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CUNA: Risk-based capital plan has 'serious flaws,' should not proceed

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WASHINGTON (5/29/14)--The National Credit Union Administration should not proceed with its proposed rule on risk-based capital (RBC), the Credit Union National Association wrote in its comment letter submitted Wednesday. The trade association "ardently opposes" the proposal, its inherent flaws and the damaging impact it would generate, and recommended that the proposal be withdrawn given the board has not provided an adequate justification for the major changes it is proposing. 
"Credit unions have been subjected to a number of new rules in the wake of the financial crisis, but none of them is as potentially harmful as this proposal," the CUNA comment letter, signed by CUNA President/CEO Bill Cheney, states.

"Indeed, the economic and legal issues spawned by the proposal are numerous, the policy questions are real, and, as evidenced by the overwhelming level of interest in this rule, the stakes for credit unions and their 99 million member owners could not be higher."

CUNA  emphasizes a willingness and desire to  work with the NCUA on both a comprehensive strategy and on a narrower new rule approach.
CUNA's 47-page letter lists several key defects in the NCUA's proposal, including:
  • The "well-capitalized" RBC requirements violate the Federal Credit Union Act and are not well-tailored to produce appropriate levels of credit union capital;
  • The proposal substitutes a punitive capital rule for effective examination and supervision;
  • The proposal would needlessly interfere with credit union operational capabilities to meet the credit needs of their communities, particularly in the areas of business and mortgage lending, and other financial necessities;
  • Contrary to a stated goal of the proposal, it does not significantly reduce losses to the National Credit Union Share Insurance Fund (NCUSIF), nor does it effectively identify potential credit union failures (without overcapitalization of other credit unions); 
  • The proposal does not reflect credit unions' historical financial performance including during times of severe financial market distress; and 
  • The overall negative impact of the proposal would be far greater than the agency has anticipated and would result in a much smaller credit union system over the long term.
CUNA instead advocates for the current system to be retained alongside "positive and meaningful reform" related to capital and prompt corrective action. This reform would involve congressional and regulatory action, and encourage the following:
  • The NCUA working with the credit union system in urging Congress to allow credit access to supplemental capital.
  • The NCUA, along with credit unions, working to amend the law and give the agency the power to establish net worth levels that define prompt corrective action capital classifications, similar to those granted to banking regulators.
  • Establishment of a Basel-style system with appropriate risk weightings taking into consideration credit unions' operational history and organizational structure, with different RBC ratio levels to be either adequately or well capitalized).
Among the other recommendations CUNA makes in its letter:
  • The NCUA should continue providing a risk mitigation credit as under the current rule;
  • The agency should permit supplemental capital for RBC purposes;
  • Additional comments on a new proposal should be sought; and
  • The NCUA should give credit unions much more time to comply.
Use the resource link to read the complete letter. 

NEW: CUNA RBC letter details plan's flaws, urges withdrawal

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WASHINGTON (5/29/14, UPDATED 8:04 a.m. ET)--In a 47-page comment letter to the National Credit Union Administration, the Credit Union National Association Wednesday underscored the inherent flaws and damaging impact the agency's risk-based capital plan would generate, and recommended that the proposal be withdrawn. CUNA said the regulator has not provided an adequate justification for the major changes it is proposing.

The CUNA comment letter, signed by CUNA President/CEO Bill Cheney, emphasizes CUNA's willingness and desire to  work with the NCUA on both a comprehensive strategy and on a narrower new rule approach.
"Credit unions have been subjected to a number of new rules in the wake of the financial crisis, but none of them is as potentially harmful as this proposal," the CUNA comment letter, signed by CUNA President/CEO Bill Cheney, states.
"Indeed, the economic and legal issues spawned by the proposal are numerous, the policy questions are real, and, as evidenced by the overwhelming level of interest in this rule, the stakes for credit unions and their 99 million member owners could not be higher," the CUNA letter states.
Use the resource links to access the full News Now story and to access the CUNA comment letter.

FHLBanks: NCUA proposed risk-weights place CUs at disadvantage

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WASHINGTON (5/29/14)--The 12 Federal Home Loan Bank presidents warn that the National Credit Union Administration's plan to revise its prompt corrective action rule for risk-based capital could have negative consequences both for credit unions and for homebuyers in their communities.
In a May 28 comment letter to the NCUA, the home loan bank presidents note that the proposed risk weights for mortgages in the RBC plan increase as the percentage of mortgages to total assets held by a credit union increases. 
"Consequently, credit unions that serve the needs of their members by issuing mortgages would be negatively impacted if they retain these mortgages on their balance sheets," the FHLB letter cautions.
It further warns, "This would put credit unions at a competitive disadvantage to other financial institutions that hold such mortgages under less restrictive regulatory standards and would also prevent credit unions from holding mortgage collateral that can be used to access liquidity through the FHLBanks and support mortgage lending within their communities.
"Therefore, we request that the limits imposed with respect to mortgages be revised to be more in line with other bank regulatory standards."
The FHLB presidents also asked the NCUA to bring its proposal more in line with banks' and thrifts' capital rules in the risk weights assigned FHLBank capital stock.
In contrast to the risk-based capital rules for banks and thrifts, the NCUA's proposed framework would assign risk weights to all investments, regardless of credit quality, based on the weighted average life (WAL) of the investment.
Under current and proposed Basel rules for risk-based capital, claims on government-sponsored entities, including the home loan banks, are assigned a 20% risk value.
Under the NCUA's WAL approach, the FHLBank letter says, the same stock could be subject to risk weightings of 20% or 75%, depending on the class of capital stock. Furthermore, investments in FHLBank consolidated obligations could be subject to risk weightings that range from 20% to 200%, depending on their WALs.
"This treatment by the NCUA will require credit unions to hold more risk-based capital against their holdings of FHLBank Capital Stock and FHLBank Consolidated Obligations than other depository institutions are required to hold," the letter notes. 
It warns that, in addition to placing credit unions at a disadvantage compared to other depository institutions, this requirement could restrict credit unions' extension of needed credit to the communities that they serve.

FTC report calls for data broker transparency

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WASHINGTON (5/29/14)--The Federal Trade Commission (FTC) has found that data brokers operate with a "fundamental lack of transparency."  The agency recommends that Congress look into legislation that would increase transparency when it comes to the practice and give consumers more control over personal data that is collected and shared among data brokers.
Data brokers obtain and share vast amounts of consumer information, typically without consumer knowledge. They then sell this information for marketing campaigns, fraud prevention and more. 
"The extent of consumer profiling today means that data brokers often know as much -- or even more -- about us than our family and friends, including our online and in-store purchases, our political and religious affiliations, our income and socioeconomic status, and more," said FTC Chair Edith Ramirez, releasing the FTC's findings and recommendations Tuesday. "It's time to bring transparency and accountability to bear on this industry on behalf of consumers, many of whom are unaware that data brokers even exist."
The report studied nine data brokers (Acxiom, CoreLogic, Datalogix, eBureau, ID Analytics, Intelius, PeekYou, Rapleaf and Recorded Future ) and found that just one of them studied holds information on more than 1.4 billion consumer transactions and 700 billion data elements, and another adds more than three billion new data points to its database each month.
Other findings in the report include:
  • Data brokers collect consumer data from online and offline sources, ranging from consumer purchase data, social media activity, warranty registrations, magazine subscriptions, religious and political affiliations and other details of consumers' everyday lives.

  •  Consumer data often passes through multiple layers as data brokers sharing data with each other. Seven of the nine data brokers in the study had shared information with another data broker in the study.

  • Data brokers combine and analyze data about consumers to make inferences, including potentially sensitive inferences such as those related to ethnicity, income, religion, political leanings, age and health conditions.

  • Many of the purposes for which data brokers collect and use data pose risks to consumers, such as unanticipated uses of the data. For example, a category like "Biker Enthusiasts" could be used to offer discounts on motorcycles to a consumer, but could also be used by an insurance provider as a sign of risky behavior.

  • Some data brokers unnecessarily store data about consumers indefinitely, which may create security risks.

  • To the extent data brokers currently offer consumers choices about their data, the choices are largely invisible and incomplete.
The FTC encouraged Congress to consider enacting legislation that would enable consumers to learn of the existence and activities of data brokers and provide consumers with reasonable access to information about them held by these entities.
Such legislation should include, according to the FTC, requirements that data brokers create a centralized mechanism, allow consumers to have access to their data, allow consumers to opt out and protect sensitive information.
Use the resource link for more information.

States seek feds' banking guidance for cannabis businesses

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WASHINGTON (5/29/14)--Colorado Gov. John Hickenlooper and Washington Gov. Jay Inslee have asked the federal financial institution regulators for guidance on marijuana business banking. The governors wrote a letter this week to the National Credit Union Administration, Federal Reserve, Office of the Controller of the Currency and the Federal Deposit Insurance Corp.

The letter follows one sent in October 2013 by the two governors with a similar request for guidance.

"Banks and credit unions in Colorado and Washington are waiting for the Federal Banking Agencies to furnish the instructions given to bank and credit union examiners before deciding whether and how to provide banking services to state-licensed recreational marijuana businesses," the letter reads. "In the meantime, product sales have begun in Colorado and will soon being in Washington, exposing all involved to the significant risks of criminal activity associated with accepting, storing and transporting large quantities of cash that can be ameliorated by access to the banking system."

According to May 27 report in The Denver Post, financial institutions in both states are more worried about penalties from financial regulators than from prosecutors, fearing the effects and penalties that regulators could impose.

The U.S. Department of the Treasury's Financial Crimes Enforcement Network issued guidance in February that advised anyone providing financial services to marijuana-related business to assess the risk with due diligence that includes:
  • Verifying with the appropriate state authorities whether the business is duly licensed and registered;
  • Reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
  • Requesting from state licensing and enforcement authorities available information about the business and related parties;
  • Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical vs. recreational customers);
  • Ongoing monitoring of publicly available sources for adverse information about the business and related parties;
  • Ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
  • Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.
News Now reported earlier this month that Spokane Valley, Wash.-based Numerica CU, with $1.3 billion in assets, would be the first financial institution in the country to accept marijuana-based business. Businesses that grow or process cannabis can manage finances there, but retailers cannot. (See News Now May 9: "Wash. CU sets standards for serving marijuana businesses.")

Use the resource link for more information.

Comment period for GLBA privacy amendment extended to July 14

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WASHINGTON (5/29/14)--The Consumer Financial Protection Bureau has extended the comment period to July 14  for the amendment to the annual privacy notice requirement set forth in subpart A of Regulation P of the Gramm-Leach-Bliley Act (GLBA). The CFPB published the proposal in the May 13 edition of the Federal Register.
The proposed amendment would allow financial institutions that do not engage in certain types of information sharing activities to stop mailing an annual disclosure if they meet the following conditions:
  • The financial institution does not share the customer's nonpublic personal information with nonaffiliated third parties in a manner that triggers GLBA opt-out rights;
  • The financial institution does not include on its annual privacy notice an opt-out notice under section 603(d)(2)(A)(iii) of the Fair Credit Reporting Act (FCRA);
  • The financial institution's annual privacy notice is not the only notice provided to satisfy the requirements of section 624 of the FCRA;
  • The information included in the privacy notice has not changed since the customer received the previous notice; and
  • The financial institution uses the model form provided in the GLBA's implementing Regulation P.
The deadline originally was June 12. Use the resource link below for the full proposal.

Ala. firm fined for 'inadequate' RESPA disclosures

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WASHINGTON (5/29/14)--The largest real estate firm in Alabama has been ordered to pay $500,000 for an inadequate disclosure practice that left some consumers unaware of their right to choose a service provider during the home-buying process, according to the Consumer Financial Protection Bureau.
The CFPB, in a release Wednesday announcing its action against RealtySouth's, charged the firm's disclosures violated the Real Estate Settlement and Practices Act (RESPA). RESPA protects consumers during the home-buying process by prohibiting such things as kickbacks for referrals of real estate settlement services. 
The bureau said RealtySouth's preprinted form purchase contracts, given to homebuyers preparing to make an offer on a home, either "explicitly directed or suggested" that title and closing services be conducted by TitleSouth, an affiliated company owned by the same holding company that owns RealtySouth.

"While RESPA allows real estate companies to refer their customers to affiliated businesses, the law requires them to provide consumers an 'Affiliated Business Arrangement' disclosure that clearly states their right to shop around for a better price and that they are not required to use the affiliated company," the CFPB noted.

The disclosure RealtySouth gave consumers did not comply with the law; it did not properly highlight consumers' rights, and the required language was buried in a section of text that also made marketing claims about the company's prices. 

The case was referred to the CFPB by the Department of Housing and Urban Development. RealtySouth changed its disclosure forms immediately after being contacted by the CFPB, the release said.