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TDR RegFlex final lead NCUA agenda

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ALEXANDRIA, Va. (5/18/12)--A final version of new Troubled Debt Restructuring (TDR) rules and Regulatory Flexibility (RegFlex) program changes will be the lead items on the agenda when the National Credit Union Administration holds its next open board meeting at 10 a.m. ET on May 24.

The NCUA's TDR proposal, which was released in January, would allow credit unions to modify TDR loans without having to immediately classify those loans as delinquent. Credit unions would no longer be forced to track each TDR loan's performance manually for six months. The proposal would also set consistent standards for the management of loan workout arrangements that assist borrowers, and eliminate confusion between TDRs and other loan modifications.

TDR loans, which have very specific accounting and reporting requirements, include certain loan modifications where a credit union or other lender grants a concession—often involving modification to the terms of a loan—to a borrower that it would not have otherwise provided based on the borrower's financial situation. The financial statement and call report treatment of TDRs are also unique.

The Credit Union National Association (CUNA) and leagues have urged NCUA to improve reporting and regulatory treatment for TDRs for some time, and CUNA in a recent comment letter said the NCUA's proposal represents "an important step forward in terms of guidance and reporting requirements for TDRs."

The NCUA also recently proposed eliminating the RegFlex program, and a final version of that plan is scheduled to be presented at the meeting.

Under the proposal to eliminate RegFlex, the NCUA would allow all credit unions to:

  • Donate funds to charities of their choosing;
  • Accept non-member deposits, subject to predetermined limits, from local governmental entities or other credit unions; and
  • Purchase private-label commercial mortgage-related securities, subject to certain net worth constraints and safety and soundness rules.
Other rights would also be granted to credit unions that are not covered under the RegFlex designation.

CUNA supports the goals of this RegFlex proposal, but also suggested the NCUA could go beyond the parameters of this proposal, giving credit unions even greater freedom from burdensome regulations.

A review of the first quarter National Credit Union Share Insurance Fund will also be presented during the meeting, and the agency will also release a final Interpretive Rule and Policy Statement on supervisory committees.

This will be the first open board meeting held since March, as the agency cancelled its scheduled April board meeting.

Supervisory activities and an appeal will be addressed during the closed portion of the meeting.

For the full agenda, use the resource link.

Fed posts updated HOEPA thresholds

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WASHINGTON (5/18/12)--The Federal Reserve this week released new reference rates that lenders must use to determine if loans for certain applications received in June 2012 will be subject to the Home Ownership and Equity Protection Act (HOEPA) under the Annual Percentage Rate (APR) trigger test.

HOEPA addresses certain deceptive and unfair practices in home equity lending, according to the Federal Trade Commission. The trigger test determines which loans would be subject to additional disclosures under Section 32 of Regulation Z. Under the test, first-lien loans with an APR that exceeds the current U.S. Treasury rate for a given security by 8% or more and second-lien loans with an APR that exceeds the Treasury rate by at least 10% would be subject to Section 32 disclosures.

The reference rate chart, which is frequently updated, can be used by credit unions to find the applicable interest rate for many Treasury securities. CUNA staff said credit unions can use the yield in effect on the 15th of the month that precedes the month they received a given loan application to make their trigger test calculations.

For the chart, use the resource link.

ATM disclosure fix introduced in Senate

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WASHINGTON (5/18/12)--The Credit Union National Association (CUNA) strongly supports Sen. Mike Johanns' (R-Neb.) introduction of legislation that would ease current ATM fee disclosure regulations, which "will protect credit unions and other ATM operators from frivolous lawsuits while at the same time maintaining important consumer protections," CUNA President/CEO Bill Cheney said.

The bill, which was introduced Thursday afternoon, is believed to be similar to House legislation sponsored by Reps. Blaine Luetkemeyer (R-Mo.) and David Scott (D-Ga.).

Under that legislation, ATMs would only be required to display the ATM disclosures on a screen, and ATM users would be given the choice of opting in to ATM use fees.

Current physical ATM fee disclosure notice rules, which require all ATM operators to display both a physical placard on the machine and to provide an electronic disclosure of a fee that an ATM user may incur, would be eliminated.

Johanns' legislation "is common-sense measure will reduce regulatory burden on consumer-owned credit unions, without detriment to ATM users," Cheney added.

The ATM disclosure requirements have caused issues for credit unions and other financial institutions. CUNA has noted that outside notices on ATMs are, in some cases, being intentionally removed or destroyed, without the financial institution's knowledge, and that pictures are then taken of the ATM to show noncompliance. Some ATM users may then use this as evidence of apparent non-compliance and as grounds for lawsuits, and the number and cost of these lawsuits continues to climb. CUNA recently estimated that the total number of these lawsuits could be in the hundreds.

CUNA has written in support of the House ATM disclosure legislation, and has urged the Consumer Financial Protection Bureau to use its own authority under the Dodd-Frank Wall Street Reform Act and the Electronic Fund Transfer Act to amend Regulation E and eliminate the requirement for on-machine ATM fee disclosure notices.

Short NFIP extension passes House

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WASHINGTON (5/18/12)--Legislation that would extend the National Flood Insurance Program (NFIP) until June 30 passed the U.S. House by a 402 to 18 vote yesterday, and will now move on to the Senate.

The NFIP is scheduled to lapse on May 31. In the past the program has lapsed for brief periods, and these lapses have caused significant disruption in the mortgage underwriting process for some prospective homeowners.

The one-month extension, if it passes the Senate, would give members of Congress more time to craft a long-term extension with some program reforms. A vote on the month-long extension could be held in the Senate next week.

The Senate is expected to consider legislation that would extend the NFIP by five years, and, potentially, reform elements of the program, next week. However, an agreement on the number of amendments that could be attached to the NFIP bill must be reached before a vote on the five-year Senate extension could take place, Senate Majority Leader Harry Reid (D-Nev.) has reportedly said.

House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala.) and other House members have urged the Senate to pass a five-year extension. Legislation that would extend the NFIP for five years has already been approved in the House and by the Senate Banking Committee, but the full Senate has not acted on the legislation.

The Credit Union National Association has urged members of Congress to extend the NFIP or reform the program.

Cheney to iHuffPoi small-biz readers Know 5 things about Capitol Hill

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WASHINGTON (5/18/12)--A new column on the Huffington Post website from Credit Union National Association (CUNA) President/CEO Bill Cheney offers small business owners five suggestions for dealing with Capitol Hill and explains them in the context of the current effort to raise the cap restricting member business lending (MBL). Huffington Post is running the column just ahead of National Small Business Week, which starts Sunday. And an excerpt from the column, including a call to on the U.S. Congress to increase the MBL cap, was picked up by the San Francisco Chronicle.

"I hope the thoughts will resonate since I really come at them from two points of view: credit union trade association CEO pushing for a bill to boost our industry's small-business lending capacity, and long-time small business advocate," Cheney wrote in the Post column. The five points about Capitol Hill he called to small businesses' attention are:

  • Everyone likes to talk about supporting small business.  But, Cheney added, the reality is the U.S. Congress is not doing enough to support small businesses.  He noted how available credit to small businesses is still lagging, even as the economy has improved. Bank lending is still falling short, while current data show the credit union approval rate for small business loans is five times that of big banks (News Now, 5/11/12 ).
  • It's not all gridlock.  Cheney recognized election year partisanship makes passage of any legislation difficult, but noted bills that appeal to both sides are still getting through. "I think Sen. Mark Udall's (D-Colo.) legislation (S.2231) to expand credit unions' small business lending authority has a strong shot of making it past a filibuster this year."  Senate Majority Leader Harry Reid (D-Nev.) has promised a floor vote in this session on Udall's bipartisan bill, which would raise the MBL cap from 12.25% of assets to 27.5% for qualifying credit unions. CUNA, the leagues, credit unions and small businesses have been lobbying intensely for passage.
  • Congress needs to hear from small business owners. Although the banking lobby is "expending vast resources" to block the MBL bill, Congress will pay heed to small business owners, Cheney said, citing the examples of several small businessmen who took part in CUNA's small business Hike the Hill earlier this year. "The good news is that members of Congress still understand that small business owners play significant roles in their districts and that credit unions have been involved in small business lending since the early 1900s," Cheney explained. "It was only in the late 1990s that our lending was restricted, at the banks' urging."
  • Talk jobs, not just numbers.  "Job creation is on every member's mind right now," the CUNA leader noted. "That's why I personally emphasize in every meeting that raising the cap on credit union small business lending would translate into 140,000 new jobs created in just year one. It's simple really:  Issue more loans to businesses, and they'll spend more on new hiring."
  • Band together.   When lobbying an issue on Capitol Hill, it is important to have like-minded allies, Cheney advised. He noted CUNA is working with more than 30 pro-small businesses organizations in support of raising the MBL cap, from the National Association of Realtors to the National Council of Textile Organizations. "We may take different positions on (some) issues, but we all agree that the Hill can do better and make more capital available to small business owners," Cheney wrote.
These points are simple and straightforward, but they matter, he added. "If small business owners want to see more credit available, they need to keep their eye on Washington as much as their local lending institutions. Sure, organizations like mine know the ins and outs and the daily machinations of the legislative process. But a small business owner really knows what it means to support a small business."

Inside Washington (05/17/2012)

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  • WASHINGTON (5/18/12)--Operational risk is a supervisory priority for the Office of the Comptroller of Currency (OCC), Thomas Curry, the agency's head, said in a speech in Washington on Wednesday. "As regulators, one of our most important jobs is to identify risk trends and bring them to the industry's attention in a timely way," Curry said. "No issues loom larger today than operational risk in all its dimensions, the manner in which all risks interact, and the importance of managing those risks in an integrated fashion across the entire enterprise." Operational risk--generally defined as the risk of loss due to failures of people, processes, systems and external events--is embedded in every activity and product of a financial institution, Curry said. That risk is heightened when systems and procedures are complex, he added. "Given the complexity of today's banking markets and the sophistication of technology that underpins it, it is no surprise that the OCC deems operational risk to be high and increasing," Curry said. Inadequate systems and controls were key factors behind the recent problems in mortgage servicing and foreclosure documentation practices, he said. "Those banks did a poor job supervising both their own internal processes and the providers to which they outsourced some of these functions, and they are paying the price for their mistakes," Curry said …
  • WASHINGTON (5/18/12)--JPMorgan Chase presents no risk of loss to depositors or to taxpayers despite a $2 billion loss last week, House Financial Services Committee Chairman Spencer Bachus (R-Ala.) during a hearing of the House financial institutions subcommittee. Noting JPMorgan Chase's net worth of $189 billion and 2011 pre-tax profits $25 billion, Bachus said the loss represents about one month of earnings for the company (American Banker May 17). Laws should not prohibit financial services companies from taking risks, Bachus suggested. However, financial institutions deemed systemically important will be subject to stricter capital requirements than smaller institutions, said Lance Auer, the Treasury Department's deputy assistant secretary for financial institutions. Otherwise, firms will have incentive to become large so they can take more risk, he added …