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UBIT not just tax issue also dual charter issue--leagues

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MADISON, Wis. (5/19/09)--Credit union leagues praised Community First CU's victory last week in a U.S. District Court in Wisconsin against the Internal Revenue Service's (IRS) interpretation of the unrelated business income tax (UBIT) on three insurance-related products offered by the state-chartered credit union. Some pointed out the broader implications of the case. "UBIT is not just a taxation issue, but also a dual chartering issue," says Paul Gentile, president/CEO of the New Jersey Credit Union League (The Weekly Exchange May 18). New Jersey was among the first leagues to support the efforts against the UBIT policy. "UBIT does not apply to federal chartered credit unions, so the anxiety among state charters becoming disadvantaged to their federal counterpart also added to UBIT's uniqueness," he said. "There was also concern among federal charters that the IRS would eventually look to broaden UBIT to federal charters," Gentile said. He noted the united front that the credit union movement provided on the issue, with the UBIT Steering Committee formed by the Credit Union National Association, CUNA Mutual Group, the National Association of State Credit Union Supervisors and the American Association of Credit Union Leagues. IRS's UBIT policy covers income that the IRS deems as "substantially unrelated to the purpose of a tax-exempt organization." State-chartered credit unions with more than $1,000 in UBIT must report it on the IRS's 990-T form. Historically, IRS hasn't clarified what does or doesn't trigger UBIT. But in 2007, IRS issued Technical Advice Memoranda that said six products could be considered as taxable under UBIT. They are: credit life and disability, accidental death and dismemberment, guaranteed asset protection (GAP, dental and cancer insurance, financial management services and auto warranties. Many credit unions had been offering these core products for years. The IRS intensified its efforts in auditing credit unions for UBIT, especially in Alabama, Connecticut and Colorado. Although a small number of states were involved, the impact of setting precedent in a few states has national implications, Gentile says. The court verdict in favor of the credit union on all three of its products is "a major victory for the credit union movement. It's unfortunate it came to litigation on products that seem so undeniably core to a credit union, but this well-deserved victory should help the credit union movement defend future UBIT challenges," Gentile said. Other leagues echoed the sentiment. "Credit unions have worked to get a resolution on the UBIT issue for nearly a decade, and this is a significant ruling," said Missouri Credit Union Association President/CEO Rosie Holub. "Most of Missouri's credit unions have these products, so it is very meaningful for credit unions in our state. This is great news." Mike Beall, president of the Maryland and District of Columbia Credit Union Association said, MDDCCUA has been a supporter of the UBIT efforts "and is a strong supporter of the dual chartering system. We are heartened and pleased with this initial court victory" (FOCUS Newsletter May 18). In the lawsuit filed in January 2008 with support from the UBIT Steering Committee, Community First CU, an Appleton, Wis.-based credit union sought $54,604--the amount it paid on taxes on credit life and credit disability insurance and GAP products. On Thursday, a jury ruled in favor of the credit union on all three products, saying they were substantially related to the credit union's mission. U.S. District Judge William Griesbach entered the judgment for the full amount plus costs (News Now May 15). The victory was deemed "a great outcome for state-chartered credit unions," by CUNA General Counsel Eric Richard. "We hope it will lead the IRS to reconsider its entire position on UBIT for credit unions," he said, adding, "but we are prepared for the next case in Denver." That case involves Bellco CU in Greenwood Village, Colo. The trial date hasn't been set yet.

CUDL works to minimize dealers closing impact on CUs

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ONTARIO, Calif. (5/19/09)--CUDL, a point-of-sale and indirect auto lending network for credit unions, is working to minimize the impact that the closing of many Chrysler dealerships nationwide will have on credit unions. On Thursday, Chrysler announced that it would close 789 of its dealerships by June 9. “The most obvious shift is where some credit union members will be going to purchase vehicles,” said Joe Greenwald, CUDL vice president of marketing and communications. “However, members still need transportation and will be looking to their credit unions for help in financing vehicles.” CUDL’s 10 regional business units are working with their credit unions to provide strategies and steps to mitigate any negative impact from the closings. About 10-12 credit unions have contacted CUDL about the closings, Greenwald said. CUDL also is monitoring General Motors (GM) announcements for closures. “We are awaiting further details from GM before we finalize strategies or make any further recommendations to our credit unions,” Greenwald said. He noted that the present timetable for GM dealership closures indicates they may take place over a “longer-term horizon” but said things could change. “The general points of action that we recommended to our credit unions for the Chrysler closures should certainly be taken into consideration and applied by credit unions for any dealership that closes,” he added. CUDL recommends that credit unions:
* Identify the number of open titles outstanding with that dealership and work to expedite the perfection of those titles; * Understand the broad picture for the dealership, most specifically whether or not that dealership has other franchises under one roof; * Consider prior history with that dealership and dealer owner/principal; * Ensure that any loan packages have the required documentation prior to funding; * Understand the source of extended service contracts because responsibility and location of service may vary among manufacturer warranties, manufacturer-backed extended service contracts and extended service contracts issued by other third parties; and * Determine if they wish to continue businesses with dealerships that could convert to independent dealerships after their franchise closes.
Credit unions need to continue strong risk management practices, CUDL said. “By following prudent lending policies, credit unions will remain well-positioned to help their members finance the vehicles that enable them to get to work, school, and the many places their lives take them,” Greenwald said.

Vote with feet move to a CU says ICNN MoneyI

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NEW YORK (5/19/09)--Consumers negotiating their way out of bank fees and other savings pitfalls "can always vote with your feet and move to a credit union," says a personal finance editor for CNNMoney.com (May 18). The article, by Gerri Willis, offers ways consumers can score a sweet deal on an auto, including "arming yourself with as much information as possible--before you head to the lot" and being prepared to walk away if the deal isn't materializing. "You also can negotiate bank fees right now. Large national banks have gotten billions from TARP (Troubled Asset Relief Program)--your tax dollars--but you don't have to give them another dime," says the article. Other advice includes cutting bank fees by avoiding out-of-network ATMs, watching for overdraft fees, and avoiding account maintenance fees and teller fees. To access the full article, use the link.

PCUA names board officers awards

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HERSHEY, Pa. (5/19/09)--The Pennsylvania Credit Union Association named board officers and bestowed awards at its annual business meeting Friday in Hershey. Ray Brunner, CEO of WEST-AIRCOMM FCU, Beaver, was elected as the new chairman of the association’s board, succeeding Diana Roberts, CEO, Hershey (Pa.) FCU, who has served as board chair since May 2007 (Life is a Highway May 18). Mike Kaczenski, CEO of Sun East FCU, Aston, was elected vice chair. Also, retiring District 4 Director Lanny Horn was honored. Maria LaVelle, CEO, Westmoreland Community FCU, Greensburg, was elected to Horn’s board seat. Other news from the business meeting:
* Norb Kaczmarek and Ron Lasich were honored as the newest inductees into the Credit Union House Hall of Leaders. Their names are on the Hall of Leaders plaque on display at Credit Union House in Washington, D.C.; and * Herb Yolles, NCUA Region II associate regional director for operations, provided an update on the status of credit unions in Region II. He told the delegates that 2009 first quarter data show Pennsylvania’s credit unions to be stronger than credit unions in other states. Overall, Region II credit unions are performing better than the rest of the country.
Lifetime Achievement Awards were presented to two credit union leaders at the association’s 75th Anniversary gala banquet. Barb Fortney, retired CEO of LANCO FCU, Lancaster, was awarded the 2009 William W. Pratt Professional of the Year Award. Herb Yost, retired board chairman of Diamond CU, Pottstown, was presented the 2009 Joseph A. Moore Volunteer of the Year Award. Thirteen young people competed for the title of the 2009 Credit Union Youth Ambassador of Pennsylvania during the 33rd annual contest on Friday night. Laura Huggins of the Harrisburg Chapter and Belco Community CU, Harrisburg, won the state title.

N.Y. CUs supported by towns on municipal deposits

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ALBANY, N.Y. (5/19/09)--The Association of Towns of the State of New York issued a Memorandum of Support May 8 that “calls upon the governor and the New York State Legislature to pass legislation that amends all applicable state law to allow local governments to deposit funds in credit unions and thrift institutions.” “The law addressing municipal funds was enacted in 1909 before the existence of credit unions,” said William J. Mellin, president/CEO of the Credit Union Association of New York. “Clearly it is time to fix this antiquated law on the state level.” Escalating real property taxes needs to be addressed, the Association of Towns said in its memorandum. Providing municipalities with ways to reduce expenses could help lower those taxes. The group cited a recent economic study that showed local governments could save $12 million to $16 million annually if they could do business with their local credit unions. Also noted was that “town officials like the idea of local tax dollars helping their local economy by providing choice in community banking.” Commercial banks currently enjoy a virtual monopoly over the deposit of state and local funds in New York State, the credit union association said. New York is one of 13 states that don’t allow municipalities the credit union option. Municipal Deposit bills were introduced in both the Assembly (A.4319) and the Senate (S.717) this session. State Rep. and Banks Committee Member Harvey Weisenberg (D-20), and Senate Banks Committee Member Owen Johnson (R-4) are the sponsors. The credit union association will continue to work behind the scenes to encourage passage of the amendments to current banking law on municipal deposits so local governments can keep their investments in their local communities. “By retaining local money in communities through municipal deposits, credit unions will be adding funds to the lending pool at a time when funds have been somewhat scarce at more traditional financial institutions,” Mellin said. “Allowing credit unions to accept funds from municipalities also makes it possible for credit unions to offer lower loan rates while creating more affordable loan products for their communities.”

Biz Kid nominated for two daytime Emmy Awards

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FEDERAL WAY, Wash. (5/19/09)--Biz Kid$, a financial education show aimed at youth and funded by credit unions, has received two Daytime Emmy Award nominations from the National Academy of Television Arts and Sciences. “For credit unions, this is a major milestone in the ongoing effort to improve consumer financial education,” said Washington Credit Union League President/CEO John Annaloro. The show is taped in Washington (Focus May 15). “The nominations are testament to the show’s technical quality, which enhances the efficacy of the show’s message,” he added. Biz Kid$ first broadcast in January 2008 and has aired in market of more than 118 million households nationwide. More than 97% of public television stations are airing the program. The show is underwritten by America's Credit Unions, comprising more than 150 credit unions, credit union foundations and other supporting organizations. The largest sponsor is the National Credit Union Foundation. The 36th Annual Daytime Emmy Awards will be televised Aug. 30 in Los Angeles.

CU System briefs (05/18/2009)

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* QUEENS, N.Y. (5/19/09)--New York police divers fished four stolen ATMs--part of a chain of "smash and grabs" where thieves used heavy equipment to steal the machines--out of a creek in Flushing Meadows-Corona Park Friday. Valentin Garcia, 34, who has 24 prior arrests, was charged with grand larceny of a car, criminal possession of stolen property and criminal mischief. He is accused of ramming a stolen van into the ATMs, then hauling them away and stealing cash. Some machines had as much as $12,000. Garcia was arrested April 21 when police received a call about someone attempting to dislodge an ATM on the Lower East Side. He was captured when he jumped into the East River. He was released on bail April 28, only to be arrested again pril 29 for a March heist. Garcia is charged with stealing three machines throughout Manhattan in December, March and April (NY1.com May 16 and 1010wins.com May 15) … * ANNAPOLIS, Md. (5/19/09)--Credit unions and the Maryland and
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District of Columbia Credit Union Association (MDDCCUA) were in attendance when Maryland Gov. Martin O'Malley signed Senate Bill 500 into law May 11 (FOCUS Newsletter May 18). The law requires the Prince George's County Board of Education to develop and implement a pilot program in three county high schools that includes a semester-long elective course in financial literacy. Seated from left: Senate President Mike Miller, Gov. O'Malley, and Speaker of the House of Delegates Michael Busch. Standing, from left, are Denise Tyler; Sen. Anthony Muse; Kalimah Matthews of Signal Financial FCU; Chris Conway of Educational Systems FCU, and Brian Tate of MDDCCUA. (Photo provided by the Maryland and District of Columbia Credit Union Association) … * POPLAR BLUFF, Mo. (5/19/09)--U.S. Rep Jo Ann Emerson (R-Mo.) met with financial institution leaders, including Poplar Bluff (Mo.) FCU President Kirk Mondy, while on a visit in the Eighth District May 8 (The Missouri difference May 15). Emerson is the new ranking Republican on the Financial Services Subcommittee of the House Appropriations Committee. Mondy said he asked Emerson questions related to S 896, the Senate version of the Helping Families Save Their Homes Act. "Specifically, would she support removal of the 'cramdown' provisions that were passed in the House bill? She assured me that 'cramdown' is dead and won't be in the final bill," he said. "I assured her that Missouri credit unions approve the amendments in S 896," Mondy told the Missouri Credit Union Association … * EL PASO, Texas (5/19/09)--Government Employees CU in El Paso is distributing free discount prescription drug cards to people in El Paso, Texas, and the surrounding area. The El Paso Drug Card is a free prescription assistance program to help uninsured and underinsured residents afford prescription medicines. It provides savings of up to 75%, although savings average roughly 30% (El Paso Times May 18) … * RANCHO CUCAMONGA, Calif. (5/19/09)--A crew of California credit
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union members and vendors raised a record $8,301.25 for the Richard Myles Johnson (RMJ) Foundation--the state foundation for credit unions in California and Nevada--by participating in the 62nd annual Newport to Ensenada International Yacht Race. From left are Jim Crowley, SWBC; John Willard, Camino CU; Chris Gunnare and Matt Flynn, The Members Group; foundaton board member and skipper of the crew Jim Updike, Honda FCU; Don Gensler, CUNA Mutual Group; Tim Sidely, WesCorp; and Todd Lane, California Center CU. Not pictured was Brian Scott, The Members Group. (Photo provided by the California Credit Union League) …

Rep. Holmes Norton to chapter No parallel to CUs

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WASHINGTON (5/19/09)--U.S. Rep. Eleanor Holmes Norton (D-D.C.) thanked credit unions for all that they do in the district to help people achieve financial stability during comments made at the D.C. Chapter of the Maryland and District of Columbia Credit Union Association's Annual Legislative Reception and Annual Meeting.
U.S. Rep. Eleanor Holmes Norton, left, (D-D.C.) praised credit unions during a legislative reception and annual meeting May 14 of the D.C. Chapter of the Maryland and District of Columbia Credit Union Association. (Photo provided by the Maryland and District of Columbia Credit Union Association)
More than 50 credit union leaders and professionals attended the May 14 event, said the association (FOCUS Newsletter May 18). Norton, a long-time credit union supporter and advocate, praised credit unions' efforts in the current economic environment, saying, "Credit unions are where you want to be. Credit unions didn't cause the current economic crisis. Credit unions played by the rules. Now, credit unions are being asked to do even more to help." She stated her strong support for the credit union practice of offering membership to people with a minimal deposit requirement. She also pointed out the distinction between democratically operated, member-owned financial institutions and for-profit banks that answer to stockholders. "If you want to be a stockholder or owner, join a credit union." The credit union philosophy of "people helping people" is really more than words, Norton said, adding that they help people in their local communities by lending in the local communities and advocating financial literacy and consumer responsibility. "I have been in Congress for 18 years, and I can find no parallel to credit unions. In our society, mutuality has gone dormant. However, members all over the world can go to credit unions because they are trusted and responsible," Norton added. Other featured guests included District of Columbia Banking Commissioner Thomas Hampton, Washington, D.C. Councilmember Michael Brown and Economist Robert Ebel. Brown mentioned he is a credit union member and looks forward to working with them on financial services issues, including financial literacy. Hampton said he has seen firsthand how credit unions serve their members, specifically by educating members on financial issues and leading in the effort to increase awareness of financial literacy.

Jane Bryant Quinn to PCUA CUs have social value

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HERSHEY, Pa. (5/19/09)--Jane Bryant Quinn, nationally known personal finance commentator, says credit unions “have social value.” She made the comment as the keynote speaker for Friday’s general session at the Pennsylvania Credit Union Association’s Annual Business Meeting in Hershey, Pa..
Jane Bryant Quinn (left), nationally known personal finance commentator, and Diane Roberts, Pennsylvania Credit Union Association board chair, at the Pennsylvania Credit Union Association’s Annual Business Meeting in Hershey, Pa.
Jim McCormack (left), president/CEO of the Pennsylvania Credit Union Association, greets Tom Corbett, Pennsylvania attorney general, who spoke at the association’s Annual Business Meeting in Hershey, Pa., Friday. (Photos provided by the Pennsylvania Credit Union Association)
After giving a historic review of the economy’s ups and downs over the years, Quinn told attendees, “Now is your time.” During the economic boom, banks were attractive to consumers and credit unions had to work hard to compete. Today, banks are struggling and credit unions are thriving, she added (Life is a Highway May 18). “Credit unions have a great message to tell,” Quinn said. “Credit unions have social value, and their specialty is personal service and one-on-one financial counseling.” Quinn recently agreed to appear as the spokeswoman for the National Credit Union Administration in a television commercial running nationwide in those areas most impacted by the economic recession. In another speech at the meeting, Pennsylvania State Attorney General Tom Corbett, a credit union member, congratulated the association on its 75th milestone and thanked credit unions for “making Pennsylvania better for all of us.” Credit unions are committed to members, especially during the economic crisis, and are key to the economic turnaround, Corbett said. The attorney general is a consumer advocate and has used credit unions as a partner for his initiatives. He emphasized the importance of financial literacy in schools and informing members about identity theft.

Mid-Atlantic Corporate updates stabilization impact

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MIDDLETOWN, Pa. (5/19/09)--Mid-Atlantic Corporate FCU issued a corporate stabilization update Thursday after U.S. Central released its results Wednesday of its first-quarter financials. The update states that Mid-Atlantic will see its Membership Capital Shares (MCS) at U.S. Central deplete by 23% of their value instead of the 63% previously estimated. U.S. Central’s previous estimates were released May 1 (FOCUS Newsletter May 18). U.S. Central will still exhaust 100% of Paid-in Capital (PIC) versions I and II, along with the depletion of 23% of MCS as of March 31 for all corporates. Previously, Mid-Atlantic had $49.5 million in PIC and $95 million in MCS at U.S. Central. The corporate will apply its retained earnings of roughly $98 million to the loss, leaving about $26.5 million in retained earnings. “Although these reported numbers may indicate that our members’ Membership Capital Accounts (MCA) could be untouched, if our certified public accounting (CPA) firm determines that the potential for additional losses to MCS is likely, it could still have us take the worst-case scenario and write-down all of our MCS with U.S. Central. In this scenario, Mid-Atlantic Corporate’s members holding MCA will, in turn, be forced to take a 23% loss on their MCA with us,” the corporate said. As for the corporate’s capital, the release said: “Current regulatory requirements for capital are set at 4% minimum regulatory reserves and 2% minimum tier 1 generally accepted accounting principles (GAAP)-qualified reserves. While retained earnings and PIC qualify as both regulatory and tier 1 GAAP capital, MCS only qualifies as regulatory capital. “Prior to the conservatorship of U.S. Central and the extinguishment of Mid-Atlantic’s capital held at U.S. Central, Mid-Atlantic had 9.6% regulatory capital and 2.9% tier 1 GAAP capital; both exceed the regulatory requirements,” the release continued. “Following the U.S. Central conservatorship and exhaustion of Mid-Atlantic’s capital, its total regulatory capital level remains above the 4% minimum at 6.8%, but the tier 1 GAAP capital level has fallen below the regulatory requirement to 0.8%.” Mid-Atlantic encouraged its member credit unions to consult with their CPA firms to determine how to reflect these transactions on their income statements and balance sheets. Mid-Atlantic Corporate FCU is based in Middletown, Pa. U.S. Central is based in Lenexa, Kan. For more information, use the link.

CFO Council names 2009 executive committee

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MADISON, Wis. (5/19/09)--The new executive committee and officers for the CUNA Chief Financial Officers (CFO) Council were announced during the council’s 15th annual conference and roundtable, May 17-20, in Las Vegas. Pam Finch, vice president of administration and chief financial officer (CFO) for Mid Minnesota FCU in Baxter, Minn., moved from vice chair to chair. She replaces Erin Mendez, senior vice president of finance and information technology for SchoolsFirst FCU in Santa Ana, Calif., who reached her term limit as chair but will remain on the committee. Dan Leclerc, CFO for Lacamas Community CU in Camas, Wash., was named vice chair. Brandon Michaels, CFO for San Francisco Fire CU in San Francisco, is secretary/treasurer. During recent elections, Michaels and Derrick Peterson, senior vice president and CFO for Public Employees CU in Austin, Texas, were elected to the executive committee. They replace outgoing members Louis (Jay) Scungio, vice president of finance and chief financial officer for Freedom CU in Springfield, Mass.; and Peg Lamb, senior vice president of finance for DFCU Financial CU in Dearborn, Mich. Other committee members are:
* M.J. Coon, senior vice president and CFO for Ent FCU in Colorado Springs, Colo.; * Robert Warren Jr., senior vice president and CFO of Virginia CU in Richmond, Va.; * Steve Smith, CFO for Sharonview FCU in Fort Mill, S.C.; and * Kevin Brueseke, CEO and CFO for the Missouri Credit Union Association.

City police urge no hathoodsunglasses policies

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COLUMBUS, Ohio (5/19/09)--City police are urging the credit unions in Westerville, Ohio, to strictly enforce policies that require members to remove their sunglasses, hats or hoods when entering to avoid potential robberies. Suzanne McCann, vice president of sales and operations at CME FCU in Columbus, Ohio, told The Columbus Dispatch Friday that she witnessed a robbery at the credit union. The robber wore a hat and sunglasses, she said. CME has a similar “no hats, sunglasses” policy that has been enforced at every branch, the newspaper said. Some credit union members weren’t happy with the policy, but McCann said the policy helps keep everyone safe. Although only a few cities nationwide have “no hats” policies, voluntary participation is increasing, Harry Trombitas, an FBI special agent based in Columbus. Most bank robbers want to avoid conflict, and complying with a request to take a hat or sunglasses off could attract more attention, he said. There have been 22 Columbus-area robberies this year, five fewer than this time last year, the newspaper said. Credit unions in several states have adopted “no hat, no hoods, no sunglasses” policies. In 2003, the Delaware Credit Union League provided posters and signs to credit unions that ask member to remove these articles of clothing when they enter the credit union (News Now Aug. 25, 2003). The same year, the Missouri Credit Union Association adopted a similar policy. Other states with “no hats, hoods or sunglasses” rules include South Carolina, Massachusetts and Oklahoma (News Now June 3, 2005). Though the policies have been implemented to increase safety, they have been criticized. Earlier this year, a Muslim woman who was a member of Navy FCU said she was denied service from the credit union for wearing a traditional head scarf as required by her religion. Navy Federal contacted the member and apologized to her (News Now Feb. 4).