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Former Speaker Gingrich: RBC proposal 'extraordinarily troubling'

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WASHINGTON (5/27/14)--Former Speaker of the House Newt Gingrich, who worked on amending the Federal Credit Union Act in 1998, submitted a letter Friday to the National Credit Union Administration regarding its risk-based capital (RBC) proposal, calling the proposal "extraordinarily troubling."
 
Gingrich, a Republican who represented the 6th District of Georgia, is one of the latest U.S. legislators to bring their concerns to the attention of the regulator. (See related story: RBC proposal may impede CU goals: Sen. Nelson.)
 
The NCUA's proposal would replace existing risk-based net worth requirements with new risk-weighted asset and capital requirements.  The rule would apply to federally insured "natural person" credit unions with more than $50 million in assets.
 
"This is not what Congress contemplated NCUA should do to establish a Prompt Corrective Action regime," Gingrich wrote, adding, "We never intended, nor even comprehended the possibility of higher risk-based capital requirements for well-capitalized credit unions than those that apply to adequately capitalized credit unions."
 
Under the proposed rule, an adequately capitalized credit union would need to maintain a net worth ratio of 6% and an RBC ratio of 8% of equity to risk assets, while a well-capitalized credit union would need 7% and a higher RBC ratio of 10.5%, meaning the RBC ratio for well-capitalized credit unions exceeds that for adequately capitalized credit unions. This violates the Federal Credit Union Act, the Credit Union National Association says. 
 
The act directs the NCUA to set any risk-based component for the well-capitalized threshold no higher than the component for the adequately capitalized level. 
 
He continued, "If Congress wanted a different result, we would have indicated that. In fact, in other banking statutes, we did exactly that.  At the time of the 1998 statutory change, banks were already subject to risk-based capital ratio standards for both the adequate and well-capitalized classifications.
 
"However, both then and now, banks have a lower statutory leverage ratio and access to supplemental forms of capital," Gingrich wrote. Quoting from the Federal Credit Union Act, he added, "The proposal thus creates a system that does not seem 'to take into account that credit unions are not-for-profit cooperatives' that 'do not issue capital stock,' 'must rely on retained earnings to build net worth' and 'have boards of directors that consist primarily of volunteers."
 
Lastly, "banks and credit unions are not the same, and we did not want NCUA to treat them exactly the same," he wrote, urging the regulator to design a system that takes into consideration the unique nature of credit unions and applies the risk-based standards as Congress intended--at the adequately capitalized level.

Sen. Nelson: RBC plan may impede CU goals

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WASHINGTON (5/27/14)--In a Friday letter to National Credit Union Administration Chair Debbie Matz, Sen. Bill Nelson (D-Fla.) relayed his concerns about the regulatory agency's risk-based capital (RBC) proposal and its effect on credit unions' ability to serve their communities.
 
"Credit unions have long played a critical role in serving communities without access to other affordable financial services, promoting thrift among their members and providing a low-cost source of credit," he wrote, adding he was concerned that the proposed RBC rule "may impede these important goals."
 
Nelson joins Sen. Al Franken (D-Minn.) and Senate Banking Committee member Heidi Heitkamp (D-N.D.) in submitting comments. This is addition to King-Meeks letter signed by 324 members of Congress and a May 7 comment letter from former Senate Banking Committee Chair Alfonse D'Amato (R-N.Y.).
 
D'Amato's counterpart during the 1998 amendment of the Federal Credit Union Act, former House Speaker Newt Gingrich (R-Ga.) submitted a letter Friday as well. (See related story: Former House Speaker Gingrich: RBC proposal 'extraordinarily troubling.')
 
The NCUA's proposal would replace existing risk-based net worth requirements with new risk-weighted asset and capital requirements.  The rule would apply to federally insured "natural person" credit unions with more than $50 million in assets.
 
The proposal should reflect the nature of credit unions, the purpose they serve and the types of activities they engage in, Nelson wrote. "Accordingly, I urge the NCUA Board to seriously consider the concerns of credit unions before finalizing the rule to ensure it does not apply a broad brush where a fine-tooth comb is more appropriate," he noted.
 
Nelson ended his letter with a note of support for efforts to strengthen the integrity of the U.S. financial system and urged that such policies "are reasonably targeted and serve the public interest."

RBC proposal inspires innovative approaches for commenting

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WASHINGTON (5/27/14)--As the window to comment on the National Credit Union Administration's risk-based capital (RBC) proposal comes to a close, a different tactic is being used by some commenters: Videos citing the concerns of credit unions.
 
More than 1,100 comment letters already have been received by the board, including a video from the Credit Union Association of the Dakotas (CUAD).
 
In the video comment letter, CUAD President/CEO Robbie Thompson talks to credit union executives from rural North and South Dakota about their numerous concerns about the impact of the RBC proposal.
 
On Friday, the league announced that it is "very concerned about the negative impact" the proposal would have on credit unions in their states.
 
"Nearly half of the credit unions in the Dakotas over $50 million in assets are exempt from the MBL cap because they have historically been agricultural lenders, and many others are low income designated credit unions," its lettere reads. "As such, the proposed rule has a disproportionately deleterious impact on them."
 
The NCUA's proposal would replace existing risk-based net worth requirements with new risk-weighted asset and capital requirements.  The rule would apply to federally insured "natural person" credit unions with more than $50 million in assets.

The Northwest Credit Union Association also submitted a video comment letter. Ken Olson, president/CEO of $119 million-asset Old West CU, based in John Day, Ore., expressed his concerns with the proposal in the video. 
 
"The endgame would mean we'd have to stop our MBL lending, and that's what we do," he said. "We've been business lending and lending for agricultural purposes for the last 60 years, and our members depend on us to find sources for funding."
 
Jim Phelps, vice president of advocacy for Cornerstone Credit Union League, which represents Arkansas, Oklahoma and Texas, also released a video urging credit unions to submit comments before the May 28 deadline.
 
"Whether you agree or don't agree with the proposal, there's no denying it has the potential to affect the entire credit union system, regardless of asset size," he said.
 
Dave Gunderson, chair of the California and Nevada Credit Union Leagues' Regulatory Advocacy Committee, wrote, "In my view, this is one of the most important proposals the NCUA has issued over the past couple of decades. It has the potential to severely harm the credit union industry."
 
In his letter to committee members, Gunderson, who is also the CEO of $710 million-asset CU of Southern California, Whittier, noted, "If we don't comment, we are essentially communicating to the NCUA that the proposed rule is fine, and its passage is of no concern to us. I recognize we all have time and resource challenges--however, I believe responding to the RBC proposal should be a top priority."
 
Credit Union National Association President/CEO Bill Cheney said in his weekly report Friday that comment letter submissions have increased tenfold over the past month, but urged all credit unions and other stakeholders who haven't yet submitted a letter to do so.
 
Use the resource links for the videos.

eBay breach leads to more data security legislation

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WASHINGTON (5/27/14)--Sen. Robert Menendez (D-N.J.) and Rep. Albio Sires (D-N.J.) have introduced new data security legislation in the wake of eBay's announcement Wednesday that users' personal information may have been compromised. The Menendez-Sires Commercial Privacy Bill of Rights aims to increase consumer protections and, in the event of a data breach, hold corporations accountable. 
 
The proposed bill would do the following:

Since the Target data security breach last holiday season, breaches at Michaels, Neiman Marcus have also followed, with eBay being the most recent high-profile example. (See related story: Compromised non-payment card data on the rise: Trustwave.)
 
In a response to a letter from Menendez following the Target breach, Federal Trade Commission (FTC) Chair Edith Ramirez urged Congress to enact data security legislation that gives the FTC civil penalty authority and recommended that Congress establish a general federal breach notification requirement.
 
"When we shop, every consumer assumes that companies will protect their data by any means necessary. Yet in the last year, we have read far too many stories about hackers getting past corporations' security systems," Menendez said.
 
The legislation would only apply to entities covered by the FTC that collect, use, transfer, or store certain information concerning more than 5,000 people during a 12-month period. While the bill will be enforced by the attorney general, state attorneys general and the FTC, private suits based on the law would be prohibited.

The Credit Union National Association has asked Congress to address data security relative to merchants, who are not held to the same standards of security as credit union and other financial institutions.

  • Place limits on both the type of information an entity may collect and for how long it may retain that information.
     
  • Require the FTC to issue regulations requiring companies to get consumers' opt-in consent for the transfer of their covered information to third parties for behavioral advertising or marketing; access and correct any personally identifiable information the entity has stored; and compel those entities to inform their customers of and allow them to exercise their rights.
     
  • Require entities to contractually protect consumer information when transferring it to a third party.
     
  • Create a uniform data security notification standard to replace the current notification system and ensure timely notice of a data breach to consumers.
     
  • Provide additional protections for children through inclusion of the Do Not Track Kids Act.
     
  • Require an independent non-governmental organization to help companies implement the bill and tasking the Department of Commerce with organizing outside entities towards the creation of safe harbor provisions.

Merger guidance offered in new NCUA brochure

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WASHINGTON (5/27/14)--The National Credit Union Administration's Office of Small Credit Union Initiatives (OSCUI) released a new brochure to be used as a resource for credit unions considering a merger. Titled "Truth in Mergers: A Guide for Merging Credit Unions," it provides a framework for credit union managers to begin discussions about the future of their institution. 
 
"Every strategic plan should include contingencies, including when a merger is worth considering," said OSCUI Director William Myers. "The critical first step is recognizing the early signs that a credit union's long-term viability may be at risk. A credit union still in sound financial condition has more options when it comes to merger partners and is in a better position to negotiate a contract than a credit union in a deteriorated financial condition."
 
Between 2003 and 2012 there were 2,462 mergers--an average of one every 1.5 days--according to the NCUA. NCUA also found that many credit unions wait until they are in a precarious financial position before exploring a merger as an option.
 
Many of these credit unions exhibit the following negative characteristics:
  • Declining membership: 47% of merging credit unions had negative member growth for three consecutive years prior to failure.
     
  • Prompt Corrective Action (PCA): 26% of merging credit unions were in PCA sometime during the three to four years prior to failure. Existing OSCUI research shows that only 33 % of small credit unions recover from PCA within four years.
     
  • Negative earnings: 54% of merging credit unions had negative return on average assets for three consecutive years prior to failure.
     
  • Declining net worth: 53% of merging credit unions had declining net worth ratios for three consecutive years prior to failure.
     
  • Weak CAMEL ratings: 47%of merging credit unions had a composite CAMEL rating of 4, or three consecutive years with a composite rating of 3, prior to failure. None were rated a CAMEL 5.
The brochure draws lessons from a review of more than 430 mergers that took place over an 18-month period. It is designed to help credit unions that might be considering a merger recognize when it might be in its best interest.
 
Once a credit union is in financial trouble, a merger becomes more difficult because there will be fewer potential partners, giving the troubled credit union less leverage in any negotiations. If a merger deadline is imposed by the NCUA, options can become increasingly limited.
 
The brochure identifies scenarios that can be harbingers that a credit union's viability is at risk. If a credit union recognizes any of these scenarios, it may want to explore merger options, the NCUA advises. Characteristics include:
  • The credit union's membership is shrinking because it cannot provide desired services, or services on competitive terms, and the credit union's financial condition will not permit improvement.
     
  • The credit union is not serving a unique niche via services, convenience or price, among others.
     
  • The credit union's financial condition is deteriorating, as evidenced by: a CAMEL 4 or lower, or long-term CAMEL 3, consistently negative earnings, consistently declining net worth, PCA, administrative action or repeat Document of Resolution items.
     
  • The credit union does not have a realistic plan to address any of the problems listed above.
     
  • Key credit union officials or employees are nearing the end of their careers and no viable options for replacement exist.
It also contains information on how to find a partner, negotiate a merger contract that serves members as well as employees and finalize the transaction.
 
Use the resource link for more information.

CDCU federation to host CDFI webinar Thursday

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WASHINGTON (5/27/14)--The National Federation for Community Development Credit Unions will host a webinar about Community Development Financial Institution (CDFI) grants from the National Credit Union Administration Thursday.
 
Based on the success of the technical assistance grants for CDFI certification awarded earlier this year, the NCUA has announced additional grants for up to 60 credit unions.
 
The webinar is from 3 to 4 p.m. (ET) and designed to answer questions about this round of funding from the NCUA, as well as the benefits of CDFI certification and an overview of the application process.
 
The federation's Pablo DeFilippi, vice president of membership and business development, and Terry Ratigan, senior consultant, will be joined by:
  • Debra Hickman, director of organizational development, CALCOE FCU, Yakima, Wash., with $23 million in assets. She is responsible for compliance, vendor management, project management, training and strategic planning.
     
  • Ikenna Nwankpa, financial analyst and grant administrator, NCUA's Office of Small Credit Union Initiatives. He supports credit unions that primarily serve low-income communities throughout the United States, including assistance on applications for funding through NCUA's Community Development Revolving Loan Fund.
Topics covered will include what the NCUA looks for in a successful application, as well as how CDFI credit unions can serve as a viable business model for community development. There will also be a Q-and-A with all four speakers after the presentation.
 
Use the resource links for more information.

Pro athletes' CU gets preliminary nod from NCUA

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ALEXANDRIA, Va. (5/27/14)--The National Credit Union Administration has given preliminary approval for a field of membership (FOM) for a proposed credit union to serve amateur and professional athletes.
 
Players Choice FCU would have a multiple common bond including a number of organizations focused on professional and amateur sports. Entities that have been approved for the proposed credit union's membership include both associations and businesses.
 
Stacy Fielder August, a lead sponsor of the proposed credit union, said the idea to charter came from her experience as the spouse of a professional athlete. August was married to retired baseball player Cecil Fielder and is the mother of current Texas Rangers player Prince Fielder.
 
"Many professional athletes do not manage their newfound wealth with an eye toward their financial needs after their sports careers are over," she said.  "As a result, far too many former professional athletes face major financial hardships within a few years of leaving their teams."
 
Cecil Fielder retired after 13 years of playing professional baseball with estimated career earnings of approximately $47 million. In 2004, The Detroit News reported that the money was gone and the family faced foreclosures, lawsuits and liens.
 
Prince Fielder signed a nine-year, $214 million contract in 2012, the fourth largest contract in Major League Baseball history, and August said she hopes her son can avoid his father's pitfalls. In 2012, she told MLive.com that she chose to found a credit union after many years of trying to found a bank, mainly because of a credit union's not-for-profit nature.
 
"A credit union is an ownership cooperative so it just made more sense--people helping people," she said. "They really enforce education."
 
It is anticipated that Players Choice FCU will be based in the Houston area.  The plan for the new credit union is to offer electronic services allowing it to serve members throughout the country, according to organizers. The group hopes to complete the charter application by year-end. 
 
As a result of the FOM approval by the NCUA, discussions will begin as various sports organizations will explore adding their staffs and team members to the proposed credit union's membership base.
 
August said she hopes the new credit union will be able to attract both active and retired professional athletes.

Life Line CU closes, Virginia CU assumes shares

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ALEXANDRIA, Va. (5/27/14)--The Virginia State Corporation Commission closed Life Line CU, a $7.4 million-asset credit union in Richmond, Va., and appointed the National Credit Union Administration Board as receiver to act as liquidating agent.
 
North Chesterfield, Va.-based Virginia CU, with $2.5 billion in assets, assumed all member shares.
 
The commission decided to close Life Line and discontinue its operations after determining the credit union was insolvent and had no reasonable prospect for restoring viable operations.
 
At the time of liquidation and subsequent assumption by Virginia CU, Life Line was a federally insured, state-chartered credit union that served 2,076 members and had assets of $7.9 million, according to its most recent call report.
 
Chartered in 1969, Life Line served employees of the Bon-Secours Richmond Health System and Central Virginia Health Network.
 
Life Line CU members will now become members of Virginia CU and should experience no interruption in deposit services. Members' accounts remain insured by the National Credit Union Share Insurance Fund up to $250,000.
 
NCUA's Asset Management and Assistance Center will take charge of Life Line's assets and loans and will correspond with individuals who have loans with the credit union.
 
Life Line CU is the fifth federally insured credit union liquidation in 2014.