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UBIT trial scheduled for next May

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WASHINGTON (5/15/08)—Federal Judge William Griesbach has set May 11, 2009 as the trial date for a Wisconsin credit union’s challenge of an Internal Revenue Service (IRS) determination that certain insurance products fall outside the credit union’s main mission. The IRS ruled the products were therefore subject to unrelated business income taxes (UBIT). The suit was filed by state-chartered Appleton, Wis., Community First CU on Jan. 15. Community First is requesting a refund of about $54,000 in taxes paid in 2006 on income from several insurance products. The U.S. attorney’s office has asked that the suit be dismissed. In addition to setting a trial date, Judge Griesbach released a schedule for the conduct of discovery, which is to be completed by early December 2008. However, CUNA General Counsel Eric Richard noted that both the trial date, and its expected duration, are subject to change as events may dictate. For instance, he pointed out, it could be delayed by a contentious discovery process, which could cause the court to decide that additional time was needed to ensure a fair trial. The UBIT litigation has been widely hailed by credit unions. Notably, Community First CEO Cathie Tierney received a standing ovation from her peers at the Wisconsin CU League's annual Governmental Affairs Conference just 10 days after the credit union filed its lawsuit. Credit unions' support was displayed on an even larger scale when Tierney received an ovation by thousands of credit union representatives attending CUNA's Governmental Affairs Conference here earlier this month. The case is being followed by a coalition of credit union organizations, known as the UBIT Steering Committee that includes: CUNA; CUNA MUTUAL; American Association of Credit Union Leagues, and the National Association of State Credit Union Supervisors. Community First Credit Union has informed the steering committee that it expects the trial could last up to a week.

CUSO MBL service role clarified

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ALEXANDRIA, Va. (5/14/08)—If a credit union service organization (CUSO) is compensated through a fee structure in which the CUSO is paid primarily when a member business loan (MBL) is funded, then there may be a conflict of interest which could prohibit the CUSO from fulfilling the MBL expertise requirement for a credit union, according to the National Credit Union Administration (NCUA). In a legal opinion letter dated May 1, the NCUA noted that credit unions are permitted to use a third party to meet the minimum two-year direct experience requirement of the MBL rule if the third party is independent from the transaction. Generally, the letter said, a third party is considered independent from a transaction if, with respect to a loan it is responsible for reviewing, it does not have a participation in the loan or an interest in the collateral securing the loan. If a CUSO does not satisfy those requirements, the NCUA wrote, a credit union should address any questions or concerns regarding the nature of its arrangement or specific transactions with the appropriate regional director.

NCUA closes 1.2 million-asset Father Burke FCU

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ALEXANDRIA, Va. (12/14/08)-- The National Credit Union Administration (NCUA) has closed a $1.2 million-asset community development credit union in Bronx, N.Y. noting that the credit union is insolvent and has no prospects for restoring viable operations. The credit union, Father Burke FCU, had 510 members and one employee, according to its Website, and served members of the Blessed Sacrament Catholic Church. NCUA’s Asset Management and Assistance Center will issue checks to members holding verified share accounts within one week of the May 12 closing. . Through NCUA’s National Credit Union Share Insurance Fund, credit union member deposits are insured up to at least $100,000 per account. NCUA chartered Father Burke Federal Credit Union in 1971 to serve members of the Blessed Sacrament Catholic Church located in Bronx, New York.

Push by CUNA continues against interchange bill

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WASHINGTON (5/14/08)—Allowing bureaucrats to set credit card interchange fees would harm consumers and disrupt a competitive balance in the financial services industry, the Credit Union National Association (CUNA) told lawmakers in a full-page open letter ad Tuesday. The ad, featured in Politico, a Washington-based daily political journal, was the latest weapon added to CUNA’s fight against a House bill that proposes government intervention in the setting of interchange fees. The letter was backed by CUNA, the National Association of Federal Credit Unions, community banks, state banking associations and companies that make up the Electronic Payments Coalition. The letter warns lawmakers that H.R. 5546, The Credit Card Fair Fee Act, threatens to shift the cost of doing business onto the shoulders of consumers. “American consumers would ultimately feel the most pain from price control legislation. As the market would likely shrink to a handful of larger institutions that could continue to offer card products in a price-controlled environment, consumer will have fewer payment options and reduced access to affordable debit and credit cards,” says the letter address to Members of Congress. Furthermore, the ad notes, such a plan would “harm the competitive balance in the financial services industry” and have a “disproportionate effect on smaller financial institutions…” “These institutions depend on interchange revenue to be able to provide a unique and localized brand of customer or member service.” CUNA also has been actively opposing government intervention in interchange fees in the House and the Senate. CUNA worked closely with the Electronic Payments Coalition on testimony to oppose the House bill before the House Judiciary Committee this week. Also, CUNA participated in a Senate Judiciary Committee briefing on the issue. CUNA has also advised credit union representatives engaging in Hike the Hill visits to their federal lawmakers to reiterate their opposition to the House plan.

Inside Washington (05/13/2008)

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* WASHINGTON (5/14/08)--ANB Financial’s downfall may predict other bank collapses, said industry observers Monday (American Banker May 12). About 80% of ANB’s loans were of construction and development loans. Combined with brokered deposits and some activity in out-of-state markets, ANB’s portfolio proved to be troublesome. Other banks may find themselves in the same situation as ANB, according to Peyton Green, an analyst at First Horizon National Corp.’s FTN Midwest Securities Corp. Some failures are likely to occur this year and next year, he said. ANB’s failure also is affecting other institutions. Great Southern Bancorp, Springfield, Mo., said it would charge off $35 million of loans made to ANB Financial. The amount is equivalent to nine months of revenue. The Office of the Comptroller of the Currency and other regulators have warned banks to beef up portfolios ... * WASHINGTON (5/14/08)--Sen. Christopher Dodd (D-Conn.), chair of the Senate Banking Committee, is working to secure support from Republicans for his housing bill. Sen. Mel Martinez (R-Fla.) is expected to review the bill’s draft (American Banker May 12). Sen. Elizabeth Dole (R-N.C.), Martinez and Sen. Tom Carper (D-Del.) offered an amendment which would modernize the Federal Housing Administration. Dodd has not yet won support from Sen. Richard Shelby (R-Ala.), the ranking Republican on the panel. Dodd introduced his bill Monday. It would create a regulator for the Federal Home Loan Banks, Fannie Mae, and Freddie Mac ... * WASHINGTON (5/14/08)--The Federal Reserve Board approved amendments to Appendix A of Regulation CC. The amendments reflect the restructuring of the Federal Reserve’s check-processing operations in the Sixth and Eighth districts. The approval was announced yesterday. As of July 19, the Memphis branch of the Federal Reserve Bank of St. Louis will no longer process checks, and banks served by that office will be reassigned to the Federal Reserve Bank of Atlanta. The reserve banks also plan to cease check-processing operations at all of their check processing offices by 2010 except in Philadelphia, Cleveland, Atlanta and Dallas, according to the Fed’s statement ...

Comment requested on card overdraft rules

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WASHINGTON (5/14/08)—The Credit Union National Association (CUNA) is concerned about the scope of a regulatory proposal dealing with deceptive practices for credit cards, and overdraft protection plans and is seeking credit union comments. The drafts were published by the National Credit Union Administration (NCUA), along with the Federal Reserve Board and the Office of Thrift Supervision. CUNA will work with its Federal Credit Union Subcommittee, Consumer Protection Subcommittee, and Payments Subcommittee to identify which, if any of the proposals we oppose, support, or recommend be modified. For credit cards, the proposal addresses time periods for making payments, payment allocations, interest rate increases on outstanding balances, fees resulting from credit holds, methods for computing balances subject to interest charges, excessive security deposits and fees charged when credit is issued, and advertisement that include multiple interest rates and multiple credit limits. On overdraft protection plans, the draft requires consumers to be given an opportunity to “opt-out” of the plan, and addresses fees resulting from holds on debit card transactions. CUNA is seeking comment by July 18. Among the questions to be considered:
* Should states be permitted to seek an exemption from the unfair and deceptive practices proposal if the state law provides greater or a substantially similar level of protection, or will this undermine the uniform application of Federal standards? * Regarding the proposal to provide consumers reasonable time to make credit card payments, what is the number of days after the closing date of the billing cycle that you typically mail or deliver periodic statements? * What percentage of your members receive credit card statements by mail and electronically, and what percentage make payments by mail electronically, telephone, or through other means? * Will the 21-day deadline give consumers sufficient time to review the statements and make payments?