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CUNA to Congress Merchant claims on card discrimination dont hold up

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WASHINGTON (5/11/11)--An argument of the merchants in supporting the coming interchange limits is that they will not discriminate against those who hold debit cards from smaller financial institutions, but the Credit Union National Association (CUNA) and three other bank and credit union trade groups took issue with that claim in a letter yesterday to Rep. Shelley Moore Capito (R-W. Va.), author of the House bill to delay the interchange rules. The financial groups pointed to a news report last week where a prominent technology company boasted that it was developing new “steering services” for merchants to encourage the use of certain cards over others. “This report supports Federal Reserve Board Chairman Ben Bernanke’s testimony before the Senate Banking Committee that the small issuer exemption may not work in the marketplace,” said the letter, signed by CUNA, the American Bankers Association (ABA), the Independent Community Bankers Association of American (ICBAA), and the National Association of Federal Credit Unions (NAFCU). “It is remarkable that the same groups advocating for weakened network operating rules would now hide behind them in their defense of government price controls,” the four trade groups said of the merchants. “Merchants know that enforcing these rules among the millions in their ranks is impossible.” CUNA told Rep. Capito the merchants have no incentive to abide by network antifraud rules because they bear no liability for card fraud. Instead, they focus on verifying identity at the point of sale for checks, where they do have liability risk. The merchants’ disinterest in complying with network anti-fraud rules “gives us no confidence” they’ll comply with anti-discrimination rules designed to protect community bank and CU cardholders. “The merchants opposing your legislation would have Congress, community banks and credit unions rely on their ‘commitment’ that everything will work out fine in the end,” CUNA stated. “Unfortunately, we, and many market experts, do not believe this to be true.” CUNA, ABA, ICBA and NAFCU again called for prompt passage of the legislation to delay the interchange rules from taking effect July 21 to allow for further study of the potential negative effects. A copy of the letter also was sent to all House members and senators.

Cheney on NPR talks of interchange activism

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WASHINGTON (5/11/11)--The grassroots strength of credit unions has been demonstrated during the ongoing fight over a potential interchange fee rate cap, with over 250,000 credit union members reaching out to urge their legislators to “stop, study and start over” on interchange regulations within the past month, Credit Union National Association (CUNA) President/CEO Bill Cheney said in a National Public Radio (NPR) interview. Cheney’s remarks were featured in an NPR Morning Edition story on the massive lobbying efforts that are being waged on both sides of the interchange argument. Under requirements of the Dodd-Frank Wall Street Reform Act, the Federal Reserve Board has proposed a debit card interchange limit that would top such fees at 12 cents. The law intends to exempt credit unions and other small institutions with assets of $10 billion or less from fee cap. However, the effectiveness of the proposed exemption has been hotly debated, and many analysts agree that the statutory exemption will not work as intended. CUNA supports House and Senate legislation that would delay the implementation of the interchange regulations and order a study of their impact on consumers, financial institutions, and merchants. Credit union members, state-based leagues, and individual credit unions have helped generate the aforementioned 250,000 comments to members of Congress, and many credit union backers met with legislators in their home districts during last month’s district work period. CUNA and associated Electronic Payments Coalition partners are also showing consumers the 'domino effect' that pending interchange fee rate cap legislation could have on their own financial situations via a new 30-second ad. (See related April 10 story: Ad shows interchange cap's 'domino' effect) For the full NPR story, use the resource link.

Consider burden of complaints CUNA tells CFPB

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WASHINGTON (5/11/11)--The Credit Union National Association (CUNA) has urged the Consumer Financial Protection Bureau (CFPB) to take steps to ensure that “the number of non-substantive and meritless complaints does not increase” as that agency seeks to streamline the methods through which consumers can alert regulators to improper business practices at various financial institutions. The letter noted that credit unions, due to their member-owned, cooperative structure, are not expecting a sizeable number of complaints to be filed by their members with the CFPB. However, CUNA said, “each complaint a credit union receives—regardless of merit—has a cost to the credit union and in turn its members.” CUNA suggested the CFPB help filter complaints by considering an “answer choice” format for questions in its complaint form, rather than blank text boxes only. The CFPB should also include language on the form encouraging the consumer to first attempt to resolve the issue with the financial institution directly before filing a formal CFPB complaint. Doing so will likely increase the quality of information provided and “save time for all parties involved,” CUNA added. In the event that a credit union receives a complaint, CUNA suggested that they be permitted to respond directly to the member in question rather than having the response filtered through the CFPB. Allowing this modification would reflect the cooperative nature of credit unions “and the fact that many members have direct relationships with the staff of their local credit union and would prefer to receive a response directly from them than from the federal government,” CUNA said. “The option of permitting the credit union to respond directly to the member also allows the credit union to ensure the issue is resolved in a satisfactory manner,” the letter added. For the full letter, use the resource link.

Inside Washington (05/10/2011)

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* WASHINGTON (5/11/11)—State Attorneys General will reportedly offer renewed negotiation terms to the top five mortgage servicers in a bid to settle several servicing-related enforcement actions. A group of state attorneys general and several federal agencies have been negotiating a settlement agreement with the major mortgage servicers which could create a possible loan modification process. As reported in American Banker, the new settlement terms may not include language that would force lenders to reduce a mortgageholders principle owed. However, the new settlement may force servicers to allow mortgageholders that were denied modifications through the U.S. Treasury’s Home Affordable Mortgage Program to reapply for that program. Additional foreclosure documentation may also be required. While the terms of any financial settlement related to the enforcement actions has not been disclosed, the states may use whatever fines are collected to start a so-called "cash for keys" program that would give troubled mortgageholders financial incentives to vacate their homes, speeding the overall foreclosure process. The funds could also be redirected to financial counseling initiatives. Banks have not agreed to the terms, and the overall impact of the settlement on mortgage servicers in general… * WASHINGTON (5/11/11)--Sen. Richard Shelby (R-Ala.) will have a pivotal role in deciding whether President Barack Obama’s nominees for key financial services policy posts are ultimately confirmed. Shelby has previously blocked nominations for the Federal Reserve Board and Federal Housing Finance Agency, and is leading efforts to halt the Consumer Financial Protections nomination until changes are made to the new agency’s make up. (American Banker May 10). Shelby, although part of the minority party in the Senate, holds great influence with Republicans because of his longtime membership in the Senate Banking Committee. Mark Calabria, a former top aide to Shelby and a director of financial regulations studies at the Cato Institute, said Shelby has close to a veto vote. Shelby previously blocked the nominations of Peter Diamond, who won a Nobel Prize for economics last October, whom he called unfit to serve on the Federal Reserve. The White House withdrew its nomination of Joseph Smith to be director of the Federal Housing Finance Agency after Shelby said Smith could be a “lapdog” to the administration … * WASHINGTON (5/11/11)--Members of the Senate Banking Committee sent a letter to regulators demanding an assessment of the economic impact of the Dodd-Frank Act. The letter, sent last week to inspector generals at the Federal Reserve Board, U.S. Treasury Department, Federal Deposit Insurance Corp., and two other agencies, demanded that the inspectors general conduct reviews of economic assessments submitted by each agency and prepare written reports of their findings. On April 15, the inspector general for the Commodity Futures Trading Commission (CFTC) issued a report that found legal formalities in the rulemaking process had “trumped” economic analysis, according to the letter. “We are concerned that these rulemaking issues documented by the CFTC Inspector General's Report are not unique to the CFTC and are impeding the agencies’ ability to understand the economic effects of the proposed rules,” the letter said. The senators have asked for a response from the regulators by June 13 …

OIG Poor oversight worsened Members United issues

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ALEXANDRIA, Va. (5/11/11)--The purchase of “significant holdings" of private-label mortgage-backed securities and a failure to identify and manage risks related to this purchase led to the conservatorship of Members United Corporate CU, the National Credit Union Administration’s (NCUA) Office of Inspector General (OIG) has reported. The OIG in its material loss review of Members United specifically found that the corporate credit union’s executive management and board of directors:
* Did not establish investment sector concentration limits in a timely manner; * May have been overly reliant on credit ratings when purchasing the securities and monitoring its securities portfolio for signs of risk; * Relied on monoline insurers to provide credit enhancement to a portion of the non-agency mortgage-backed securities in the portfolio; * Did not properly identify and monitor credit risk exposure in the underlying mortgage loan collateral of the mortgage-backed securities held in the investment portfolio; and * Relied on the corporate credit union structure to provide financial strength and liquidity.
The OIG said that the executive management and board of Members United overall “failed to recognize the substantial risk they were undertaking with significant investments in complex mortgage-backed securities, with a substantial portion of these securities backed by subprime assets.” The leadership team also “allowed the investments in mortgage-backed products to represent a significant concentration compared to net worth and they failed to impose limits in these securities” and “did not adequately recognize the credit risk associated with the underlying collateral.” The report found that NCUA examiners had noticed subprime-related issues as early as August of 2007, when the corporate held $4.9 billion in mortgage-backed securities, $1.2 billion of which were considered subprime. However, NCUA examiners did not “raise supervisory concerns or issue a document of resolution related to the sub-prime nature of the mortgage-backed securities at that time,” instead waiting until May of 2008. The OIG report said that quicker NCUA action could have resulted in a reduced loss to the NCUA’s Temporary Corporate Credit Union Share Insurance Fund. The NCUA in the report said that it has reacted to these and other subprime-related issues, addressing potential issues through new corporate credit union rules, imposing stronger concentration limits, and prohibiting the purchase of privately issued residential mortgage-backed securities. Members United became known as Members United Bridge Corporate shortly after it was taken into NCUA conservatorship last November. The corporate announced that it was rebranding itself as Alloya Corporate FCU in late April. The renamed corporate will retain the assets, people, processes, products and services of Members United Bridge. For more on the NCUA OIG report, use the resource link.