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Judge leaves TCF interchange suit open for now

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WASHINGTON (4/5/11)—In an action that leaves open the opportunity to challenge the Federal Reserve Board's debit interchange rule once it is issued, a federal court declined to dismiss TCF National Bank's (TCF) suit against the Fed--but also declined to issue an injunction based on the statute. Credit Union National Association (CUNA) General Counsel Eric Richard said that Monday’s developments were “just one step in a long legal process and CUNA will continue to be a part of that process.” The legal work will go forward, especially after the Fed issues its regulations under the Interchange Amendment – but the Fed’s announcement last week about its inability to meet the April 21 rule deadline makes the timing highly uncertain,” he added. The Fed’s interchange fee rate cap regulations, which could lower interchange fees to as low as seven cents per transaction, are set to go into effect on July 21. A final version of a proposal is expected to be offered before that effective date, even though the Fed last week said that it would not meet the statutory April 21 deadline for a proposal. Monday’s court action followed the first round of oral arguments in TCF’s lawsuit against the debit card interchange fee provisions of the Dodd-Frank Act. The arguments were heard in U.S. District Court for the District of South Dakota by Judge Lawrence Piersol. Credit Union Association of the Dakotas’ Director of Compliance Amy Kleinschmit, who attended the hearing, noted that a large media contingent was part of the fully packed courtroom. The TCF suit, which was filed last October, alleges that portions of the Dodd-Frank Act that would require the Federal Reserve to set restrictions on debit card interchange fees are unconstitutional. Specifically, the suit states that the government cannot write laws that would force a given business to take a loss on one of its various business operations. TCF also argues that the Fed's implementation plan restricts a financial institution's ability to recover costs associated with providing the debit card service. CUNA, the Clearing House Association L.L.C., American Bankers Association, Consumer Bankers Association, The Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, and the National Association of Federal Credit Unions have backed TCF in its suit. CUNA and the other groups are backing TCF in an effort to explain the detrimental effect that the Fed's interchange provisions would have on the "stability of the electronic payment structure that undergirds literally trillions of dollars of our economy, as well as the serious constitutional issues the (Fed's) action raises." CUNA is also encouraging legislators to tell the Fed to stop, study and start over on the interchange proposal.

Call on Congress on interchange CUNA urges CUs

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WASHINGTON (4/5/11)—Saying that “the time has come to more aggressively reach out to credit union members to broaden the grassroots effort on debit interchange issues,” Credit Union National Association (CUNA) President/CEO Bill Cheney on Monday announced a host of new resources that will help consumers engage their congressional representatives on this crucial issue. CUNA on Monday unveiled a toll-free number, (877) 422-3525, to help credit union members urge their congressional representatives to save free checking accounts at credit unions. At issue is an interchange rule included in the Dodd-Frank Wall Street Reform Act that requires the Federal Reserve to set the fee debit card issuers may charge merchants who use that payment system. CUNA has said the rule will force up debit card costs for consumers and has urged Congress to delay implementation and study the surrounding issues. On the grassroots front, CUNA, the Leagues and credit unions are developing a district-based letter-writing campaign. CUNA will provide Leagues and credit unions with posters, sample letters, and other materials to push this effort forward. Cheney said that CUNA’s “Call on Congress” will engage credit union members and “keep up constant contact with their lawmakers –both in Washington and at home.” The interchange provisions, which could become effective in late July, could lower the amount of transaction fees charged to seven cents per card swipe. The legislation would exempt credit unions and other small institutions with assets of $10 billion and under from the terms of the regulations. However, there is much debate over whether this proposed exemption would work as planned. Federal regulators, including Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair, have publicly questioned whether small issuers would benefit from this exemption. Fed Chairman Ben Bernanke this week said that his agency would not be able to meet a statutory April 21 deadline for the issuance of proposed debit interchange fee standards. The new standards are currently set to go into effect on July 21. “If the rules proposed by the Federal Reserve to fix prices on debit interchange go into effect July 21 as mandated by law, many credit unions will have some very hard choices to make about how to offer services to their members,” said CUNA’s Cheney. “Credit union members may be forced to pay new fees for their debit cards and face elimination of services such as free checking.” CUNA has called on legislators to “stop, study and start over” on the interchange proposal. Legislation to delay the implementation of the interchange proposal is active in both the House and Senate, and credit union backers have made more than 50,000 separate contacts in support of these delays since March 15. Rep. Shelley Moore Capito’s (R-W.V.) bill would delay interchange rate cap implementation by one year while the Fed studies interchange’s impact on consumers, credit unions and merchants. That legislation has 68 cosponsors. Sen. John Tester’s (D-S.D.) bill, which would order a similar study and would delay implementation by two years, has 17 cosponsors. For more on CUNA’s grassroots actions, use the resource link.

Fed loan compensation rules delayed pending appeal

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WASHINGTON (4/5/11)--The U.S. Court of Appeals for the District of Columbia last Thursday stayed implementation of the Federal Reserve’s Regulation Z Loan Originator Compensation final rule. This lawsuit has nothing to do with the SAFE registration process for mortgage loan originators, the Credit Union National Association notes. Implementation of the Regulation Z rule is now delayed until further order of the Appellate Court. The implementation delay is the result of emergency relief requests filed in the Appellate Court in late March by the National Association of Mortgage Brokers (NAMB) and National Association of Independent Housing Professionals (NAIHP). These relief requests followed a pair of early March lawsuits that these parties filed against the Fed in the U.S. Federal District Court for the District of Columbia. The suits, which sought a temporary restraining order and a preliminary injunction to prevent enforcement of the Regulation Z final rule, were rejected by the District Court in late March. The Appellate Court required the Fed to file its response to the emergency relief requests by Monday April 4th and both the NAMB and the NAIHP are required to file their reply to the Fed’s response by Tuesday April 5th. The final rule, which was set to come into effect on April 1, applies to closed end consumer credit transactions that are secured by a dwelling. The Fed’s final rule prohibits payments to loan originators, including mortgage brokers and loan officers, based upon the terms or conditions of the loan such as the interest rate. The rule would also prevent loan originators from being paid more compensation if the borrower accepts an interest rate higher than the rate required by the lender. This is commonly referred to as a “yield spread premium.” The practice of “steering” consumers toward loans that are not in their best interest to increase a loan originator’s compensation would also be banned under the rule. Loan originators would still be permitted to receive compensation that is based on a fixed percentage of the loan amount, however.

CUNA to testify this week on CFPB issues

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WASHINGTON (4/5/11)--State Employees CU of Maryland President/CEO Rod Staatz will testify on behalf of the Credit Union National Association (CUNA) during a Wednesday subcommittee hearing on legislative proposals to improve the structure of the Consumer Financial Protection Bureau (CFPB). The House Financial Services Financial Institutions & Consumer Credit Subcommittee hearing is scheduled to begin at 10 A.M. ET. Staatz, who serves on CUNA’s Board of Directors, has previously represented credit unions and CUNA during a 2009 House Financial Services Committee hearing on overdraft protection. Subcommittee Chairman Shelley Moore Capito (R-W.V.) said in a release that the hearing is meant to “review ways to make the CFPB more accountable and transparent.” One bill that the Wednesday hearing could focus on is H.R. 1121, the Responsible Consumer Financial Protection Regulations Act, which would create a five-person panel to head the Consumer Financial Protection Commission, to replace the single director as the current set up would require. H.R. 1351, the Consumer Financial Protection Safety and Soundness Improvement Act, may also be discussed during the hearing. This bill would allow the Financial Stability Oversight Council (FSOC) to set aside certain CFPB rules if two-thirds of the FSOC agrees to do so. The legislation would also direct the FSOC to take action to stay or set aside CFPB rules that are inconsistent with the safe and sound operation of U.S. financial institutions. The FSOC is chaired by Treasury Secretary Timothy Geithner and includes Federal Reserve Board Chairman Ben Bernanke as well as other key regulators from the National Credit Union Administration, Securities and Exchange Commission, and the Commodity Futures Trading Commission. The FSOC is tasked with monitoring markets for disturbances and promoting market discipline. Grand Rapids State Bank CEO Noah Wilcox and Consumer Bankers Association President Richard Hunt will join Staatz on his witness panel. Bank of Bennington CEO Leslie Andersen, Washington Gas Light FCU CEO Lynette Smith, and U.S. Chamber of Commerce Center for Capital Markets Competitiveness Director Jess Sharp will testify during an earlier panel.

Inside Washington (04/04/2011)

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* WASHINGTON (4/5/11)--The National Credit Union Administration’s (NCUA) multi-media initiative to educate consumers about the safety of money deposited in federally insured credit unions has touched more than 150 million consumers, including 60 million television viewers, the agency said on Monday. In six months, the “NCUA-Safe” public education effort has exceeded $6 million in free publicity, according to NCUA. In October, the agency kicked off a campaign to remind the public that NCUA does for federally insured credit unions what the Federal Deposit Insurance Corp. does for banks: insure consumers’ savings up to $250,000 per individual depositor. The “NCUA-Safe” campaign features Suze Orman, a personal finance expert millions of Americans rely on for advice. The campaign’s free 30- and 60-second television and radio public service announcements (PSA), plus indoor and outdoor posters touting the safety of NCUA credit union insurance protection, have generated an estimated $4.3 million in free publicity through April 1. In addition to PSAs featured on television, cable, radio and out-of-home outlets, the campaign has generated more than $1.7 million in exposure from other outreach efforts, including news releases and radio media tours. The campaign included a free PSA that appeared twice each hour on an electronic billboard in New York City’s Times Square between Thanksgiving and New Year’s Day … * WASHINGTON (4/5/11)--Banks may be required to contribute billions of dollars into a fund that would pay homeowners to settle ownership disputes that emerge during foreclosure proceedings over documentation issues, Sheila Bair, the chair of the Federal Deposit Insurance Corp. (FDIC), told CBS' "60 Minutes" on Sunday (The Hill April 4). Blair said the creation of such a fund becomes more likely as banks struggle with foreclosure documentation problems resulting from the subprime mortgage crisis. Blair said mismanaged paperwork could lead to lawsuits. To discourage litigation, Bair suggested banks should kick in to a fund, which would pay for disputes related to paperwork irregularities … * WASHINGTON (4/5/11)--The Federal Reserve allowed big banks to convert more than $118 billion worth of junk bonds, defaulted debt, securities of unknown ratings and stocks into cash during the recent financial crisis, according to documents released Thursday (American Banker April 4). Low-rated collateral accounted for 72% of the $164.3 billion in market-rate securities pledged to the Fed on Sept. 29, 2008, documents indicated. The assets exceeded the loan value by 5.49%, according to the Fed data. Equities accounted for $71.7 billion, or 43.6% of the total. High-yield debt, including the defaulted issues, was $18.4 billion, or 11.2%. Collateral of unknown rating made up $28 billion, or 17%. The Fed allowed borrowers to use $929 million in market-valued debt that had gone into default as collateral, exceeding the $905.5 million in Treasuries pledged, the Fed said …

Matz named chair of FFIEC

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WASHINGTON (4/5/11)--The Federal Financial Institutions Examination Council (FFIEC) has named National Credit Union Administration (NCUA) Chairman Debbie Matz as its new leader. Matz will serve a two-year term at the helm of the council established in 1978 to promote uniformity in financial institution regulation. Matz’s acceptance of the FFIEC chairmanship results in placing the NCUA in the lead position for the first time in more than 20 years. Although the chairmanship is assigned on a rotating basis among the heads of the five member agencies, the NCUA has declined the position in the last two decades, according to the NCUA. Although the NCUA did not comment on why past chairman declined the role of FFIEC, a sposkesman said Matz accepted the responsibility because she is "committed to promoting consensus among financial regulators as they work to implement new rules protecting the safety and soundness of the financial services industry." The FFIEC is comprised of the leaders of the NCUA, the Federal Reserve Board, the office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. (FDIC). Matz succeeds FDIC Chairman Sheila Bair in the FFIEC position. “First, I want to thank Sheila Bair for her outstanding leadership of FFIEC during the last two years,” said Matz in a statement Monday. “FFIEC’s leadership transition from the FDIC to NCUA comes at an extraordinarily important time for the regulation of all insured financial institutions. I look forward to working with my distinguished colleagues in continuing the FFIEC mandate of promoting uniformity in the supervision of these institutions. I am confident that, working together, we will address many of the challenges now facing consumers and the financial services industry.” In 2006, the State Liaison Committee (SLC) chairman was made a voting member of the FFIEC. The SLC consists of five representatives of state financial institution regulatory agencies, and members are designated from the Conference of State Bank Supervisors, the American Council of State Savings Supervisors, the National Association of State Credit Union Supervisors, and the FFIEC for two-year terms.