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Fed final interchange rule reflects CU input Cheney says

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WASHINGTON (6/30/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney said that the Federal Reserve “listened to the real concerns of credit unions” as it developed its final debit interchange fee cap rule, which was approved by a 4 to 1 vote by the Fed on Wednesday. The final rule would cap large issuer debit interchange fees at 21 cents, to cover network connectivity, hardware, software, and labor costs, as well as costs related to network processing and transaction monitoring. An additional five basis points per transaction may be charged to cover fraud losses. Debit card issuers with less than $10 billion in assets are exempt from the direct impact of the cap provisions. Prepaid cards and government-issued cards are also exempted.
Click to view larger image Fed Chairman Ben Bernanke (shown speaking on the left) opens the public meeting convened yesterday to vote on a rule to impose a debit card interchange fee cap. Bernanke noted that the Fed received more than 11,000 comments on its proposed rule, and called the interchange provisions one of the most challenging elements of the Dodd-Frank Wall Street Reform Act. (CUNA Photo)
A separate interim final rule proposed would allow an additional penny to be charged if financial institutions are in compliance with Fed established fraud prevention standards. Comments on this interim final rule, which is effective Oct. 1, 2011, will be accepted until Sept. 30. The Fed’s initial proposal would have set a cap of 12 cents per transaction. Cheney said that these changes are “certainly an improvement” from the initial proposal, and said that CUNA’s focus would turn to ensuring that the small issuer exemption provided in the final rule would work as planned. Cheney said that many credit unions may be forced to adopt new member fees or take other measures if the two-tiered system does not work as planned. Following a resolution offer by Governor Daniel Tarullo in the form of an instruction to staff, the agency’s staff will report by April 2012 on whether there is a two tiered system and the impact of the rule on small issuers’ interchange fee income. Staff will also bring a more comprehensive report to the Board by April 2013 including whether there is a change in income for smaller issuers, whether merchants are discriminating against small issuers and on the impact of the exclusivity provisions. The final rule requires issuers to provide a debit card that can be processed on at least two unaffiliated card networks, such as one signature network and one unaffiliated PIN network. Under a second alternative, issuers may also provide a debit card that can be processed on two or more unaffiliated signature networks, but not on any PIN networks, or that can be processed on two or more unaffiliated PIN networks, but not on any signature networks. The final rule also prohibits issuers and payment card networks from limiting merchants’ ability to choose the network on which a transaction is routed, limited to those networks on which the debit card is enabled to be used. “Credit unions spoke out loudly and forcefully about the law and their concerns about the Fed’s proposed rule,” and had an impact on the Fed’s rulemaking process, Cheney said, noting that 5,600 of the 11,000 interchange comments that the Fed received came from credit unions, and more than half a million contacts on the interchange proposal were made ahead of a recent Senate vote on delaying interchange implementation. Legislation that would have delayed interchange cap implementation to allow greater time to study the issue failed in the Senate earlier this month, falling on a 54 to 45 vote margin. The measure needed 60 votes to pass. However, CUNA said that the Senate vote may have impacted the Fed’s decision on where to set the final debit interchange fee cap. National Credit Union Administration (NCUA) Chairman Debbie Matz said that the NCUA would “carefully monitor” interchange implementation, with a particular emphasis on the rule's impact on smaller credit unions. “To the extent possible, we need to ensure that this final rule will, in practice, work for credit unions and their members,” Matz said. CUNA will continue to work with the Fed as it implements this rule and monitor its impact on credit union members. The network exclusivity restrictions would become effective on April 1, 2012. The fee limitations are set to take effect on Oct. 1. The final rule will not impact benefit-related cards or prepaid cards until April 1, 2013, or later in some cases. For the Fed rule, use the resource link.

CUs have until July 29 for prepay decisions

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ALEXANDRIA, Va. (6/30/11)--While the National Credit Union Administration’s (NCUA) corporate credit union assessment prepayment plan will help credit unions, the Credit Union National Association (CUNA) said that the program could have been of greater benefit to credit unions if interest were paid on the prepaid amounts and if the size of the program was expanded to at least $1 billion.
Click to view larger image NCUA board members (seated at the table on right) listen and watch as staff makes its presentation on a new plan that would allow credit unions to prepay their Temporary Corporate Credit Union Stabilization Fund assessments due in 2013 and thereafter. From back, board members are Michael Fryzel, Debbie Matz, chairman, and Gigi Hyland. Staff members who presented the plan, which was unanimously adopted, were (from rear, on left) Melinda Love (obscured), John Worth, Larry Fazio, and Lisa Henderson. (CUNA Photo)
The NCUA on Wednesday unanimously voted to move forward with a plan to allow credit unions, on a voluntary basis, to prepay their Corporate Stabilization Fund assessment. The agency has set the target size of the program at $500 million, which will result in a reduction of the 2011 regular assessment from 24.9 basis points (bp) to 18.5 bp. CUNA said that a higher minimum of $1 billion “would have allowed a greater reduction in this year’s assessment beyond NCUA’s projected 6.4 bp, making the program more appealing to credit unions.” If less than $500 million is committed, the NCUA will not implement the program. If more than $500 million is committed, prepayments from credit unions will be prorated so that the $500 million target will not be exceeded. The $500 million target is an increase from the previous minimum starting funding amount of $300 million. Other changes to the proposal include:
* Lowering the minimum level for each credit union’s participation to $1,000 or 5 bp, so that 98% of credit unions are eligible; * Raising the maximum participation per credit union from 36 bp to 48 bp insured shares; and * Using all prepayments made to reduce this year’s assessment.
The agency said that credit unions that take part in the program will not accrue interest on prepaid assessments, as the NCUA does not have the independent authority to issue interest-bearing debt. NCUA Chairman Debbie Matz during the meeting emphasized that participation in the prepayment plan is voluntary, and said that the agency is neither encouraging nor discouraging credit union participation in the program. "We are offering it as an option," she said. Agency staff said that credit unions that do elect to participate in the plan would not be publicized. The amount that they have decided to pay into the prepayment fund would also not be publicized. However, that information will be made available on NCUA call reports once they are released later in the year. CUNA encourages all federally credit unions to consider the extent to which the program will benefit them and whether they should participate. The NCUA will be sending a letter to credit unions today regarding the program and participating credit unions must provide completed program agreements, which the agency is providing with the letter and on its website, by July 29. The NCUA will tally the total amount of credit union commitments on Aug. 9, and, if it moves forward with the plan, will debit the amounts that have been pledged from credit union accounts on Aug. 18. The agency has planned a webinar on the plan for July 11. A list of frequently asked questions for credit unions, and materials from the Wednesday NCUA meeting, can also be accessed via the resource link.

Inside Washington (06/29/2011)

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* WASHINGTON (6/30/11)--The Treasury Department has sided with state regulators and consumer groups to urge the Office of the Comptroller of the Currency (OCC) to scale back its proposed ruled relating to federal pre-emption of state consumer financial law. The OCC’s rule does not center on the key language of the Dodd-Frank Act, which left the pre-emption standard mostly unchanged, but seeks to broaden the standard, said Treasury General Counsel George Madison in a letter to the OCC. The OCC said it can pre-empt laws that “obstruct, impair or condition” the business of banking. But those words were not drawn directly from the 1996 Barnett Supreme Court decision, which Dodd-Frank said should be the preemption standard. “The proposed rule validates all prior preemption determinations, including those based on its deleted “obstruct, impair or condition” standard,” Madison wrote, adding “In our view, this position is contrary to Dodd-Frank” … * WASHINGTON (6/30/11)--In four years, the U.S. Small Business Administration’s (SBA) Patriot Express Pilot Loan Guarantee Initiative has provided more than $633 million in SBA-guaranteed loans to 7,650 veterans to start or expand their small businesses, the SBA announced Thursday. Patriot Express is a pilot loan product with streamlined paperwork based on the agency’s SBA Express program. It offers an enhanced guaranty and interest rate on loans to small businesses owned by veterans, reservists and their spouses. The program was launched June 28, 2007, to expand upon the more than $1 billion in loans SBA guarantees annually for veteran-owned businesses across all its loan programs. Eligible borrowers may borrow up to $500,000 through the Patriot Express loan program for business start-up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases, according to SBA …

NEW NCUA corporate prepayment plan takes next step

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ALEXANDRIA, Va. (UPDATED: 12:45 P.M. ET, 6/29/11)--The National Credit Union Administration (NCUA) earlier today unanimously voted to move forward with a plan to allow credit unions, on a voluntary basis, to prepay their Corporate Stabilization Fund assessment, but made some changes to its original proposal. The plan adopted today would allow credit unions, if they choose to do so, to prepay some their Corporate Stabilization Fund assessment. The agency has set the target size of the program at $500 million, which will result in a reduction of the 2011 regular assessment from 24.9 basis points (bp) to 18.5 bp. If less than $500 million is committed, the NCUA will not implement the program. If more than $500 million is committed, prepayments from credit unions will be prorated so that the $500 million target will not be exceeded. The Credit Union National Association (CUNA) urged the agency to allow up to $1 billion in prepaid assessments. Credit unions may commit a maximum of 48 basis points of their total insured shares as of March 31, 2011 to the fund. The agency previously proposed a maximum payment of 36 basis points. NCUA Chairman Debbie Matz during the meeting emphasized that participation in the prepayment plan is voluntary, and said that the agency is neither encouraging nor discouraging credit union participation in the program. “We are offering it as an option,” she said. Agency staff said that credit unions that do elect to participate in the plan would not be publicized. The amount that they have decided to pay into the prepayment fund would also not be publicized. However, that information will be made available on NCUA call reports once they are released later in the year. The NCUA proposed the prepayment plan at its May open board meeting and accepted public comment on the proposal until June 20. The agency received a total of 184 comments on the proposal, with the majority of credit unions saying that they would participate in the plan. While CUNA commended the agency for going forward with a plan for prepaid assessments and acknowledged some of the changes to the plan would be beneficial to credit unions, CUNA said the program could have been of greater benefit to credit unions if interest were paid on the prepaid amounts and if the size of the program was expanded to at least $1 billion. Nonetheless, CUNA encourages all federally credit unions to consider the extent to which the program will benefit them and whether they should participate. The NCUA will be sending a letter to credit unions today regarding the program and participating credit unions must provide completed program agreements, which the agency is providing with the letter and on its website, by July 29.