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Comment sought for proposed rules on credit overdraft programs

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WASHINGTON (5/21/08)--The Federal Register Monday published four call-for-comment letters regarding proposed rules for credit and overdraft programs. They include:
* A joint proposal by the National Credit Union Administration (NCUA) and the Federal Trade Commission (FTC) to ban unfair and deceptive credit card and overdraft practices (see related story). Comments must be received by Aug. 4; * A Fed proposal to amend Regulation DD, which implements the Truth in Savings Act. The amendment would require that financial institutions disclose periodically the dollar amounts charged for overdraft fees and returned-item fees, monthly and yearly. Comments are due by July 18; * A Fed proposal to amend Regulation Z, which implements the Truth in Lending Act, and staff commentary to the regulation. The revisions address disclosures provided with credit card applications and solicitations. Comments are due by July 18; and * A joint proposal by the Federal Reserve Board and the FTC that would implement Section 311 of the Fair and Accurate Credit Transactions Act (FACT) of 2003, which amended the Fair Credit Reporting Act (see related story). Comments are due by Aug. 18.
The Credit Union National Association has written comment letters on FACT and Regulation Z. For more information, use the links.

Appeals court Paper currency discriminates vs. the blind

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WASHINGTON (5/21/08)--A federal appeals court in Washington Tuesday upheld a lower court's ruling that the nation's paper currency system discriminates against the blind people. In a 2-1 ruling, the U.S. Court of Appeals for the District of Columbia Circuit said the paper currency is discriminatory because bills of different denominations are the same size, shape and color, and cannot easily be distinguished. The decision could force the Treasury Department to introduce bills of different sizes or print them with distinguishable features, such as raised print (The Washington Post May 20). The department had considered making bills different sizes but ran into opposition from manufactures of vending and change machines, who say it could cost billions to redesign vending machines (Associated Press May 20). The suit was filed by the American Council for the Blind six years ago. According to the decision, the government argued that although the currency design hinders blind people, they have adapted. Some fold each denomination different, while others rely on store clerks to help or use credit cards. The court ruled such adaptations are insufficient under the Rehabilitation Act and that the Treasury must find a way to accommodate the needs of the visually impaired. In the decision, the court said the government could have avoided some of the cost of changing the currency if it had accommodated the visually impaired when it added anti-counterfeiting features to bills in 1996 and 2004. Treasury Department spokeswoman Brookly McLaughlin said the department was reviewing the opinion. The Bureau of Engraving and Printing, which prints the currency, recently hired a contractor to consider ways to help the blind, and a report will be available early next year, she told Associated Press. Not all blind people agree that the currency should be changed. In a press release, the National Federation of the Blind said hundreds of thousands of blind people use paper money every day without difficulty. "We hope that this ruling will not have the unintended consequence of reinforcing society's misconception that blind people are unable to function in the world as it currently is. Identifying items by touch (including currency) is convenient, but not essential…," said federation President Dr. Marc Maurer.

Inside Washington (05/20/2008)

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* WASHINGTON (5/21/08)--A Federal Reserve Bank of Chicago conference hosted last week illustrated the difference of opinions shared between industry representatives and Congress on dealing with the mortgage market (American Banker May 20). James Rohr, chairman/CEO of PNC Financial Services Group, said legislation is not necessary and the market will take care of itself. He said the industry contributed to the mortgage crisis through poor underwriting standards and noted that banks must improve their due diligence. Richard Cantor, managing director of credit policy and research at Moody’s, blamed regulators, saying more transparency is needed. Ben Bernanke, Federal Reserve Board chairman, encouraged financial institutions to beef up their capital, and said that international regulators are working on Basel II. David Llewellyn, banking and finance professor at Loughborough University in the United Kingdom, said raising capital and liquidity could create a safe banking system, but also a useless system ... * WASHINGTON (5/21/08)--The Department of Housing and Urban Development announced Monday that it has launched a national public service announcement (PSA) campaign that will educate the public about their rights under the lending provisions of the federal Fair Housing Act. The PSA features actor Dennis Haysbert of the television show, “24.” Radio and newspaper ads aim to illustrate the challenges minority homeowners face when attempting to purchase a home. The campaign is available in English and Spanish. The Fair Housing Act makes it unlawful to discriminate in the sale and financing of a home on the basis of race, color, religion, sex, national origin, disability and familial status ... * WASHINGTON (5/21/08)--The House Financial Services Committee is scheduled to hold a hearing Thursday to discuss the impact of the conforming loan limits of government-sponsored enterprises Fannie Mae and Freddie Mac on the housing market. The hearing will focus on the development of the market for “expanded conforming” mortgages created under the Recovery Rebate and Economic Stimulus for the American People Act, which became law in February of this year. Members also will examine what steps different market participants have taken to implement the new loan products and what obstacles stand in the way of the act’s broader acceptance, according to a statement on the committee’s website . A witness list has yet to be announced ... * WASHINGTON (5/21/08)--The Consumer Advisory Council is scheduled to meet June 19. The council is expected to discuss proposed rules regarding credit card and overdraft services, proposed rules on risk-based pricing notices, and the Federal Reserve Board’s proposal under the Federal Trade Commission Act to prohibit unfair or deceptive acts or practices by banks in connection with credit card accounts and overdraft services for deposit accounts ...

Swan notes higher losses for still-strong NCUSIF

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WASHINGTON (5/21/08)--The provision for loss reserve account for the National Credit Union Share Insurance Fund (NCUSIF) is more than $200 million so far in 2008, according to Alonzo Swan, National Credit Union Administration (NCUA) regional director. Swan spoke Tuesday afternoon at the CUNA CFO Council's 14th annual conference and roundtable in Fort Myers, Fla. Nevertheless, Swan said a recent stress analysis of the insurance fund shows it’s much stronger now than it has ever been and able to absorb the expected losses. Swan outlined seven areas of risk NCUA examiners will be focusing on as they examine credit unions. He placed four of those risks in the “high” category and three in the “moderate” category. The risks in the high category are:
* Credit risk due to rising delinquencies and losses on real estate loans, increased member business lending activity, and a growing number of loan participations. * Interest rate risk due to a higher concentration of real estate loans funded by rate-sensitive shares. In 1996, real estate loans represented 33% of total loans. By 2007, real estate loans represented 51% of total loans. “Borrowing is becoming a more common funding strategy,” according to Swan. “And there’s growing stress on balance sheets from illiquid investments.” * Strategic risk due to weak overall earnings performance and growing dollar losses among larger credit unions. Seventy-one credit unions had net losses of more than $1 million in 2007, with an average loss of $5.1 million, according to Swan. By comparison, only 33 credit unions had net losses of more than $1 million in 2006, with an average loss of $3.6 million. “Our view of earnings has changed—-we’re now happy with anything on the positive side,” Swan joked. * Transaction risk due to fraud and due-diligence exposures. Swan said the evaluation of third-party relationships will be “a huge area of focus for examiners” in the future.
The three risks in the moderate category were:
* Liquidity risk due to the growing ratio of rate-sensitive shares credit unions hold. Thirty-five percent of credit union deposits are now rate-sensitive, according to Swan. * Compliance risk due to high-levels of Congressional interest. * Reputation risk that could suffer in the event of negative media coverage.
Despite Swan’s concerns, he said, “Real estate lending is a very good product and I see a lot of opportunity for credit unions right now. Member business lending represents additional fertile grounds for credit unions.”

Senate Banking Committee OKs GSE reform bill

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WASHINGTON (5/21/08)--The Credit Union National Association (CUNA) supports the intent of a bill passed yesterday to reform the oversight and operations of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, but is concerned about several of its provisions. The Senate Banking Committee yesterday passed the Federal Housing Finance Regulatory Reform Act of 2008, which also would create a new Federal Housing Administration program to refinance hundreds of billions of dollars in troubled mortgages. CUNA is still studying the details of the 68-page compromise bill, which was released to the public Monday, according to John Hildreth, CUNA senior legislative representative. The compromise bill is an amendment to a larger, 387-page bill. The bill would require the registration of financial institution employees that originate mortgages. “We have concerns that this provision may be overly burdensome on credit unions,” Hildreth said. “We will be following this issue closely as the bill proceeds through the legislative process. “We support congressional efforts to remove bad apples from the mortgage lending system, but the registration process will impost additional compliance responsibilities and costs on credit unions,” he added. CUNA is looking at the confidentiality provisions and issues involving public access to employee information. It also is concerned with provisions that provide for a regulatory comment period and approval process for new government-sponsored enterprise products and services. “Credit unions, especially smaller ones, rely heavily on access to these products and services to underwrite home mortgages for their members,” Hildreth said. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he hoped to have an agreement on the bill with the Senate within the next month. Last week, CUNA President/CEO Dan Mica sent a letter to Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.) regarding the bill, emphasizing the importance of the secondary mortgage market to credit union members.