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Washington

CUNA: Derivatives Plan Concerns Include Fee Structure

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WASHINGTON (5/29/13)--While it considers it a positive that the National Credit Union Administration is seeking comment on a proposal to allow eligible credit unions to use simple derivatives to hedge against interest rate risks, the Credit Union National Association says concerns with the proposal are surfacing.

In its May 28 issues of the CUNA Regulatory Advocacy Report, CUNA says the hottest issue surrounding the proposal right now is whether only those who want to participate in the program should bear the costs of applications and the supervision and examination costs associated with it.

"One of the concerns about the possible fees is that such a requirement could set a precedent for a new fee structure from NCUA for other new authority or services that a credit union is permitted to do if NCUA concludes the activity introduces more risk to the National Credit Union Share Insurance Fund," the CUNA  publication notes.

CUNA also notes that restrictions, such as a limit on notational value at 100% of net worth for a Level I credit union and 250% for a Level II credit union, as well as interest rate and maturity caps, have also raised concerns.

CUNA's Examination and Supervision Subcommittee already has had a first meeting with the NCUA to discuss issues associated with the derivatives proposal.  Comments will be due to the agency in early July.

Use the resource links to read the entire issue of the CUNA Regulatory Advocacy Report (members only), and to access more information on the NCUA derivatives plan.

NEW: CUNA Urges FASB To Drop Credit Impairment Plan

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WASHINGTON (5/29/13, UPDATED 3:29 p.m. ET)--A Financial Accounting Standards Board (FASB) proposal that would change the methodology for recognizing credit impairment would be detrimental to the credit union system and could have serious, unintended consequences for borrowers and the economy, the Credit Union National Association warned Wednesday and urged the accounting board to abandon the plan.

The FASB proposal is "the most critical regulatory concern credit unions have faced in quite some time, including rules or proposals that have been issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act," CUNA President/CEO Bill Cheney underscored in a letter to the board.

The FASB has proposed an accounting standards update regarding financial reporting of expected credit losses on loans and other financial assets held by financial institutions, including credit unions. The proposed model would utilize a single "expected loss" measurement for the recognition of credit losses. It would replace the multiple existing impairment models in U.S. generally accepted accounting principles that generally use an "incurred loss" approach.

Under the proposal, the reporting entity would be required to estimate the cash flows that it does not expect to collect, using all available information, including historical experience and forecasts about the future.

CUNA seriously questions whether the proposal will achieve the FASB's stated objectives and also questions how the proposal will be reconciled with the proposed approach from the International Accounting Standards Board, Cheney wrote.

"Some have concluded that the current methodology for recognizing credit losses did not identify such losses at the largest financial institutions soon enough leading up to and during the financial crisis. However, there is no evidence that the current system is not working well for smaller institutions, including credit unions," the CUNA leader said.

"After reviewing the proposal in detail with our members, accountants, and others, CUNA strongly opposes the proposal and urges the FASB not to proceed with the accounting standards update as issued for comments.

If dropping the proposal is not feasible, CUNA urges the FASB to work with the credit union system to develop credit loss reporting standards for credit unions, separate from those for publicly traded companies, that will reflect the unique business model of credit unions while ensuring credit loss issues are reported appropriately.

NEW: CFPB Issues Exemptions To Ability-to-Repay Rule

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WASHINGTON (5/29/13, UPDATED 2:42 p.m. ET)--The Consumer Financial Protection Bureau (CFPB) Wednesday finalized changes to rules issued in January that require lenders to determine a borrower's ability to repay before writing a mortgage loan. The changes are designed to make it easier for some credit unions and other small creditors to make mortgage credit available to their communities by exempting them from some provisions of the rule.

The CFPB noted that the amendments are intended to facilitate access to credit by creating the specific exemptions and modifications to its Ability-to-Repay rule for small creditors, community development lenders, and housing stabilization programs.

Credit Union National Association President/CEO Bill Cheney, who was contacted by CFPB Director Richard Cordray personally before the amendments were announced, welcomed the changes, noting, "We are hopeful these adjustments will enable more credit unions to continue to meet their members' borrowing needs in a way that minimizes risk and default."

The CFPB also separately approved an effective date delay, sought by the Credit Union National Association and others, for a provision in a rule implementing a Dodd-Frank Act amendment prohibiting creditors from financing certain credit insurance premiums in connection with certain mortgage loans.

The rule is slated to take effect on Jan. 10, 2014, along with the Ability-to-Repay rule and other regulations implementing other Dodd-Frank Act mortgage provisions. However, the CFPB plans to seek comment on the appropriate effective date of the credit insurance premiums rule when it issues proposed credit insurance clarifications for public comment, which is expected next week.

Cheney said of the CFPB's action, "The CFPB's six-month delay of the provision on financing credit insurance premiums is key in that it will give credit unions more time to sort out what has proved to be a confusing element of the Dodd-Frank law.

"We appreciate that Director Cordray and the CFPB staff were responsive to the concerns we expressed to them about this provision and the importance of delaying its June 1 implementation."

He also noted, however, that CUNA is reviewing the rule changes in detail. CUNA will assess the impact of the revisions when it has had an opportunity to view the changes in total. CUNA will be posting a Final Rule Analysis in the next few days.  

The newly approved changes to the Ability-to-Repay rule are also effective on Jan. 10, 2014.  They include:

  • Several adjustments to facilitate lending by small creditors, including credit unions and community banks that have less than $2 billion in assets and make 500 or fewer first-lien mortgages annually, as defined in the rule. First, the rule generally extends Qualified Mortgage status to certain loans that these creditors hold in their own portfolios even if the consumers' debt-to-income ratio exceeds 43%. Second, the final rule provides a transition period during which small lenders can make balloon loans under certain conditions and those loans will meet the definition of Qualified Mortgages. The CFPB expects to continue to study issues concerning access to credit and balloon lending by small creditors. Third, the final rule allows small creditors to charge a higher annual percentage rate for certain first-lien Qualified Mortgages while maintaining a safe harbor for the Ability-to-Repay requirements.
  • An exemption from the final rule for certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing. Among other conditions, the exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers. Similarly, mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the Ability-to-Repay rules.
  • Establishing how to calculate loan origination compensation: The Dodd-Frank Act mandates that Qualified Mortgages have limited points and fees, and that compensation paid to loan originators, such as loan officers and brokers, is included in points and fees.  This cap ensures that lenders offering Qualified Mortgages do not charge excessive points and fees. The CFPB's amendments provides certain exceptions to this Dodd-Frank requirement that loan originator compensation be included in the total permissible points and fees for both Qualified Mortgages and high-cost loans. Under the revised rule, the compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee does not count towards the points and fees threshold. This amendment does not change the January 2013 final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.

Treasury Names Virtual Currency Firm As Money-launderer: A First

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WASHINGTON (5/29/13)--The U.S. Treasury Department announced Tuesday that it was entering new territory, for the first time naming a Web-based money transfer system as a financial institution of "primary money laundering concern" under the USA PATRIOT Act.

The subject of the Treasury's action is Liberty Reserve S.A., which a Treasury release said is "specifically designed and frequently used to facilitate money laundering in cyber space."

According to Treasury's charges, "Liberty Reserve is widely used by criminals worldwide to store, transfer, and launder the proceeds of a variety of illicit activities.  Liberty Reserve's virtual currency has become a preferred method of payment on websites dedicated to the promotion and facilitation of illicit Web-based activity, including identity fraud, credit card theft, online scams, and dissemination of computer malware.  It has sought to avoid regulatory scrutiny while tailoring its services to illicit actors."

Treasury said its action Tuesday was taken in coordination with the unsealing of an indictment by the U.S. Attorney's Office for the Southern District of New York, which charged Liberty Reserve and seven of its principals in Manhattan federal court for their alleged roles in running a $6 billion money laundering scheme and operating an unlicensed money transmitting business.

Treasury's Financial Crimes Enforcement Network has issued a notice of proposed rulemaking that, if adopted as a final rule, would prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions involving Liberty Reserve. 

The proposal also would require covered financial institutions to apply special due diligence to their correspondent accounts maintained on behalf of foreign banks to guard against any transactions involving Liberty Reserve.  The intention of the new rule would be to cut off Liberty Reserve from the U.S. financial system.

FASB Credit Impairment Allowance Comments Due Friday

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WASHINGTON (5/29/13)--Credit unions and other interested parties have until this Friday to comment on a Financial Accounting Standards Board (FASB) proposal that could substantially increase the credit impairment allowance for credit unions.

Under an accounting standards update regarding financial reporting of expected credit losses on loans and other financial assets held by financial institutions, including credit unions, FASB proposed a model that would utilize a single "expected loss" measurement for the recognition of credit losses. That model would replace the multiple existing impairment models in U.S. generally accepted accounting principles that generally use an "incurred loss" approach.

Under the proposal, the reporting entity would be required to estimate the cash flows that it does not expect to collect, using all available information, including historical experience and forecasts about the future.

CUNA is developing a comprehensive letter to FASB strongly opposing the proposal and issued a Comment Call to credit unions in January.

Use the resource link to access the Comment Call, which includes a detailed summary of the FASB plan.

CU Grassroots Tax Status Advocacy Effort Builds

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WASHINGTON (5/29/13)--Credit unions and their members already are heeding the call from the Credit Union National Association and the state credit union leagues to deliver this message to federal lawmakers: Don't Tax My Credit Union. And CUNA continues to add resources to its Tax Status Toolkit to support advocacy efforts by credit unions and their members.

CUNA and the leagues have launched the large-scale, nationwide grassroots-mobilization campaign just at a time when the U.S. House and Senate have made broad-based tax reform a major priority. 

Social media contacts are among the key components of this grassroots campaign, making results difficult to precisely calculate; however, CUNA's Richard Gose says early indications show the campaign is off to a strong start.  Gose is CUNA senior vice president of political affairs.

He reports that credit union advocates already have initiated 20,000 contacts on the credit union tax status with federal lawmakers via e-mail directly through a special CUNA website alone. Also, there have been 23,000 visitors to that site, DontTaxMyCreditUnion.org, since it was launched just two weeks ago.

"We also have really been impressed with credit unions' willingness to engage their members through social media and other means.  A number of credit unions already have used their own websites to encourage members to get more information about the credit union tax status by going to donttaxmycreditunion.org," Gose notes.

As mentioned, CUNA continues to update its Tax Status Advocacy Toolkit. Recent additions include:

  • An activation plan for credit unions, with step-by-step instructions on how a credit union can engage;
  • Banner ads that leagues or credit unions can post on their websites that point to the campaign site;
  • Don't Tax My Credit Union gear, such as t-shirts that proclaim "I am 1 of the 96 Million: Don't Tax My Credit Union!"; and
  • New statement stuffers, posters, and drive-up envelopes that will help credit unions get the word out about the campaign to their members.
CUNA members can use the resource link to access the toolkit.

NCUA Approves OPIC Obligations For FCUs

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WASHINGTON (5/29/13)--The National Credit Union Administration this month issued a legal opinion letter that states that federal credit unions are authorized to invest in obligations that are fully guaranteed by the Overseas Private Investment Corp. (OPIC). The opinion could have positive consequences for both credit unions and for overseas cooperatives, according to the World Council of Credit Unions, which sought the agency opinion.

NCUA General Counsel Michael McKenna wrote in the May 14 opinion, "Federal credit unions are authorized to invest in, among other things, 'obligations, participations, securities, or other instruments of, or fully guaranteed as to principal and interest by any ...agency of the United States ...OPIC is an agency of the United States."

The OPIC-guaranteed investments, debentures called Certificates of Participation (COPs),  carry a full faith and credit U.S. government guarantee, similar to U.S. Treasury notes but generally with a higher yield. OPIC uses the funds from the notes to make loans in connection with projects overseas, and the investments from credit unions would be used for credit union or other cooperative development projects.

The credit union COPs investments would help foreign cooperative development on another level, by also enabling the use of government funds for such projects, according to WOCCU.  To use its government funds to support, for example, cooperative development in African countries, OPIC must bring also private U.S. money, such as that invested by U.S. credit unions, into the project.