003, limited credit union eligibility to participate in the 7(a) program, have discouraged many credit unions from participating. Other witnesses at the Wednesday hearing included representatives from the National Association of Home Builders, the Independent Community Bankers Association, and the U.S. Women’s Chamber of Commerce.

Changes needed to Home Valuation Code

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WASHINGTON (5/1/08)—The Credit Union National Association (CUNA) is seeking changes to a proposal by Fannie Mae and Freddie Mac to implement the New Home Valuation Protection Code (Code), new standards designed to ensure independent and reliable appraisals. In March, the Office of Federal Housing Enterprise Oversight (OFHEO), the New York Attorney General, Fannie Mae, and Freddie Mac entered into agreements that require Fannie and Freddie to buy loans only from financial institutions that meet the new standards set out by the code. However, in an April 30 comment letter, CUNA opposed a requirement that financial institutions establish and maintain a telephone hotline and email address to receive complaints regarding possible improper influencing of the appraisal process. CUNA wrote that this provision is duplicative of similar requirements that will be imposed on the Independent Valuation Protection Institute (Institute), an entity that would be funded by both Freddie Mac and Fannie Mae. CUNA also recommended that Freddie and Fannie should delay the effective date of the Code so that it applies to loans originated after January 1, 2010 The implementation issues surrounding the new CODE, CUNA said, as well as other provisions, such as a requirement to perform quality tests of a randomly selected percentage of appraisals, will require new procedures and additional staff training which will take time to address. Use the resource link below to read the complete CUNA comment letter.

House passes CUNA-backed financial literacy statement

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WASHINGTON (5/1/08)—The House late Tuesday passed a resolution in support of the goals of Financial Literacy Month, a resolution backed by the Credit Union National Association (CUNA). Earlier this month, CUNA submitted a statement for the record of a House hearing urging approval of the resolution touting the ideal of Financial Literacy Month. In the statement, CUNA noted that credit unions have traditionally made financial education a part of their mission, providing financial information and training to members on a one-to-one basis. Along with noting the important financial literacy initiatives supported by credit unions, CUNA noted: "For credit unions, financial literacy is not just something we do in April – financial education is a service we provide our members each day of the year."

CUNA opposes government meddling with interchange fees

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WASHINGTON (5/1/08)—The Credit Union National Association (CUNA) this week warned federal lawmakers that government regulation of credit card interchange fees would be a bane to consumers by reducing their payment options. CUNA also noted that government interference with the fees, as proposed by H.R. 5546, the Credit Card Fair Fee Act, could dampen both competition among card companies and technological innovation. The House bill proposes to establish governmental tribunal that would be authorized to “make determinations of access rates and terms calculated to most closely represent the rates and terms that would be negotiated in a hypothetical perfectly competitive marketplace for access to an electronic payment system between a willing buyer with no market power and a willing seller with no market power.” CUNA said that such a tribunal would be costly and would serve to impose government decisions on a system that is more appropriately governed by the market. “Government-imposed price controls on interchange fees are more likely to increase credit and debit cards costs that consumers bear. The uncertainty surrounding this legislation makes it unlikely that consumers will see any benefit,” CUNA said in a letter that went to each House member. H.R. 5546 is currently pending action before the House Judiciary Committee and is expected to be vetted through the hearing process in mid-May.