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CUNA Urges FASB To Drop Credit Impairment Plan

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WASHINGTON (5/29/13)--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, urging 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. 

In addition, CUNA is will urge National Credit Union Administration  Chair Debbie Matz and board member Fryzel to officially oppose the FASB proposal in the form of a comment letter from NCUA to the accounting standard setter.

CU Featured On ABC Affiliate With 'Don't Tax My CU'

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WASHINGTON (5/30/13)--What can one credit union do to support the Credit Union National Association's national "Don't Tax My Credit Union" grassroots campaign?  Mountain CU of Asheville, N.C. got its local ABC affiliate, Channel 13 News, to do a "Reality Check" segment that highlights the credit union difference and how it could be destroyed if credit unions were to lose their current tax status.

"Why don't credit unions pay taxes?" Reality Check host Frank Fraboni is asked to explain.

"Right now they are exempt from state and federal income taxes," Fraboni clarifies, and that's because "they are not-for-profit financial institutions. They were started to serve lower income and modest working class families that ordinary banks wouldn't serve. Now they worry the member-owned institutions could be in jeopardy."

Without the cost of taxes, the piece says, "credit unions can pass the savings on to members." It goes on to note that budget deficits and tax reform discussions have state and federal officials possibly considering credit unions for "additional funding," with possibly devastating effects.

Mountain's CEO, Patty Idol, explains on camera that without the current tax status, the incentive to remain as not-for-profit financial institutions diminishes.  She said big credit unions might convert to for-profit bank charters and small credit union might have to consider liquidation.

"We'd be back to where everything is driven by profits instead of serving our members," Idol says.

"That wouldn't be good for me," says one long-time member. "(Credit unions) are just easier to deal with," says another.

Fraboni said, "For many the credit union is a source of financial support unavailable at traditional banks."

When a third member declares on screen that he is "not happy" about the prospect of taxing credit unions, but "there's nothing you can do about it," Reality Check host Fraboni says credit unions believe there is something you can do about it: Contact your lawmakers and let them know how you feel.

Fraboni wraps up by telling viewers they can get more information on the Don't Tax My Credit Union campaign on the station's website.  News Now readers can use the link below.

CFPB Issues Exemptions To Ability-to-Repay Rule

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WASHINGTON (5/30/13)--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 CUNA 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 confusion 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's Regulatory Advocacy 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 provide 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.

NEW: CU First Quarter Results Show Good Loan, Membership Growth

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ALEXANDRIA, Va. (5/30/13, UPDATED 2:13 p.m. ET)--The National Credit Union Administration just released figures that claim the fastest first-quarter loan growth for federally insured credit unions in five years, as well as membership growth of more than 800,000 new members.

The agency also reports a decline in delinquencies and charge-offs in the first quarter of 2013, and says the first quarter data reflect "continuing overall improvement in the credit union industry's performance."

"As the economic recovery continues, American families are re-gaining their financial footing and so are federally insured credit unions," NCUA Chair Debbie Matz said. "It's encouraging to see delinquencies and charge-offs falling as loan portfolios and membership continue to grow." During the first quarter, the credit unions closed on $600 billion in total loans and, with the membership growth, reached 94.6 million members.

The delinquency ratio of federally insured credit unions declined, dropping 14 basis points (bp) to 1.02%. Net charge-off ratios also dropped significantly by 12 bp points, to 0.61%. The agency notes that the declines reflect significant improvement from the highs of 1.84% for delinquencies and 1.21% for charge-offs reached in 2009.

Read tomorrow's News Now for more on the  first-quarter results.

CFPB Offers Guidance On SAFE Act Testing

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WASHINGTON (5/30/13)--States may use the Uniform State Test, developed by the Nationwide Mortgage Licensing System and Registry, as part of a qualified written test under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), according to guidance issued Wednesday by the Consumer Financial Protection Bureau.

The bureau said it was issuing the guidance in response to questions about a section of the SAFE Act that requires state-licensed mortgage loan originators to pass a "qualified written test."  The act states the written test must be developed by the NMLSR.

A Uniform State Test qualifies under the SAFE Act if it includes questions covering all required areas.  Those area include:
  • Ethics;
  • Federal law and regulation pertaining to mortgage origination;
  • State law and regulation pertaining to mortgage origination; and,
  • Federal and state law and regulation, including instruction on fraud, consumer protection, the nontraditional mortgage marketplace, and fair lending issues.
"Presenting test questions through a UST rather than a separate state test component would not preclude the test from being a qualified test under the SAFE Act, so long as all the requirements for a qualified test are satisfied," the CFPB wrote.

Contact CFPB_SAFEAct_Inquiries@cfpb.gov with any additional questions.