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CUNA delves into corporate fund prepayment issues

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WASHINGTON (6/14/11)--The National Credit Union Administration (NCUA) continues to evaluate credit union interest in its proposal to allow credit unions to prepay some of their corporate credit union stabilization fund assessments, and NCUA Deputy Director Larry Fazio on Monday said that whether or not a given credit union participates in the plan would not affect its NCUA examination or treatment by examiners Fazio made his remarks during a Monday Credit Union National Association (CUNA) audio conference on the agency’s voluntary corporate prepayment plan. CUNA President/CEO Bill Cheney, Chief Economist Bill Hampel, and Deputy General Counsel Mary Dunn led the discussion during the call. Fazio said that the prepayment plan, which would allow most credit unions to voluntarily prepay up to 36 basis points (bp) of their corporate stabilization assessments, was specifically created due to heavy credit union interest. CUNA had also encouraged the NCUA to create such a plan. The majority of credit unions are divided into two camps, according to the NCUA deputy director: Some that want to pay of the corporate stabilization costs as soon as possible, and some that wish to spread out repayment over a longer time period. Even so, he added, there are surely others who are in the middle. The panelists noted that it is up to individual credit unions to analyze their own financial plans and decide if they wish to participate, and Fazio said that those that wish to comment on the plan must do so by June 20. Comments should be directed to regcomments@ncua.gov. To participate, a credit union would need to advance the minimum amount of $10,000 , and the NCUA said it would not move forward with the plan if credit unions do not commit at least a total of $300 million in funds to the proposal. The prepayment plan would generate $2.8 billion in funds if all eligible credit unions contributed the maximum amount, which is 36 basis points of insured shares as of the March 31, 2011 Call Report. The NCUA has recently said that about 6,023 credit unions would be able to take part in the plan. If the NCUA does not move forward with the prepaid assessment plan, the regular assessment, which will be about 25 bp, would likely be assessed in July, Fazio said. With sufficient participation in the voluntary plan, the 2011 and 2012 assessments would be in the low teens, followed by assessments of 10 bp in 2013 and less in the following years until the Corporate CU Stabilization Fund is retired. The NCUA would process a direct debit to a credit union’s account in August for the prepayment, if the agency’s plan is approved. Then, all credit unions’ regular assessment for this year would be due in August if the prepaid assessment proposal is adopted. The prepayment plan would not have a material impact on the total amount of assessments to be paid over the life of the stabilization fund. Instead, its purpose is to avoid the front loading of much of the assessment expenses and to even out assessments for subsequent years of the life of the Corporate Credit Union Stabilization Fund. The reduction of assessments in the first two years of the stabilization fund’s life would be particularly beneficial to credit unions currently close to PCA capital ratio thresholds. The prepayment funds would be passed on to the acquiring credit union in the event of a merger, would be used to pay out creditors in the event of a liquidation, and would be repaid when the stabilization fund is fully paid off in the event of a credit union to bank charter conversion. An archived version of the audio conference should be available by Wednesday.

CU small business work gets positive reviews

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WASHINGTON (6/14/11)--Ahead of a Thursday Senate Banking Committee hearing on lifting the credit union member business lending cap, credit unions, and their work with small businesses, are receiving positive buzz in the blogosphere. A small business blog sponsored by financial software firm Intuit last week noted that while “banks are holding on tight to their cash” and “making fewer loans,” credit unions “are becoming more obliging to small businesses” and increasing their small business lending. In the blog post, Henry Kertman of the California and Nevada Credit Union Leagues pointed out that the average credit union business loan is approximately $220,000. “And when a credit union lends to one of its business-owning members, that money stays in the community the credit union serves, and helps employ area residents,” he added. David Donovan, vice president of commercial services at USC CU in Los Angeles, Calif., emphasized credit unions’ exemplary service: “We don’t look at you in terms of the size of your loan, we look at you as a member,” he said. Credit unions would do even more to work with their small business-owning members if the MBL cap, which stands at 12.25% of total assets, is lifted to 27.5% of assets. Legislation that would lift the cap is the centerpiece of Thursday’s hearing, and blogger Eli Lehrer wrote on FrumForum.com that Sen. Mark Udall’s S. 509 “offers policies that should warm every free-marketer’s heart. “By sweeping aside some dated regulations, it will free up much-needed business credit and create thousands of jobs without costing the United States Treasury a dime,” Lehrer added. The MBL hearing is not the only credit union-related action on Capitol Hill this week. A House Energy and Commerce subcommittee will study consumer data protections during another Wednesday hearing. Consumer data breaches were a top legislative priority before the economic crisis, and recent breaches that affected Sony Playstation Network users and Michael’s Stores shoppers have helped to bring renewed attention to the issue. Also on Wednesday financial industry safety and soundness enhancements will be discussed during a Senate Banking Committee financial institutions subcommittee hearing. The House Appropriations Committee’s subcommittee on financial institutions will markup the fiscal year 2012 appropriations bills for agencies under its jurisdiction on Thursday, and the House Small Business Committee economic growth subcommittee will examine the Dodd-Frank Act’s impact on small business lending that same day. The Senate Small Business Committee will also examine ways to address fraud and inefficiency in various U.S. Small Business Administration programs during a Thursday hearing. To read the pro-MBL blog posts, and more on Thursday’s MBL hearing, use the resource links.

Fed acts on disclosure trigger lease threshold

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WASHINGTON (6/14/11)--The Federal Reserve Board Monday published its annual adjustment to the amount of fees that triggers additional disclosure requirements under the Truth in Lending Act and the Home Ownership and Equity Protection Act for home mortgage loans that bear rates or fees above a certain amount. The agency also adjusted Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) by increasing the dollar threshold for exempt consumer credit and lease transactions to $50,000--as required under the Dodd-Frank Wall Street Reform Act--up from $25,000, effective on July 21. Beginning on January 1, 2012, these thresholds will be adjusted for inflation to $51,800. Transactions at or below the new threshold are subject to the protections of the regulations. Regarding the mortgage disclosures, the dollar amount of the fee-based disclosure trigger has been adjusted to $611 for 2012 based on the annual percentage change reflected in the consumer price index that was in effect as of June 1. The adjustment becomes effective Jan. 1, 2012. The Home Ownership and Equity Protection Act restricts credit terms such as balloon payments and requires additional disclosures when total points and fees payable by the consumer exceed the fee-based trigger or 8% of the total loan amount, whichever is larger. Use the resource links to read more about the Fed’s actions.

TCULs Gill hired as NCUA strategic advisor

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ALEXANDRIA, Va. (6/14/11)--On July 5, after serving seven years as the chief advocacy officer and senior vice president of the Texas Credit Union League (TCUL), James H. “Buddy” Gill, III, will become the National Credit Union Administration’s (NCUA) new senior strategic communications and external relations advisor. In announcing Gill’s addition to her staff, NCUA Chairman Debbie Matz noted Gill’s nearly fifteen years’ experience working directly with credit unions of “all sizes, industry trade groups, federal and state lawmakers, policymakers, the media, and other industry stakeholders” on credit union issues. “His keen strategic sense, communication abilities, and credit union legislative successes are well known and respected nationally. Buddy can hit the ground running at NCUA,” the chairman said. In his new post, Gill will work closely with the chairman and the NCUA’s Public and Congressional Affairs team. Also, Matz said Gill will serve as a liaison between the agency and the credit union industry, as well as related stakeholders, on issues such as how regulations are working at the credit union level, and how the NCUA can better help credit unions serve their members. Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said CUNA looks forward to working with Gill when he joins the agency in July. She said the new liaison position between the agency and stakeholders, through which the NCUA could gain more insight about regulatory burden, could be valuable to credit unions.

NCUA offers financial statement training for CUs

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ALEXANDRIA, Va. (6/14/11)--Learning materials related to income statements, statements of cash flow, and balance sheets will be provided by a new National Credit Union Administration (NCUA)-produced online financial literacy training program. The NCUA training session will cost $15 and will take one hour to complete, the agency said. NCUA Chairman Debbie Matz in a release said that “the key measure of any credit union’s success or failure is its financial statements,” and added that the NCUA’s training will help volunteer directors acquire the skills needed to “meaningfully participate in the control of the credit union.” The NCUA late last year established a new set of financial literacy guidelines for federal credit union directors which held that those directors should have the ability to examine their credit union's balance sheet and understand specific financial activities that their credit union takes part in. The NCUA will not test individual directors to assess their financial literacy, but will examine the training programs that federal credit unions have set up for their directors. The NCUA has specifically said that directors should have complete knowledge of risks, including credit risk, liquidity-related risks, and interest rate, compliance, strategic, transaction, and reputation risks. The agency noted that this level of training “may not be sufficient for larger or more complex federal credit unions” and encouraged credit unions “to develop policies to educate board members in a manner that is appropriate for the size and complexity of their institutions.” CUNA earlier this year suggested that training policies for more complex credit unions should include specifics on more unconventional activities. These credit unions should specifically state that their board will be trained on the financial risks raised by those activities and the steps that the credit union takes to limit and control those risks. For more on the program, use the resource link.

Inside Washington (06/13/2011)

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* WASHINGTON (6/14/11)--President Barack Obama has nominated Martin Gruenberg as the chairman of the Federal Deposit Insurance Corp. (FDIC). Gruenberg has been vice chairman of the FDIC board of cirectors since August 2005. He served as acting chairman from Nov. 15, 2005 to June 26, 2006. In 2007, Gruenberg was named chairman of the executive council and president of the International Association of Deposit Insurers (IADI). Gruenberg joined the FDIC board after broad congressional experience in the financial services and regulatory areas. He served as senior counsel to U.S. Sen. Paul S. Sarbanes (D-Md.) on the staff of the Senate Committee on Banking, Housing, and Urban Affairs from 1993 to 2005 … * WASHINGTON (6/14/11)—A proposal from the Federal Reserve Board will require U.S. bank holding companies with assets of more than $50 billion to submit annual capital plans for review. The Fed expects bankds to have plans for sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions. It would require boards of directors to review and approve capital plans each year before submitting them to the Fed. The proposal seeks to ensure that institutions have capital planning processes that account for risks and that permit continued operations during times of economic and financial stress, the Fed said. It would evaluate plans for capital distributions, such as increasing dividend payments or repurchasing or redeeming stock, as part of the capital plan reviews. In some cases, such as when an institution’s capital plans have been rejected by the Fed, firms would be required to receive approval before making capital distributions … * WASHINGTON (6/14/11)--The Office of the Comptroller of the Currency Monday announced formal enforcement actions against eight national bank mortgage servicers and two third-party servicer providers for unsafe and unsound practices related to residential mortgage loan servicing and foreclosure processing. The eight servicers are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank and Wells Fargo. The two service providers are Lender Processing Services (LPS) and its subsidiaries DocX LLC, and LPD Default Solutions Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS). The enforcement actions require the servicers to correct deficiencies that examiners identified in reviews conducted during the fourth quarter of 2010. Servicers must make significant improvements in practices, including communications with borrowers and dual-tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process. Servicers cannot pursue foreclosures once a mortgage has been approved for modification and must establish a single point of contact for borrowers throughout the loan modification and foreclosure processes. The actions also require servicers to establish robust oversight and controls with third-party vendors, including outside legal counsel, that provide default management or foreclosure services …