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Regulator response to Eastern Financial inadequate NCUA IG

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ALEXANDRIA, Va. (5/26/10)—The National Credit Union Administration’s (NCUA) Office of the Inspector General (OIG) in a recently completed report found that NCUA and Florida State Supervisory Authority (SSA) efforts to oversee the financial goings on of the now-failed Eastern Financial Florida CU (EEFCU) were “not adequate or timely.” The NCUA OIG in its report noted that it “found no evidence that the Florida SSA adequately evaluated compliance of EFFCU’s collateralized debt obligation (CDO) policies or initial CDO purchases with the provisions in the SSA letter.” EFFCU’s investments in CDOs, which totaled $149.2 million at one point, ultimately resulted in $149.2 million in total losses and precipitated the failure of the credit union and its eventual merger into Space Coast CU. The examiners also “should have deemed the planned CDO investment activity as a higher risk warranting greater supervisory efforts,” and should have sought outside expertise to deal with these investments, if needed. In a letter responding to the report, NCUA Executive Director David Marquis said that the NCUA recognizes that “there were early opportunities to better understand the depth of the risks” and to increase supervisory efforts” of the credit union. Following EEFCU’s issues, the NCUA has “intensified its monitoring and supervision efforts,” Marquis added. The Florida SSA also responded, telling News Now that the report “fails to recognize and take into account that the crash of the real estate market in 2007 was unforeseen by almost everyone including rating agencies, professional investors, private investors and mainstream America; regulators were no exception.” The report did note the role that the alarming and suddent market changes had in EFFCU’s deteriorating financial state. The Florida SSA said that it did “take every opportunity” to learn from these market changes and does “take them into consideration” as it enforces its statutes and works to “ensure proper policies and procedures are in place to help credit unions manage risks.” For the full NCUA release, use the resource link.

CUNA defines issues continues interchange fight

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WASHINGTON (5/26/10)--With conferees for the upcoming congressional regulatory reform conference being announced this week, the Credit Union National Association (CUNA) will again urge legislators to drop interchange provisions in the current Senate bill, because they would increase costs and reduce choice for consumers. The interchange provisions, which were introduced by Sen. Richard Durbin (D-Ill.) during the recently concluded amendatory process, would direct the Federal Reserve to issue regulations to govern interchange fees charged for debit card transactions, to assure that they are what the proposed language terms "reasonable and proportional" to the cost incurred in processing the transaction. Although Durbin’s amendment exempts credit unions with under $10 billion in assets, CUNA remains opposed to the interchange provision and is very concerned about unintended consequences for credit unions. Under the Durbin provision, big issuers would be forced to charge a presumably lower rate set by the Federal Reserve, while credit unions and other small issuers would continue at their current interchange rates for debit card transactions. While CUNA acknowledges that the exemption seems good in theory, the group identifies a major loophole as written: Nothing in the amendment would require the payment card networks to operate a two-rate system, and there is no reason to believe they would do so absent a mandate. Therefore, CUNA believes that, ultimately, the payment card networks would simply lower small issuer debit interchange rates to match the rates set by the Federal Reserve for large issuers. Another competitive advantage for larger issuers could be potential preferential treatment for lower-cost card transactions by large retailers. CUNA is also concerned that merchants would discriminate against credit unions by providing certain discounts for cash and check payments. The merchant groups that have promoted changes to interchange rules have claimed that their backers would return any interchange savings to their paying customers. However, a pair of amendments that would have statutorily required retailers to pass those savings along to consumers were opposed by retailer groups and, ultimately, failed to be included in the final legislation. Further, any savings that are seen by consumers would likely be negated by new charges that lenders will assess on individual accounts. “Consumers will pay either way,” according to CUNA Chief Economist Bill Hampel. CUNA remains opposed to the legislation. Though the legislation will require larger credit issuers to lower their rates to a reduced rate established by the Federal Reserve, credit unions and other small financial institutions would continue to offer their current interchange rates. Further, nothing in the amendment would require large credit networks to operate a dual-rate credit system. Another competitive advantage for larger issuers would be potential preferential treatment from large retailers. CUNA is also concerned that merchants would discriminate against credit unions by providing certain discounts for cash and check payments. The merchant groups that have promoted changes to interchange rules have claimed that their backers would return any interchange savings to their paying customers. However, a pair of amendments that would have statutorily required retailers to pass those savings along to consumers were opposed by retailer groups and, ultimately, failed to be included in the final legislation. Further, any savings that are seen by consumers would likely be negated by new charges that lenders will assess on individual accounts. Interchange legislation was not included in the House’s financial regulatory restructuring bill, and the Senate interchange amendment will come up for debate during the House/Senate conference sessions. The Senate on Tuesday announced that Democrats Chris Dodd (D-Conn.), Blanche Lincoln (D-Ark.), Tim Johnson (D-S.D.), Charles Schumer (D-N.Y.), Tom Harkin (D-Iowa) and Jack Reed (D-R.I.) and Republicans Richard Shelby (R-Ala.), Saxby Chambliss (R-Ga.), Mike Crapo (R-Idaho), Judd Gregg (R-N.H.) and Bob Corker (R-Tenn.) are being considered to be among the conferees. CUNA’s grassroots advocacy strategy will cast a wide net, asking credit union representatives to contact their respective members of Congress, no matter what their level of conference participation.

New FCU chartered in Michigan

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ALEXANDRIA, Va. (5/26/10)--The National Credit Union Administration (NCUA) on Tuesday announced that it has approved the charter for Chippewa Eagle FCU of Mount Pleasant, Mich. The credit union, which will serve the 7,800 members or employees of the Saginaw Chippewa Indian Tribe, expects to begin operating in August. The credit union will offer share accounts, club accounts, money market shares, share certificates, and share drafts, as well as personal loans, including signature, used automobile, and recreational vehicle loans.The credit union will also offer credit cards, unsecured lines of credit, residential mortgage loans, individual retirement accounts, and member business accounts in the future, the NCUA said. “The credit union will also offer financial educational opportunities in conjunction with existing tribal programs,” the NCUA added. NCUA Chairman Debbie Matz said she is “pleased” to welcome the credit union “into today’s thriving credit union community.” The NCUA earlier this year approved the charter of Battle Creek, Mich.’s Inspire Community Development FCU. For the full NCUA release, use the resource link.

NCUA sounds alarm on fraudulent email to CU members

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ALEXANDRIA, Va. (5/26/10)—It’s always “phishing” season, and the National Credit Union Administration (NCUA) Tuesday issued an alert about a new scam targeting credit unions members. The agency warned of fraudulent emails pretending to come from the NCUA and asking credit union member participation in an “Online Survey” or “Member Survey.” The emails even promise a nice $40 compensation as an inducement to respond to the email. The emails are fraudulent, the NCUA warns, and may be an attempt to obtain confidential member information. The agency does not solicit such information from credit union members. “This is a phishing activity with no NCUA activity or approval. If you have received these emails please do not respond. If you have any questions or concerns please email NCUA” at this address, pacamail@ncua.gov., an agency alert said.

Fed launches online database on consumer card terms

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WASHINGTON (5/26/10)—As required by the new credit card law, the Federal Reserve this week launched an online database that lists terms and conditions of more than 300 credit card issuers. The database is intended to help consumers find a card that best suits their personal finance needs. The database features the terms of more than 1,000 agreements from the 300 issuers, and lists them alphabetically. Credit union issuers are among those whose terms are displayed, but not all consumer credit card agreements are available in the database. The Fed’s rules, implementing the Credit Card Accountability, Responsibility and Disclosure Act, exempted issuers with fewer than 10,000 open credit card accounts from submission because, a Fed release noted, the overwhelming majority of credit card accounts are held by issuers that have more than 10,000 open accounts. The database will be updated quarterly. The next submission deadline is Aug. 2.

Inside Washington (05/25/2010)

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* WASHINGTON (5/26/10)--The New York Times reported Tuesday that the “Volcker Rule,” an Obama administration plan to ban banks from certain high-risk trading practices, is “very likely” to be included in the final financial regulatory reform bill that is expected to be worked out between House and Senate conferees by summer. The article said that while House Financial Services Committee Chairman Barney Frank (D-Mass.), a key player in reconciling the House and Senate versions of financial reform law, gave the Volcker rule high odds for being included, he on the other hand said a separate provision to force banks to spin off their derivatives businesses "goes too far." His pointed opposition reduces that provisions chances of making it in to the final package, at least in an unaltered state. Frank said banks would be prohibited from very risky derivatives activities by the Volcker Rule and that the derivative spin-off just wouldn’t be necessary… * WASHINGTON (5/26/10)—When the House and Senate conference committee meets to work out a final financial regulatory reform bill, Sen. Carl Levin (D-Mich.) wants to work in a provision to bar any financial firm that underwrites an asset-backed security from betting against that security.(American Banker May 25) On the Senate floor Monday, Levin said financial firms cannot be allowed to continue this practice, which, he said, has undermined the U.S. financial markets. He said the out-right ban could be added by strengthening the proprietary trading provisions offered by Sen. Christopher Dodd (D-Conn.) and therefore could be taken up by the conference committee. Under conference rules, lawmakers may work out differences between a House bill and a Senate bill, but no provision can be added if related language does not already exist in one version…

NEW CUNA interchange alert includes natl call-in for CUs tomorrow

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WASHINGTON (5/26/10)—As part of its all-out assault to block interchange language from being included in a final financial regulatory reform bill, the Credit Union National Association (CUNA) is sponsoring a national conference call tomorrow, May 27, to outline issues and needed action for leagues and credit unions. CUNA has reserved 3,000 lines for participants of the 2 p.m. (ET), half-hour call-in, during which President/CEO Dan Mica will describe credit union concerns regarding an interchange amendment currently included in the Senate version of the regulatory reform package, S. 3217, the Restoring American Financial Stability Act (RAFSA). The Senate passed that bill earlier this month by a 59-39 vote. "Credit unions must engage at the grassroots level right away. Our call will outline the actions credit unions must take to reach our goal of removing the interchange amendment for the financial reform legislation before it is enacted into law," said CUNA President/CEO Dan Mica. "We know this is short notice, but I urge all credit unions to dial into tomorrow's call. Next week's Memorial Day recess gives us an immediate opportunity to deliver our message to members of Congress while they are back home." The House-approved version of a comprehensive financial reform bill, the Wall Street Reform and Consumer Protection Act (H.R. 4173), approved last December, has no interchange provision. However, as the Senate worked toward a vote on its bill, an amendment was added that would direct the Federal Reserve to issue regulations to govern interchange fees charged for debit card transactions. As the House and Senate move forward to design a single bill that both houses of Congress can ratify, CUNA will continue its push against the interchange language and urge federal lawmakers to drop any such provision out of a final bill. To that end, CUNA’s has launched a comprehensive offensive, which includes the national call-in, a call for grassroots action, and written material to support a grassroots effort. To learn more about this key issue, use the resource link below to register for the CUNA call-in. CUNA requests one line-use per credit union because of likely demand.