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Reg Z changes threaten consumers CUNA warns

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WASHINGTON (6/13/12)--The Credit Union National Association (CUNA) in a comment letter agreed with the Consumer Financial Protection Bureau's (CFPB) position that it lacks the authority to regulate card fees charged before an account is opened, such as an application fee, but CUNA also warned that the CFPB's decision to regulate only fees charged after account opening could subject consumers to potentially abusive fees from non-credit union lenders.

CUNA said it believes that credit unions do not charge such fees.

The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) amended the Truth in Lending Act's (TILA) Regulation Z to, among other things, prohibit lenders from charging fees on a credit card account in the first year that exceed 25% of the account's initial credit line. This 25% limit was extended by the Federal Reserve in April 2011 to include application fees and other fees that customers could be charged before an account is opened.

This extension of TILA was challenged in court, with First Premier Bank and Premier Bankcard LLC last year filed a lawsuit against the CFPB arguing that the regulator was exceeding its authority by seeking to regulate fees that are paid before account opening.

The CFPB, which took over Reg Z authority from the Fed, has moved to amend Reg Z "to resolve the uncertainty caused by the litigation." Under the proposed CFPB amendment, the 25% fee limit would apply only to fees charged after a credit card account has been opened, for the first year of the account.

While the decision to extend the card fee limitation to address early account fees did not hold up, CUNA Deputy General Counsel Mary Dunn said that if the CFPB determines it has authority under some other statutory provisions, it should issue another proposal that would be subject to public comment.

For the full comment letter, use the resource link.

CUs hear from IRS on Form 990 issues

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WASHINGTON (6/13/12)--In a communication that appears to respond to credit union and Credit Union National Association (CUNA) concerns regarding recent Form 990 issues, the U.S. Internal Revenue Service (IRS) has advised any state credit unions that have received letters claiming to revoke their tax exemption, or whose tax status has been actually revoked, to contact the agency and/or apply for reinstatement of their tax-exempt status, depending on their situations.

The IRS in guidance posted to its homepage advised credit unions that believe their tax-exempt status has been erroneously revoked to contact the IRS. The tax agency recommended that credit unions "explain the situation and provide the information required to update IRS records." State-chartered credit unions whose tax status has been actually revoked because they did, in fact, fail to file Form 990 for three consecutive tax years must apply for reinstatement, the IRS added.

A list of credit unions who have received automatic revocation letters is also provided on the web page.

While consolidating this tax issue information into one spot is a good first step, CUNA General Counsel Eric Richard said the IRS actions fail to address one situation: that of federal credit unions that have received revocation letters, or been placed on the list, because they file Form 990-T in claiming the health insurance premium tax credit.

Federal credit unions that wish to claim health insurance premium tax credits are required to file Form 990-T, and the filing of these forms apparently triggers a search by the IRS computer for past Form 990 filings. Under U.S. Internal Revenue Code, section 501(a) exempt organizations are required to report their gross income, receipts, and disbursements on IRS 990 forms.

If no Form 990 filings are found in the records, an exemption revocation letter is automatically sent to the credit union. However, Richard has noted, federal credit unions are not required to file Form 990 and should not be receiving these letters.

CUNA continues to work on this issue, and earlier this year urged the tax agency address this issue as soon as possible. The 2012 deadline for Form 990-T filings passed on May 15.

Baucus wants tax reforms to be lame duck issue

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WASHINGTON (6/13/12)--Revising the tax code to promote competitiveness, innovation and opportunity, and creating jobs from broad-based growth will be "at the heart" of an upcoming tax reform plan, Senate Finance Committee Chairman Max Baucus (D-Mont.) said in remarks made this week.

The current Bush-era tax rates are set to expire on Jan. 1, 2013, and the Obama Administration and legislators are preparing for that expiration.

Speaking before the Bipartisan Policy Center in Washington this week, Baucus has suggested that Congress could take up tax issues in the so-called lame duck session following November's elections. He met with Senate Democratic colleagues on tax issues, and has scheduled a private meeting of his Senate Finance Committee colleagues this week, The New York Times reported.

House Ways & Means Committee Chairman Dave Camp (R-Mich) has also discussed his own tax reform priorities in recent weeks, and Camp suggested extending current tax rates for a further six months.

Baucus said Congress "needs to take a hard look at each and every expiring provision to decide which to make permanent and which to eliminate… We need to get out of the way of the market, unless there is clear evidence that a tax expenditure spurs growth and creates jobs."

Baucus added that the tax code should encourage U.S. companies to keep jobs "here at home," should bolster innovation, and keep up with changing social and business environments.

"Every tax provision needs to prove it has a tangible benefit to our economy or society.  If not, it doesn't belong in the tax code," he added.

The tax-exempt status of credit unions has not been mentioned in any of the current reform discussions. However, preserving the credit union tax status is a top Credit Union National Association (CUNA) priority, and CUNA will remain engaged and vigilant as tax reform discussions move forward.

Cheney Fryzel discuss MBLs other key CU issues

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WASHINGTON (6/13/12)--Credit Union National Association (CUNA) President/CEO Bill Cheney and National Credit Union Administration (NCUA) Board Member Michael Fryzel discussed member business lending, the credit union tax status, examinations and other credit union issues at a Tuesday panel discussion at the 2012 annual convention of the Maryland and District of Columbia Credit Union Association (MDDCCUA).

Cheney said the panel featured "a productive discourse" on many issues, "including how credit unions would adjust to a higher cap on business loans, the future of supplemental capital, reducing regulatory burden and more." The Cheney/Fryzel panel discussion was moderated by MDDCCUA President/CEO John Bratsakis.

The panelists also discussed the impact of the resolution of corporate credit unions on their own tenures in their current offices. Both men arrived at their respective positions at key points in the resolution of the recent corporate credit union crisis.

Fryzel said the credit union system must continue the successful implementation of the corporate resolution plan, and noted that today's corporate credit unions "can provide all the services that were provided in the past. However, he said, "the service array is dependent upon the members' willingness to provide capital.

"This is a decision that is best left with the credit union industry," he said.

Fryzel said these types of open discussions with credit union officials give him "a fresh perspective" and help him in his decision-making. Open dialogue is "vital for the continued success of the credit union industry," he added.

Cheney said he thought the audience learned from their perspectives on these issues,"which intersected in some cases and diverged in others."

Inside Washington (06/12/2012)

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  • WASHINGTON (6/13/12)--The Consumer Financial Protection Bureau is reviewing the role of big banks in making discriminatory indirect auto loans, according to the American Banker (June 12). The investigation is based on a report released by the Center For Responsible Lending, which said auto dealers tend to mark up interest rates more for borrowers with weaker credit and rate markups are a strong driver of default and repossession among subprime borrowers. Loan-level data showed that African-Americans and Latinos disproportionately received interest rate markups more frequently and to a greater degree than similarly situated white counterparts.  Since the loans are originated by auto dealers, banks are not directly involved in the misconduct, according to both consumer advocates and attorneys representing banks. Auto dealers underwrite loans and sell them at a wholesale rate to banks. If borrowers pay more than the wholesale rate of interest, the dealer and the bank split the extra profit known as "dealer participation" or "dealer markups" …
  • WASHINGTON (6/13/12)--Two community banks are making bids on their own shares as part of the latest auction by the Treasury Department to sell off its stakes in seven banks that received funds during the financial crisis (American Banker June 12). First Defiance Financial in Defiance, Ohio, and First Capital Bancorp in Glen Allen, Va., announced Monday they would attempt to purchase their own shares. Industry observers said the banks are likely to submit discounted bids for their shares. In a similar auction conducted by the Treasury in March, MainSource retired $21 million of its $57 million of Troubled Asset Relief Program (TARP) funds for about $20 million. Also at that time, Wilshire Bancorp in Los Angeles retired $60 million of its $62 million of TARP funds for roughly $57 million. First Defiance said in its regulatory filing that it plans to redeem any stock it doesn't buy in the auction within the next 12 months. First Capital has no plans to redeem its stock, the Banker said …

NCUA bans three from future CU work

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ALEXANDRIA, VA. (6/13/12)--Three former credit union employees--one from Texas, one from Kansas, one from Maine--have been barred by the National Credit Union Administration (NCUA) from participating in the affairs of any federally insured financial institution.

The NCUA prohibition orders provide the following details:
  • Anna Marie Salazar, a former employee of Alamo FCU, San Antonio, Texas, was convicted of embezzlement by a credit union employee, was sentenced to 41 months in prison, five years supervised release, and ordered to pay restitution in the amount of $725,047.33;
  • Jeanette L. Young, a former employee of Bluestem Community CU, El Dorado, Kan., consented to the issuance of a prohibition order and agreed to comply with all of its terms to settle and resolve the NCUA board's claims against her; and
  • Marsha Richard, a former employee of Atlantic Regional FCU, Brunswick, Maine, was convicted of theft by a credit union employee. Richard was sentenced to 33 months in prison, five years supervised release, and ordered to pay restitution in the amount of $468,217.06.
NCUA enforcement orders are online at and may inspected at the NCUA's Office of General Counsel between 9 a.m. and 4 p.m. (ET) Monday through Friday.

Violation of a prohibition order is a felony offense punishable by imprisonment and a fine of up to $1 million.

233M for CDFI approved by Senate subcommittee

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WASHINGTON (6/13/12)--The Senate Appropriations subcommittee on financial services and general government Tuesday approved the draft of its appropriations package for fiscal year 2012, which includes $233 million for the U.S. Treasury Department's Community Development Financial Institutions (CDFI) Fund.

That funding level would represent a $12 million increase above the 2012 enacted level of $221 million.

The CDFI Fund was created to promote economic revitalization and community development through investment in and assistance to qualified community development financial institutions (CDFIs), which include credit unions.

The fund's mission is to expand the capacity of CDFIs to provide credit, capital, and financial services to underserved populations and communities in the United States


The subcommittee appropriations draft, overall, covers $21.73 billion in discretionary spending for the nation's consumer and financial oversight agencies, which includes more than two dozen agencies within the Executive Branch, the federal courts, the District of Columbia, and independent agencies.

The full committee is scheduled to markup the bill Thursday.