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Inside Washington (05/25/2009)

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* WASHINGTON (5/26/09)--Fifteen North Carolina credit union representatives traveled to Capitol Hill to listen in on a House Subcommittee on Financial Institutions hearing on provisions of the Credit Union Share Insurance Stabilization Act, according to the North Carolina Credit Union League (Weekly Update May 22). The provisions passed as a part of the Helping Families Save Their Homes Act (S. 896), which was signed into law by President Barack Obama Thursday. Credit union representatives also discussed interchange fees, raising caps on member business lending and the Community Reinvestment Act (CRA) with their delegates. Credit union representatives emphasized that CRA would be unproductive. “Complying with CRA would do nothing more than divert resources and ultimately distract credit unions from the work they are already doing to deliver affordable financial services to their members, including low-income individuals within their field of membership,” said Dan Schline, North Carolina league senior vice president of association services ... * WASHINGTON (5/26/09)--Life at the National Credit Union Administration continues to get high marks from its employees, with the agency placing as No. 23 in the small agencies section of a recent survey on the best places to work in the federal government. The agency ranked eighth overall in the teamwork category, 12th in employee skills / mission match, and 14th in support for diversity. The rankings, which draw on responses from 200,000 civil servants at 279 federal entities, were compiled by American University’s analysis of the Office of Personnel Management’s Federal Human Capital Survey... * WASHINGTON (5/26/09)--On Thursday, the Senate Banking Committee signed off on four appointments by the Obama administration, including one for the Department of Housing and Urban Development (HUD) and for the Treasury (American Banker May 22). Michael Barr, a former Treasury official during the Clinton administration, was approved for Treasury assistant secretary for financial institutions. Sandra Henriquez was approved for assistant secretary for public and Indian housing at HUD. She is the administrator and CEO of the Boston Housing Authority. The full Senate must approve the nominees ...

NCUA issues guidance on PIC MCA updates corporate status

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ALEXANDRIA, Va. (5/26/09)—The National Credit Union Administration on Friday issued guidance on matters relating to paid-in capital (PIC) and membership capital (MCA). According to the guidance, corporate credit unions have no obligation to restore exhausted PIC or MCA, regardless of whether or not the PIC or MCA is classified as a liability or equity under generally accepted accounting principles, even if the retained earnings “substantially improve.” NCUA also advised that it is “impermissible” to pay dividends to the holders of outstanding PIC and MCA based on the balance of depleted PIC or MCA. NCUA also said that credit union directors and management must judge for themselves whether their PIC and MCA are impaired and whether that possible impairment is “other-than-temporary.” Full text of the guidance can be found at NCUA’s web site, www.ncua.gov. In its most recent update on the status of the corporates, NCUA said that reviews of all private label mortgage backed securities held by U.S. Central FCU and Western Corporate FCU (WesCorp) have been completed. The results of these reviews should be released to their members soon. U.S. Central’s other-than-temporary impairment charges have been determined, and retail corporate credit unions will be required to write down 100% of their PIC investments and 23% of MCA investments as a result. Only one retail corporate credit union should have negative retained earnings as a result of its investments at U.S. Capital, NCUA added. The board also predicted that recent actions aimed at enhancing the Temporary Corporate Credit Union Share Guarantee Program and the Temporary Corporate Credit Union Liquidity Guarantee Program should help corporates maintain their liquidity “going forward.”

As expected Justice seeks UBIT reversal

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WASHINGTON (5/26/09)—The U.S. Department of Justice, defendant in a Wisconsin court case challenging the government’s interpretation of unrelated business income tax (UBIT), has asked a federal judge to toss out the jury’s ruling in favor of the credit union. The request for reversal posits that there was no “legally sufficient basis” for a “reasonable” jury to have found in favor of Community First CU in its challenge of the Internal Revenue Service's (IRS) interpretation of UBIT assessments as it related to three insurance products. An eight-member jury, deliberating less than two hours, sided with the Appleton, Wis. credit union’s argument that all the insurance products are related to all of the credit union's purposes under Wisconsin law; that the insurance and GAP products are a source of credit with fair and reasonable rates and are directly connected to the loans made; and that the credit union educated members about the products to improve their financial conditions. The government’s request for reversal did not introduce any new arguments. Notably, prior to the outset of the court’s proceeding, U.S. District Court Judge William Griesbach questioned aspects of the government's then intended line of testimony to support the IRS. In part, Griesbach wrote: "The unstated, but apparent, premise of the government's argument is that credit life and GAP insurance could (emphasis is the judge's) be substantially related to a credit union's tax-exempt purposes if they were offered at lowered rates. That is, no one argues that credit and GAP insurance isn't related to the business of credit unions—the argument is simply that the premiums charged are too high.' Community First filed its suit in January 2008 in the U.S. District Court for the Eastern District of Wisconsin against the United States seeking a refund of $54,000 in taxes paid in UBIT on income from several insurance products. The credit union is expected to respond to the government’s latest request, but a timeframe had not yet been made public.

NCUA guarantees two-years for Community Investment CDs

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ALEXANDRIA, Va. (5/26/09)— The National Credit Union Administration (NCUA) will now guarantee all principal and quarterly fixed-rate dividend payments on new two-year certificates of deposit (CDs) in the National Credit Union Foundation’s (NCUF) Community Investment Fund (CIF). CIF allows members of corporate credit unions to earn dividends while donating to credit union charitable organizations--without creating an expense on the donors’ balance sheets. New deposits in CIF will help reduce all credit unions’ expenses for NCUA’s Corporate Stabilization Program. “We commend NCUA for taking action to offer credit union investors an attractive new option to earn federally guaranteed dividends while donating to credit union charities,” said Steve Bosack, NCUF deputy director. “Increasing deposits in the Community Investment Fund will provide critically needed programs and grants to more credit union members across America.” Half of CIF dividends are donated to NCUF. NCUF dedicates half of those donations to fund national programs including REAL Solutions, Credit Union Development Education, Innovation Grants, Biz Kid$, and CUAid. NCUF grants the other half of CIF donations to each investor’s state credit union foundation or league. State credit union organizations use their CIF grants for charitable activities including financial education, training, credit union membership outreach, small credit union development, affordable housing, disaster relief, and more. CIF provides about two-thirds of revenues for NCUF and many state credit union foundations. Recognizing CIF’s unique structure and widespread impact, the Association of Fundraising Professionals honored CIF with its Award for Fundraising Excellence. For investors with tight liquidity, CIF is also available in special S-115 share accounts at corporate credit unions. NCUA will guarantee all principal and variable-rate dividend payments in CIF share accounts throughout the course of NCUA’s rolling guarantee program. Given today’s steep yield curve, share accountholders can more than triple their dividends by transferring to fixed-rate CIF CDs (C-40 accounts). The other CIF options are three-year CDs and five-year CDs. Both offer higher dividends than the new federally guaranteed two-year CIF CDs because their longer terms stretch beyond NCUA’s current guarantee program. Normally, CIF share account holders are required to give 90 days' notice before withdrawing. But NCUA has authorized corporate credit unions to waive the 90-day notice requirement when share accountholders transfer directly to CIF CDs. Credit unions interested in the latest rates or CIF investment options can contact NCUF or a corporate credit union. For more information, use the resource link below.

Top lobbyists list Mica effective for CUs

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WASHINGTON (5/26/09)--Dan Mica, president/CEO of the Credit Union National Association (CUNA), remains on the list of Washington's top lobbyists named annually by The Hill newspaper. It’s the seventh year in a row that Mica has been named to the list. The Hill noted Mica’s long and successful history of advocating for the credit union movement: “Mica is a former member (of Congress) who has been pushing credit union interests effectively for more than a decade.” Under Mica’s watch in 2008, credit unions witnessed such developments as:
* A delay in an ultimately unsuccessful bill that would give merchants an antitrust exemption to negotiate interchange fees; * Regulatory relief measures for credit unions; and * The beginning efforts that resulted in the corporate credit union stabilization plan signed into law just last week.
The Hill's list of top lobbyists is created based on conversations with aides, other lobbyists and members of Congress. The newspaper covers lobbying and Capitol Hill activities. It is read largely by congressional members and lobbying organizations.

Cardholder rights bill signed into law

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WASHINGTON (5/26/09)—A series of sweeping new credit card industry reforms aimed at protecting consumers became law after President Barack Obama on Friday signed H.R. 627, the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The bill, known by the partial acronym the “Credit CARD Act,” was approved by the Senate last week. It will prevent lenders from such things as making arbitrary changes to the interest rates and terms associated with a card that holds an existing balance. While the new rules should "help rein in" many abusive credit card practices, Credit Union National Association (CUNA) President/CEO Dan Mica has said that some portions of the bill could "have the unintended consequence of raising compliance costs and making credit more expensive and less available to consumers." The bill, which suddenly moved with remarkable speed and strong support through both the Senate and House after years of work, also will require card issuers to notify a cardholder at least 45 days in advance of increasing the annual percentage rate (APR) or fees. The APR generally will not be allowed to increase on existing balances, unless covered by an exception specified in the law, such as for cards with variable rates or when the cardholder is more than 60 days late in making a payment. The provisions in the new law are generally effective in 9 months, but two of the provisions will be effective Aug. 20. Starting this summer, credit unions will have to give the 45-day written notice before any increase in the APR or fees, and will have to make sure that they mail credit card periodic statements at least 21 days before any due date in order to assess late payment penalties. CUNA has scheduled an audio-conference on June 18 to discuss the requirements of the law. Details and registration procedures will be available later this week. The new law raises questions about what happens to the Regulation Z amendments and the unfair and deceptive practices rules that the Federal Reserve Board (Fed) and the National Credit Union Administration have finalized on credit card programs, which are scheduled to go into effect on July 1, 2010. “Obviously, the agencies are going to have to revisit their credit card rules to incorporate the new statutory requirements -- and adopt new effective dates,” said Kathy Thompson, CUNA’s senior vice president for compliance. Although the law does not mandate any changes in interchange fees, it directs the Government Accountability Office (GAO) to complete a study on this issue in six month. CUNA has opposed any legislation restricting interchange fees. Congress has instructed the GAO to look at nine areas, including “the extent to which interchange fees allow smaller financial institutions and credit unions to offer payment cards and compete against larger financial institutions.” Additional provisions in the new law include:
* A credit card cannot be issued to anyone under the age of 21 unless someone over that age agrees to be jointly liable (and authorizes any increase in the card’s limit), or the young person can demonstrate he has independent means to repay the debt. Limits are placed on college students being given inducements to apply for credit cards, and colleges will be required to publicly disclose any contracts they have for marketing credit cards; * If a creditor increases the APR on a credit card, it must at least every six months review the account to see if conditions warrant reducing the APR; * When an account has balances subject to different APRs, payments have to first be allocated to the balance with the higher APR; * No over-the-limit fee can be charged by the card issuer unless it has disclosed the service fee and the cardholder has elected (“opted in”) to permit such transactions for a fee; * The Fed must adopt regulations on what are “reasonable and proportional” fees associated with credit cards; * Credit card contracts will have to be posted on the card issuer’s website and provided to the Fed, and the Fed is to establish a public repository of all credit card agreements; and * Gift cards will be subject to restrictions on inactivity fees and expiration dates.
For CUNA's comprehensive summary and the language of the "Credit CARD Act," see the resource links below.

CU vet Deborah Matz could chair NCUA

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WASHINGTON (5/26/09)--Former National Credit Union Administration (NCUA) Board member Deborah Matz is expected to again bring her extensive industry and public service experience to that board after President Barack Obama on Thursday announced his intent to nominate her to chair the NCUA. Matz, who served as a NCUA board member from March 2002 until September 2005, has recently served as executive vice president and chief operating officer of Suitland, Md.’s Andrews FCU, which holds $800 million in total assets. Matz also has an extensive background in public service, with past roles at the U.S. Department of Agriculture and the Congressional Joint Economic Committee. Current NCUA Chairman Michael Fryzel, whose term extends to 2013, may continue to serve on the board. In a recent release, Fryzel said that President Obama’s selection spoke well of Matz’s “past service and future performance.” The outgoing NCUA chairman said it “has been a true privilege and honor” to serve as NCUA chair, even with the recent difficulties that have made the last 10 months “the most difficult period in the first century of the credit union movement.” Board member Gigi Hyland, whose term ends in 2011, could also continue to serve on the board. Vice chair Rodney Hood, who filled in following the departure of Dennis Dollar, will leave the board. Hood's term expired in April. If confirmed, Matz will chair the board until April 10, 2015.