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Inside Washington (05/08/2009)

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* WASHINGTON (5/11/09)--National Credit Union Administration (NCUA) Chairman Michael Fryzel Thursday reiterated his support for maintaining an independent federal credit union regulator and share insurance function. However, he said he recognizes the “significant policy benefit” that an expanded systemic risk regulator could have on standard setting and financial oversight. Fryzel said the NCUA should be included as a member if Congress moves toward a plan, suggested in testimony last week by Federal Deposit Insurance Corp. Chairman Sheila Bair, to establish a broad-based, systemic risk council aimed at monitoring financial entities that are “too big to fail” ... * WASHINGTON (5/11/09)--Federal Reserve Board Chairman Ben Bernanke said the Fed hopes that Congress will consider revising provisions of the Gramm-Leach-Bliley Act to ensure that supervisors of financial institutions have all of the resources they need to address safety and soundness concerns. Bernanke spoke at the Federal Reserve Bank of Chicago Conference on Bank Structure and Competition via satellite Wednesday. The Gramm-Leach-Bliley Act, which allowed investment and commercial banks to consolidate, contains provisions that limit the Fed from obtaining reports from or taking action with respect to subsidiaries supervised by other agencies. The controls have helped “clarify the protocols for relying on other supervisors and identify cases in which we need to take a more active role,” but the restrictions present challenges because of different supervisory models, Bernanke said. “For example, those favored by bank supervisors and those used by regulators of insurance and securities subsidiaries and differences in supervisory timetables resources and priorities,” he added. The Fed last year issued guidance on compliance risk, which stresses the need for supervisors and bankers to understand risks within and across business lines, legal entities and jurisdictions ... * WASHINGTON (5/11/09)--If the Obama administration’s strategy was procrastination when it ordered stress tests at 19 of the nation’s largest banks, its strategy may have worked, according to Kip Weissman, partner at Luse Gorman Pomerenk and Schick PC. Banks have more options than they did two months ago, he said (American Banker May 8). The tests bought time, agreed Chris Low, chief economist at FTN Financial. However, time is an enemy, noted Cornelius Hurley, professor of the Graduate Program in Banking and Financial Law at Boston University. The release of the results also could lead the public to believe they deserve greater disclosure going forward, said Wayne Rushton, managing director at Promontory Financial Group. Douglas Landy, partner at Allen and Overy, said bank exams shouldn’t be used for investor information and that other banks could view the tests as a precedent ...

CUNA represents CUs at White House meeting

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WASHINGTON (5/11/09)--Credit Union National Association President/CEO Dan Mica Friday attended a White House meeting with a group of about 10 financial industry CEOs addressing financial regulatory reform issues. Senior administration officials, including U.S. Treasury Secretary Timothy Geithner, met with key players in the financial services industry to address such topics as: additional oversight of nonreporting entities; enhanced disclosure and consumer protections; and a need for global communication and coordination. Also participating in the meeting were senior White House official Pat Parkinson, who is working with Geithner on regulatory reform, and Diana Farrell, a deputy director of the administration’s National Economic Council. Mica said the meeting resulted in productive discussion and a good exchange of ideas. “We appreciated being invited, as part of a select group, as the representative of the credit union industry.” This was the second time this year CUNA was asked to the White House to deliver the credit union message on financial services topics. In March, Mica and CUNA Deputy General Counsel Mary Dunn, attending the unveiling of this administration's small business initiatives, told the president that credit unions want to help small businesses. The Friday meeting is also a follow up to a meeting Mica had in December with the new administration’s Transition Team, which at the time was reviewing all federal agencies, including the National Credit Union Administration. Based on what he heard at the Friday meeting on regulatory reform, Mica concluded, “The administration is serious about moving forward, moving thoughtfully, and moving quickly.”

Short term-loans could increase CU market share Hood says

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WASHINGTON (5/11/09)—The current economic climate presents Credit Unions with a “unique opportunity” to gain crucial market share by helping current payday loan customers transition into credit union members, National Credit Union Administration (NCUA) Vice Chairman Rodney Hood said. In a May 8 release detailing recent comments delivered to the 2009 meeting of the National Association of Credit Union Service Organizations (NACUSO), Hood said that CUs and related service organizations could “play a vital role in ending the downward cycle for consumers involved in payday lending,” by serving as a “dependable and honest partner” to consumers. Adding current payday loan customers to the ranks of credit union members would not only offer increased options to borrowers with short-term financial needs, but could also create a new revenue stream for CUs, Hood added.

Fed approves Reg Z disclosure changes

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WASHINGTON (5/11/09)—The Federal Reserve Board on May 8 approved revisions to its Regulation Z mortgage disclosure requirements that will implement provisions of the Mortgage Disclosure Improvement Act (MDIA). Under the MDIA, lenders would be required to provide full loan cost estimates to potential homebuyers before the lender could receive any form of payment, outside of credit check charges, from the borrower. The rules would also enact current MDIA rules that impose a weeklong waiting period between the aforementioned cost estimate and the closing of the mortgage. Additionally, lenders would need to provide new disclosures, including a revised annual percentage rate, if the existing interest rate significantly changes between the time that the first estimate is given and the closing date. Borrowers may also change the timing of the loan disclosures or the closing of the loan, in the event of a so-called “financial emergency.” In a comment letter sent earlier this year, the Credit Union National Association (CUNA) suggested that some of the timing restrictions on creditors should be relaxed if the changed APR results in an interest rate reduction. CUNA also asked the Fed to replace the two definitions of “business day” that were in the proposed rule with a single definition, consistent across all provisions of Reg Z. CUNA will examine the final rule to ensure that these and other concerns have been addressed, Assistant General Counsel Jeffrey Bloch said. Though a May 8 Fed press release said that the new rules would apply to all mortgage applications received on or before July 30, 2009, the regulations, as officially presented in the Federal Register, would apply to all mortgage applications dated July 30, 2009 or later. The Fed is currently working on further revisions to the Regulation Z disclosure requirements for closed-end rules, including rules addressing mortgages. A larger, more comprehensive proposal on these rules should be issued in the coming months.

NCUA issues another advisory about corporate losses

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ALEXANDRIA, Va. (5/11/09)--The National Credit Union Administration’s (NCUA) latest advisory reiterates that the agency plans to issue guidance in the form of a letter to credit unions for account holders of paid-in-capital (PIC) and membership capital accounts (MCA) at U.S. Central and WesCorp. The letter will address the impact of the losses that were reflected in March 2009 financial statements on capital holders at these corporates. According to NCUA--based on its loss estimates--WesCorp has exhausted its PIC and MCAs and U.S. Central has exhausted its PIC and 63% of its MCAs, according to WesCorp’s financial statement was posted May 1. U.S. Central’s was set to be posted Friday. The Credit Union National Association (CUNA) and credit union leagues have been very concerned about NCUA's earlier indication that the capital accounts in WesCorp are “extinguished” and that 100% of the PIC and 63% of the member capital shares have been “extinguished” in U.S. Central. Though Friday’s NCUA advisory did not use the term “extinguished,” CUNA President/CEO Dan Mica said CUNA remains concerned and takes the position that the agency should not indicate capital holders at the time of conservatorships may not be able to share in any future recoveries on the corporates’ mortgage-backed securities. Mica and CUNA staff have spoken with Fryzel, NCUA Board Member Gigi Hyland and senior staff at NCUA about the situation. “We have provided to NCUA an economic and legal rationale for allowing the capital holders at the time of the conservatorships to benefit from recoveries on the mortgage-backed securities," he said.

Obama 2010 budget could eliminate FFELP funding

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WASHINGTON (5/11/09)—The Department of Education’s Federal Family Education Loans Program (FFELP) could be eliminated if portions of President Obama’s fiscal 2010 budget aimed at reducing entitlement spending are retained. The Obama Administration estimates that opting for private contractor assistance and eliminating the subsidies provided under FFELP could save over $4 billion, annually. The $4 billion surplus created by the policy changes would be used to provide need-based Pell Grants to low-income students. The Credit Union National Association (CUNA) “continues to meet with key members of Congress to explain the importance of the FFELP and the critical role credit unions play in the program," senior legislative representative Phil Drager said. CUNA has previously warned that the elimination of FFELP could jeopardize student lending at more than 1,000 credit unions throughout the country, and may end student lending by credit unions altogether. If adopted, the changes would take place beginning with the 2010-2011 academic year. Lenders that are currently providing loans via the FFELP program will continue to receive subsidies for their outstanding loans and for loans that were originated during the 2009-2010 academic year.