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Cheney voices interchange concerns on Bankrate.com

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WASHINGTON (5/25/11)—The Credit Union National Association (CUNA) continues to advocate for a delay in the implementation of the Federal Reserve Board’s debit interchange fee rate cap, most recently via an interview with CUNA President/CEO Bill Cheney published this week in Bankrate.com’s Banking Blog. Overall, Cheney said that while some aspects of the debit card interchange fee market need to be reformed, the Fed’s proposed solution is flawed and will harm both consumers and credit union debit card issuers. The Fed’s proposed interchange regulations could limit debit card swipe fees to as little as seven to 12 cents per transaction. A proposed exemption for issuers with under $10 billion in assets is included in the proposal. Cheney said that this carveout would not work as planned. While the exemption would allow smaller institutions to charge higher rates for the convenience of accepting debit cards, Cheney said that a two-tiered debit fee system won’t work in practice. CUNA maintains that merchants would reject a two-tiered system and credit unions would incur significant losses on every debit card purchase made by a consumer. Cheney also predicted credit union debit cards could face discrimination in practice--that larger institutions could “use their marketing clout and greater resources” to convince merchants to accept bank debit cards over credit union-offered cards. These factors would likely result in credit unions losing money on their members’ debit card transactions, Cheney noted. That in turn would force credit unions to raise fees charged members to offset the lost revenue. The proposed 12 cent limit would not be adequate to cover the expenses associated with providing debit card accounts, he added. Another issue of concern to credit unions is potential damage they could face from routing provisions of the regulation. Credit unions are currently allowed to choose their own payment network, but the Fed proposal would force financial institutions to offer multiple transaction routing options to merchants. Cheney said that this change, which has no small institution exemption, would “cost credit unions and cripple their ability to be competitive.” For the full blog post, use the resource link.

CUNA IDs NCUA corporate prepayment plan concerns

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WASHINGTON (5/25/11)--The Credit Union National Association (CUNA) has developed more useful information on the key elements of the National Credit Union Administration’s (NCUA) proposed plan for voluntary prepayment of corporate credit union stabilization fund assessments. The information, which is in a question-and-answer document, is designed to help credit union officials understand the proposal and assess whether they want to take part in NCUA’s proposed prepayment plan. The NCUA’s plan, which would allow most credit unions to voluntarily prepay up to 36 basis points (bp) of their assessments, was released at last week’s May NCUA board meeting. The plan is not mandatory, but, legally speaking, all federally insured credit unions may participate. However, NCUA noted that 6,023 credit unions have more than $2.8 million in assets and could be able to take part in the plan. The NCUA said credit unions would need to advance the minimum amount of $10,000 to participate in the plan, and that it would not move forward with the plan if credit unions do not commit a combined $300 million in funds to the proposal. Credit unions that wish to take part in the prepayment program can pledge their desired amount to the NCUA, and the agency would then process a direct debit from those credit union accounts. CUNA said that the plan “would affect the amount of each year’s assessment through time, but not the total amount of assessments.” The primary goal of the plan is to smooth assessment rates. Based on current estimates of future losses on the legacy asset portfolios, NCUA will still need to collect $8.5 billion to cover the cost of corporate stabilization. However, the ultimate losses could end up requiring more or less than $8.5 billion in funding. Assessments beyond 2012 would be somewhat higher than they would be without the NCUA prepayment plan, according to CUNA. The exact amount of assessment reduction would depend on the level of participation. According to CUNA, the NCUA would need to collect $1 billion in funds for credit unions to truly recognize the benefits of the proposal. CUNA estimated that the NCUA’s 2011 and 2012 assessments would be reduced by 16 basis points if the proposal brought in $1.2 billion in funds, dropping each of those assessments to around 11 bp. The assessment levied in 2013 could be around 10 bp, CUNA added. The NCUA will hold its own Q&A session during a May 26 webinar. The agency is also accepting credit union comments on the potential effectiveness of its plan, the level of interest in the plan, and any account treatment considerations until June 20. To register for the NCUA webinar use the resource link.

Three NCUA Small CU Workshops planned for June

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ALEXANDRIA, Va. (5/25/11)—The National Credit Union Administration's Office of Small Credit Union Initiatives is offering a trio of credit union workshops next month. The workshops will focus on:
* Issues facing credit unions; * NCUA--Consumer Protection Office--What It Means To You; * Duties of federal credit union boards of directors (NCUA Regulations 701.4); * Basic financial literacy requirements; * Due diligence and evaluating payment system service providers; and * Examination issues.
Portland, Maine will host a credit union roundtable on June 2, with workshops following in Salt Lake City, Utah on June 11 and Atlanta, Ga. on June 23. Additional roundtables and workshops are scheduled through November. Use the resource links for registration information.

NCUA OIG Agency dealing with financial crisis impact

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ALEXANDRIA, Va. (5/25/11)--Recovery from the impact of the recent financial crisis, and related challenges and opportunities, are the focus of the National Credit Union Administration as it works to “ensure the future stability of the nation’s financial system,” the NCUA’s Office of the Inspector General said in its semi-annual report to the agency and Congress. The agency has reviewed its supervision and regulation of failed corporate and natural-person credit unions, and has worked to enact reforms required by the Dodd-Frank Wall Street Reform Act, in the six months ended March 31, the report noted. NCUA actions related to Dodd-Frank implementation included the issuance of new rules related to credit ratings, share insurance protection, and incentive-based compensation, as well as the creation of the NCUA’s Office of Minority and Women Inclusion. The semiannual report also noted that the NCUA had provided several details on additional corrective actions that were taken after the OIG last year said that more aggressive NCUA supervisory actions could have helped the NCUA avoid the failure of nine credit unions and prevented the National Credit Union Share Insurance Fund from taking on substantial losses. For prior coverage of these recommendations, use the resource link. The overall financial status of the credit union industry was also covered in the report, with the OIG finding growth in assets, and an increase in credit unions’ return-on-average assets, during the six-month period ended December 31. The OIG also noted that while total share accounts and money market shares increased during this time period, the amount of loans taken out at credit unions fell. Credit union-related legislative actions, including recent efforts to lift the credit union member business lending cap and ensuring that a planned small issuer exemption from rules that would cap fees charged for debit card transactions is meaningful, are also covered in the OIG report. For the full NCUA OIG report, use the resource link.

Inside Washington (05/24/2011)

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* WASHINGTON (5/25/11)--Foreign banks with U.S. operations have expressed concerns that they will be negatively impacted by the Dodd-Frank Act. Under the law, institutions with global assets of more than $50 billion are required to provide regulators with details of how the living wills they hold can be dismantled in a crisis, and are subject to “enhanced supervision” by the Federal Reserve Board (American Banker May 24). Foreign banks are uneasy because the designation is tied to global assets, not only their U.S. operations, the Banker said. Based on that threshold, about 100 foreign banks would be subject to the living will and enhanced supervision provision, compared with 35 U.S. banks. Thomas Pax, a partner at Clifford Chance in Washington, said many foreign banks have only one or two branches in the U.S. as a way to take advantage of the benefits available to U.S. bank holding companies. Most foreign banks were unprepared for the possibility that they would be affected by Dodd-Frank, he said. Federal Reserve officials have indicated they will scale supervision to a bank’s size and complexity … * WASHINGTON (5/25/11)--Big banks are urging the Federal Deposit Insurance Corp. (FDIC) to revisit new reporting requirements. Institutions with more than $10 billion of assets are required to report subprime consumer loans and loans to highly leveraged commercial borrowers in call report data due June 30 (American Banker May 24). The information will be used with other factors to create a risk-sensitive price. In creating the rule, finalized in February, the FDIC sought to make a bank’s price reflect the risks it was taking before those risks affected its performance. But in comment letters and during a meeting with the regulator this month, banks said the FDIC’s new definition of the two factors is more burdensome, and the accuracy of the new information cannot be guaranteed by the June deadline. They have requested adjustments to the reporting demands or more time to comply. A response from the FDIC is critical because bankers say implementing the changes places a burden on resources … * WASHINGTON (5/25/11)--The Capital Purchase Program (CPP), established as part of the Troubled Asset Relief Program, officially broke even last week. If banks continue making their scheduled dividend payments, the CPP will make a profit for the Treasury Department, according to a report released Monday by Keefe, Bruyette & Woods (American Banker May 24). Treasury invested $204.9 billion in more than 700 banks and thrifts through the CPP during the financial crisis. As of May 18, $205.1 billion (including interest) had been repaid to Treasury, the report said. So far, 109 banks have repaid the Treasury in full, for an average return on investment of 9.2%. In all, the Treasury still has $22 billion invested in 555 institutions, most of which are making quarterly payments. Treasury has written off four investments, totaling $2.6 billion. More than 150 banks have missed at least one dividend payment. In all, $194.5 million in dividend payments are past due, the report indicated …