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Senate Banking To Consider New NCUA Member Thursday

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WASHINGTON (6/21/13)--Next Thursday, June 27, at 10 a.m. (ET), the Senate Banking Committee will consider the nomination of former Oregon State Sen. Rick Metsger (D) to become a member of the National Credit Union Administration board.

Metsger was a member of the board of directors at Portland Teachers CU from 1993 to 2001.

He was named by the White House in May as a candidate to fill the vacant seat on the NCUA board, a position left open since former member Gigi Hyland exited last year. If confirmed, Metsger will join NCUA Chair Debbie Matz and board member Michael Fryzel to fill out the three-member board.

When the nomination was announced, Northwest Credit Union Association President/CEO Troy Stang said, "Sen. Metsger has a strong background of public service and certainly understands the complexity of the financial services landscape including the importance of safety and soundness in the credit union system.

"With so many consumers interested in becoming part of the cooperative credit union system, it's important the industry's regulatory and insurance system is led by the most qualified individuals. Sen. Metsger should complement the skills and talent on the NCUA board well with a solid focus on the future."

Among other highlights of Metsger's resume, he chaired the Oregon Senate committee that heard all financial institution legislation, and he has been a board member of Financial Beginnings, a nonprofit focused on increasing students' financial literacy.

Metsger also has been:
  • Oregon state senator from 1999 to 2011;
  • Oregon Senate president pro-tempore from 2009 to 2011; and
  • Oregon state Debt Policy Advisory Commission member from 2001 to 2011.
     Other nominees on the committee's June 27 include Rep.  Melvin L. Watt (D-N.C.) to be director of the Federal Housing Finance Agency; Dr. Jason Furman, of New York, to be a member and chairman of the Council of Economic Advisers; Kara M. Stein of Maryland, to be a member of the Securities and Exchange Commission; and Dr. Michael S. Piwowar of Virginia, to be a member of the Securities and Exchange Commission.

NCUA Issues Guidance On Credit Rating Rule

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ALEXANDRIA, Va. (6/21/13)--Supervisory guidance on a National Credit Union Administration rule regarding the use of credit ratings by natural-person credit unions has been sent to federal examiners and credit unions by the agency.

The credit ratings rule, required by the Dodd-Frank Act, was approved December 2012 by the NCUA and goes into effect this month. Dodd-Frank required all federal financial agencies to review their regulations for any use of credit ratings to assess the creditworthiness of a security or money-market instrument, to remove those references, and replace them with appropriate substitute standards.

The Letter to Credit Unions (13-CU-05) is intended to help credit unions understand examiners' focus on specific elements of a sound due diligence process, including:

  • Key factors to consider in analysis of credit risk for various investment types and counterparty agreements;
  • Guidance on structured securities analysis; and
  • Grandfathered investments.
The NCUA defined an "investment-grade" security under the new rule as a security in which the credit union determines the issuer has adequate capacity to meet the financial commitments under the security for the projected life of the asset or exposure even under adverse economic conditions. A security with "a minimal amount of credit risk" is one in which the issuer has a very strong capacity to meet the financial commitments under the security, the agency added.

NCUA Chairman Debbie Matz said at the December meeting the agency's goal in developing the new standards "was to make sure credit unions have the evaluation standards necessary to maintain their safety and soundness in today's investment environment."

NCUA staff at that time said that credit-risk examination processes will not change, but pledged that examiners will not take a rigid, "bright-line" approach when looking over credit union investment portfolios. Examiners will look at a credit union's investment process, pre-investment research, and what is done after an investment is made, NCUA staff said.

The newly released guidance illustrates how a credit union should fulfill its responsibility to make an independent determination about the risks associated with its investment purchases, without the sole reliance on nationally recognized statistical rating organization credit ratings.

NCUA Approves Loan Participation Rule

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WASHINGTON (6/21/13)--The National Credit Union Administration's final rule on loan participations implemented a number of changes sought by the Credit Union National Association and is now a much more workable framework for credit unions to utilize loan participations, said CUNA President/CEO Bill Cheney.

The NCUA on Thursday approved a final rule on loan participations with a limit on loans from one originator of 100% of a credit union's net worth. This is up from the proposed 25% of net worth cap. Also very significant, the federal regulator approved an expanded waiver process for the single-originator limit and limits to one borrower.

The NCUA also approved a grandfather provision so that credit unions pushed over the limit by new rule can move their loans into line: such credit unions would not have to sell loans immediately to come into compliance.

"Loan participations are an important tool for credit unions and are an example of how credit unions cooperate together to better serve members," Cheney said. "The original proposal had strict limitations that would have limited the ability of credit unions to utilize participations. We are pleased to see that NCUA has taken into consideration the majority of CUNA's recommendations and worked with the system to make significant improvements in the final rule."

The rule will go into effect 30 days after its publication in the Federal Register.

During consideration of the rule this morning, NCUA Chair Debbie Matz emphasized that the rule focuses on purchasers, not originators. It is meant to protect the credit union system without discouraging credit union loan participations, she added.

The agency is "mindful that loan participations strengthen the credit union industry by providing a useful way for credit unions to diversify their loan portfolios, improve earnings, generate loan growth, manage their balance sheets, and comply with regulatory requirements," Matz said. "Credit unions also use liquidity obtained through the sale of loan participations to increase the availability of credit to small businesses and consumers," she noted.

CUNA raised serious concerns about the proposal when it was issued in December 2011, saying it would add to the regulatory burden of affected credit unions in a manner that is wholly disproportionate to the risks associated with loan participations.

The NCUA board also approved an Illinois Member Business Loan (MBL) rule that was proposed by that state's credit union regulator. The rule is similar to the NCUA's current MBL rule.

NCUA regulations allow the agency to exempt federally insured, state-chartered credit unions from compliance with the agency's MBL rules if the board determines the state has developed an MBL rule that minimizes risk and accomplishes the overall objectives of NCUA's rule. Other states that have their own MBL rules are Maryland, Washington, Wisconsin, Texas, Oregon, and Connecticut.

For a summary of the meeting and a chart detailing the loan participation rule, use the resource links.

FTC To Investigate 'Patent Troll' Lawsuits

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WASHINGTON (6/21/13)--The Federal Trade Commission said Thursday it will launch an inquiry into the business practices of  "patent troll" companies that buy technology patents and then file lawsuits against software designers, product manufacturers and even financial institutions that may use processes similar to the patent.

Credit unions, banks, and check processors, for example, have been sued by companies over their remote-capture-image services by companies claiming to have a patent for that process (News Now May 30) and for Internet security technology used to provide identification authentication for mobile transactions on devices such as smartphones and tablets in the so-called "smartphone wars" (News Now July 13, 2012).

FTC Chairwoman Edith Ramirez said she would ask the commission to approve an inquiry to enable the FTC to issue subpoenas to patent-assertion entities (PAEs), often dubbed "patent trolls" ( June 20).  PAEs accounted for more than 60% of about 4,000 patent lawsuits filed last year, said The New York Times (June 19).

The agency will monitor for possible anticompetitive lawsuits and take antitrust enforcement action against the PAEs if warranted, Ramirez said in a patent law workshop Thursday sponsored by the American Antitrust Institute and the Computer & Communications Industry Association.

Many businesses find themselves victims of nuisance lawsuits that are far cheaper to settle than litigate, Ramirez said.

Credit unions, banks and entities such as PNC Financial Services Group, Electronic Data Systems Corp., Diebold, and First Data Corp. have been among the businesses that have entered settlements with companies trolling their patents (News Now May 30).  In one case, Catalyst Corporate FCU filed a preemptory lawsuit seeking a judgment it had not infringed on any process patents after it received such a demand letter from IP Navigation Group (News Now April 23, 2012, and July 13, 2012).

Last week President Barack Obama issued several executive orders directing the Patent and Trademark Office and other executive branch agencies to take action in protecting innovators "from frivolous litigation" by heightening disclosure of the names of patent owners.

The Times noted that one lawsuit threatened thousands of companies with patent infringement charges by hooking a document scanner up to a computer network and sending a scanned file by e-mail to an employee.

The FTC does not plan to single out any particular company in its investigation, but indicated it would focus on companies that are small, legal shell companies that gather patents and cite them in demand letters sent to businesses, and on large companies that snap up intellectual property rights portfolios from technology innovators such as Microsoft and Nokia.

CUNA 'Inside Exchange' Features Participation Rule Analysis

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WASHINGTON (6/21/13)--The new "loan participations" rule adopted by the National Credit Union Administration on Thursday is the topic of discussion in the latest episode of "Inside Exchange," the Credit Union National Association's regular video feature.

Paul Gentile, CUNA executive vice president of communications, and Mary Dunn, CUNA deputy general counsel, discuss the highlights of the just-adopted final rule, changes that were made to the rule as originally proposed, and the rule's impact on credit unions. (For more, see today's News Now story: NCUA Approves Loan Participation Rule)

CUNA created the "Inside Exchange" video series as a new way to directly communicate to member credit unions, and to provide detailed insights into what's happening in Washington, D.C., in the legislative, regulatory and political arenas.

For more on this new video, and previous videos featuring CUNA comments on credit union advocacy efforts, use the resource link.

The "Inside Exchange" videos can also be found by clicking on the "stay informed" section of the gray menu bar at the top of the homepage and scrolling down to the "Inside Exchange" pane.

CUNA Thanks Freddie Mac For Fee Reversal

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WASHINGTON (6/21/13)--Credit Union National Association President/CEO Bill Cheney is urging Freddie Mac CEO Donald Layton to confirm that the company has decided to reverse course and refrain from imposing fees on mortgage sellers and servicers that do not meet minimum activity thresholds.

The government-sponsored enterprise on May 15 announced that effective Jan. 1, 2014, sellers and servicers that did not meet minimum activity thresholds for the prior calendar year would have been assessed a fee of $7,500 for low activity. Sellers and servicers would have had to sell loans with an aggregate unpaid principal balance of $5 million, or service or act as servicing agent for loans with an aggregate unpaid principal balance of $25 million in the prior calendar year, to avoid the fees.

CUNA requested that the decision imposing these fees be revisited in a letter sent to Federal Housing Finance Agency Acting Director Ed DeMarco early this week. It also was a topic in testimony given by Jerry Reed of Alaska USA FCU to the House Financial Services subcommittee on financial institutions and consumer credit Tuesday.

According to published reports, the fee will only apply to lenders who have Freddie Mac approval but do not sell or service any of the company's mortgages, and that as long as a lender handles or writes at least one Freddie Mac loan over a three-year period, they will be able to avoid the fee. "This is a welcome development," Cheney wrote in his letter to Layton.

"The fee would have unfairly burdened credit unions in rural and underserved areas where annual real estate sales activity and housing prices are not high enough to generate the dollar figures that meet Freddie Mac's thresholds," Cheney added.