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Congressmen urge closer look at interchange impact

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WASHINGTON (4/8/11)--A quartet of Democratic and Republican congressmen have urged their House colleagues to “take a close look” at merchants' interchange fee cap claims and to determine “whether allowing the Federal Reserve to set interchange rates would be good for consumers.” The letter, which was co-signed by Reps. Gary Peters (D-Mich.), James Renacci (R-Ohio), Ed Perlmutter (D-Colo.) and Steven LaTourette (R-Ohio), encouraged members of Congress to co-sponsor H.R. 1081, which would delay the effective date of the Fed’s interchange fee cap provisions by one year. That bill would also require a study of an interchange fee cap’s impact on consumers, financial institutions, and merchants. The Fed’s interchange proposal, set to go into effect in late July, could lower the amount of transaction fees charged to seven cents per transaction. In the letter, the legislators note that financial institutions would likely need to increase fees, end free checking, or eliminate some member or consumer benefits to make up for the funds lost due to reduced interchange fees. “There is no evidence that merchants would pass their savings from reduced interchange rates on to consumers through lower prices,” the letter adds. In closing, the legislators noted that the increased costs and decreased access to the banking system make the interchange legislation “bad for consumers.” The House interchange delay legislation was introduced by Rep. Shelly Moore Capito (R-W.Va.) and currently has 71 co-sponsors. Sen. Jon Tester (D-Mont.), who, along with Sen. Bob Corker (R-Tenn.), introduced interchange delay legislation in the Senate, has reportedly said that he has gathered the 60 votes needed for Senate passage of that bill. For the letter, use the resource link.

NCUA Referral fees can be conflict of interest

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ALEXANDRIA, Va. (4/8/11)--Allowing a federal credit union employee who serves as director of lending to be paid for referring rejected mortgage applications to an outside mortgage banker is “an impermissible conflict of interest,” the National Credit Union Administration (NCUA) said in a recent legal opinion. The conflict of interest would exist whether the credit union employee is paid a referral fee or a salary by the outside broker, the agency adds. In the opinion, NCUA Associate General Counsel Hattie Ulan specifically notes that the agency’s lending rules prohibit employees “from receiving directly or indirectly, any commission, fee or other compensation in connection with any loan made by the credit union.” The rule does include an exception for some cases, but that exception would not apply when a credit union or an employee makes a referral to an outside party. These conflict of interest prohibitions are meant to ensure “that employees and management make appropriate decisions regarding lending,” the agency said. “Loan officers must decide whether to grant or deny loan applications absent economic incentives that could influence decisions against the best interests of members and the [credit union].” Ulan also noted that the referral arrangement may violate portions of the Real Estate Settlement Procedures Act prohibit any person from accepting payment for referrals. For the full NCUA letter, use the resource link.

CUNA video calls 93M members to interchange action

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WASHINGTON (4/8/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney in a new video calls on the 93 million credit union members nationwide to contact their members of Congress and ask them to “stop, study and start over” on interchange fee cap legislation.
The video has been posted on CUNA’s Facebook page,, and an interchange resource page on The interchange fee proposal does not account for all the costs related to running a debit card program. As CUNA Board Chairman Harriet May mentions, the proposal does not account for fraud-related costs. The video also features remarks from Rep. Debbie Wasserman-Schultz (D-Fla.), in which she asks: Who “can price for the risk of fraud on a $1,000 flat-panel TV with a 12-cent interchange fee.” While credit unions, as non-profits, do not want to raise fees, Cheney in the video warns that they may be forced to if the interchange cap proposal goes through. “This change will have a negative impact ... on our members,” May warns.

House introduces MBL cap lift legislation

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WASHINGTON (4/8/11)--Legislation that would lift the credit union member business lending (MBL) cap to 27.5% of total assets was introduced in the House on Thursday. Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) introduced the bill, and Reps. Russ Carnahan (D-Mo.), Hank Johnson (D-Ga.) and Gary Peters (D-Mich.) are original co-sponsors of H.R. 1418, the Small Business Lending Enhancement Act. The bill is similar to Senate legislation offered by Sens. Mark Udall (D-Colo.) and Olympia Snowe (R-Maine) last month. Credit Union National Association (CUNA) President/CEO Bill Cheney thanked the legislators for introducing the bill. Cheney added that this legislation, coupled with the Senate bill, gives credit unions reason to believe “that they may--soon--be able to do more to help our nation’s economy grow and prosper.” Royce in a release said that the MBL cap lift legislation “takes an important step in shifting our current economic path and putting Americans back to work.” McCarthy added that she was “proud to reach across the aisle-–and across the country--to help our small businesses and entrepreneurs grow at this critical time." CUNA has estimated that the MBL cap lift could provide up to $13 billion to small businesses in the first year alone and create over 140,000 new jobs, at no cost to taxpayers. Udall spoke in support of his bill on the Senate floor last week, calling on his fellow senators to help him "get government out of the way" and allow credit unions to increase their lending to small businesses. The Senate bill has 18 co-sponsors, and Senate Banking Chairman Tim Johnson (D-S.D.) has said he is interested in examining the MBL legislation in his committee.

Inside Washington (04/07/2011)

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* WASHINGTON (4/8/11)--Regulators testified at a Senate Banking Committee hearing on the state of community banking Wednesday, saying that the proposed interchange rule could hurt small financial institutions. Officials from the Federal Reserve Board, Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency acknowledged that the exemption for financial institutions under $10 billion may not benefit many small financial institutions (American Banker April 7). Lawmakers at the hearing remarked about the unusual level of agreement between regulators and the industry in their reservations about the law. Even FDIC Chairman Sheila Bair, who is a strong supporter of Dodd-Frank, sent a letter to the Fed raising concerns about the interchange proposal. The Credit Union National Association opposes the cap on interchange fees and has urged Congress to stop the Fed's work on the interchange proposal and study the possible unintended consequences of the Dodd-Frank Act provision …

CUNA report makes sense of legacy asset numbers for CUs

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WASHINGTON (4/8/11)--The Credit Union National Association (CUNA) has released to its member credit unions and leagues a white paper that provides an overview of the wide range of estimates that have been presented regarding potential losses on corporate credit union legacy assets, and tries to make sense of the numbers for credit unions. As background, the CUNA report notes that the financial crisis of 2007 to 2009 wreaked havoc on some securities held in corporate credit union portfolios--with most of the troubled assets found in the portfolios of the five corporates that were eventually conserved by the National Credit Union Administration (NCUA). Once conserved, the troubled assets fell under the management of the NCUA’s Corporate Stabilization Fund, which is funded by assessments against credit unions, after the depletion of the capital of the five corporates. The agency’s legacy assets plan entails placing the assets in a trust and issuing NCUA Guaranteed Notes to fund them until they either amortize and mature, or default. The CUNA white paper is titled, “Estimating the Value of Legacy Assets: What We Do and Don’t Know About the Ultimate Cost to Credit Unions of the Corporate Stabilization Fund.” It posits that the crucial question facing credit unions on legacy assets is “how large are the remaining losses to be paid” over the next 11 years of the program? To an extent the answer to that question, according to white paper author and CUNA chief economist Bill Hampel, is “unknown and unknowable.” It depends on the pace of the economic recovery, and particularly on the outlook for unemployment and home prices. However, Hampel argues that “rigorous analysis” can narrow the range, thereby helping credit unions plan for the future. With the announcement of its Legacy Assets plan last September, the NCUA released a range of total loss estimates of $14 billion to $16 billion. CUNA, however, says its analysis of all available information to date shows the range of ultimate losses is wider than that, from $9 billion to $16 billion. These ranges depend on different scenarios of future home prices and unemployment. Assuming a moderate continued economic recovery and no significant further reduction in home prices, the CUNA white paper suggests the ultimate cost may likely be closer to $12 billion than $15 billion. “More important than any specific valuation of the legacy assets is a basic understanding by credit unions of the issue. That is what this white paper seeks to address,” Hampel wrote. Specifically the white paper:
* Generally describes the nature and amount of the legacy asset portfolios of the five conserved corporates; * Describes how three concepts of valuation of a portfolio of troubled securities might vary; * Explains that what we know for sure is very limited; * Explains at a high level how rigorous portfolio valuation models work, and reports on the results of publicly available valuations using such valuation models; * Reports on an important analysis of a subset of the legacy assets (those acquired by U.S. Central and WesCorp) by MEMBERS Capital Advisors (MCA), a subsidiary of the CUNA Mutual Group. The MCA analysis is being released with this white paper for the first time; and * The white paper and MCA analysis are available only for the internal use of CUNA members.
CUNA members can access the full report using the resource link below.

Matz Changes coming to Novembers corporate CU plan

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ALEXANDRIA, Va. (4/8/11)--“Potentially significant changes” are now being drafted for a National Credit Union Administration (NCUA) proposed rule on corporate credit unions that was issued by the agency in November. In her “Chairman’s Report” in the April issue of “The NCUA Report,” Debbie Matz writes that agency staff are now “working diligently” to draft changes based on their review of the 227 letters sent to the agency by interested parties. The rule in question proposed to make further changes to the agency’s regulation on corporate credit unions, subsequent to dramatic amendments the board adopted two months earlier. Matz noted that the corporate rule will be considered at the next NCUA open board meeting, which is scheduled for April 21. The Credit Union National Association (CUNA), in a comment letter in January, noted serious concerns with the proposal. For instance, CUNA doubted that it would be sound public policy to go forward with a provision to limit credit unions to membership in one corporate credit union at a time. CUNA also questioned NCUA’s legal authority to require a “voluntary payment” into the agency’s Corporate Credit Union Stabilization Fund from non-federally insured credit unions (FICU) concurrent to an NCUA assessment on FICUs for the fund. Overall, Matz’s monthly column focused on tips to write an effective comment letter--and the corporate rule changes were cited as an illustration of how the agency truly considers commenters’ remarks. Credit unions interested in the chairman’s tips on effective letter writing should use the link below to access the entire column.