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Inside Washington (06/03/2009)

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* WASHINGTON (6/4/09)--The Federal Housing Finance Agency (FHFA) is considering creating an insurance fund that could absorb losses at a troubled Federal Home Loan Bank (American Banker June 3). The FHFA has not said if any of the banks are in trouble. Currently, all 12 banks are liable for each other’s debt. The joint system is a source of strength, according to FHFA Director James Lockhart. He was slated to testify Wednesday before a House Financial Services Committee capital markets subcommittee on the future of Fannie Mae and Freddie Mac, where the issue of creating an insurance fund could surface. Financial observers have questioned how the insurance fund would work, how much money each bank would have to contribute to the insurance fund, and how long it would take to establish the fund ... * WASHINGTON (6/4/09)--The underbanked’s monthly transaction fees can range from $10 to $100 for the same transactions depending on the provider, says a study by the Center for Financial Services Innovation. The center interviewed 22 prepaid cardholders in Chicago and Seattle for “One Size Does Not Fit All: A Comparison of Monthly Financial Services Spending.” The analysis indicates that financial products and services available to underbanked consumers could be improved by broadening the availability and use of direct deposit; expanding the functionality of both prepaid cards and checking accounts; increasing the transparency and certainty around fees to be paid; and guiding consumers to the best choice for their needs ... * WASHINGTON (6/4/09)--Christopher Cox, former Securities and Exchange Commission (SEC) chairman, wrote Federal Housing Finance Agency Director James Lockhart to ask if Fannie Mae and Freddie Mac were being pushed too hard by the government to boost the housing markets (Bloomberg June 3). Cox, who wrote the letter in his final days as chairman, told Lockhart to develop an exit strategy for the enterprises. The letter has not been released to the public, but it indicates tension at Fannie and Freddie between the government’s demands and their obligations to investors. The future of the enterprises was scheduled to be discussed at a House Financial Services Committee capital markets subcommittee Wednesday. Cox left the SEC Jan. 20 ... * WASHINGTON (6/4/09)--Federal Reserve Board Chairman Ben Bernanke called for a plan to restore the nation’s fiscal balance in remarks at a House Budget Committee hearing. The national deficit is expected to reach $1.8 trillion this year. To address the country’s fiscal problems, Congress, the Obama administration and consumers must confront how many economic resources to devote to federal government programs, Bernanke said. “Whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. In particular, over the longer term, achieving fiscal sustainability--defined, for example, as a situation in which the ratios of government debt and interest payments to gross domestic product are stable or declining, and tax rates are not so high as to impede economic growth--requires that spending and budget deficits be well-controlled,” he added ...

Remittance reforms are on House agenda

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WASHINGTON (6/4/09)--Rep. Luis Gutierrez (D-Ill.) in a Wednesday House subcommittee hearing said that he would soon introduce legislation aimed at remittance-related reforms. Speaking during a House subcommittee on financial institutions and consumer credit hearing entitled "Remittances: Regulation and Disclosure in a New Economic Environment," Gutierrez said that his to-be-introduced legislation would address disclosure and transparency issues faced by the remittance industry. Gutierrez also hinted that larger reforms, including the possible creation of a federal regulatory regime for the remittance industry, could be part of pending financial industry regulatory reorganization. Remittances are currently regulated on the state level, although financial institutions that are involved in the remittance industry still must comply with federal regulations, including the Bank Secrecy Act. In a joint letter submitted during Wednesday’s hearing, the Credit Union National Association (CUNA) and the World Council of Credit Unions (WOCCU) asked members of Congress to investigate the abusive and potentially monopolistic business practices of some money transmitter firms. Specifically, the letter asks Congress to research competition-limiting practices such as one-way exclusivity clauses used by some U.S.-based money transmitter organizations (MTOs). In some instances, these firms also assess early termination penalties on their partner financial institutions. CUNA and WOCCU believe that these practices can limit the scope of remittance distribution networks and narrow access to financial services in the developing world. These anti-competitive actions are ultimately detrimental to consumers both in the U.S. and abroad, the statement said. These firms have also been known to present their contracts to partner financial institutions in highly technical versions of the English language, rather than using English and the native tongue of their business partner, which oftentimes is Spanish. However, U.S. credit unions currently offer remittance disclosures in both languages. IRNet, a remittance service created by WOCCU, has facilitated the transfer of $2.6 billion in remittance transactions between credit unions in the U.S. and the developing world since its inception in 2001.

Small changes made to red flags rule

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WASHINGTON (6/4/09)--The National Credit Union Administration, Federal Trade Commission, and the other financial institution agencies recently issued a final rule that makes technical corrections to the identity theft “red flags” rule. The changes address discrepancy rules and affiliate marketing rules that were issued under the Fair and Accurate Credit Transactions Act. They include a clarification that notes discrepancy notices need only be provided by nationwide consumer reporting agencies. The agencies also made the following two corrections to the affiliate marketing rules:
* A model form that allows consumers to voluntarily opt-out of marketing by businesses and their affiliates was amended by inserting language in brackets that allows businesses to disclose the duration of any opt-out period; and * A provision in the instructions to the model forms was included to clarify that a person may add a disclosure to the forms that explain the treatment of opt-outs by joint consumers.
For more information about the identity theft red flags rule and the recent technical changes to it, use the resource link below to read the Credit Union National Association’s final rule analyis.

House committee approves data breach bill

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WASHINGTON (6/4/09)--H.R. 2221, the Data Accountability and Trust Act, passed the House subcommittee on commerce, trade, and consumer protection by a voice vote during a Wednesday markup session. The bill, which was introduced by House Subcommittee Chair Rep. Bobby Rush (D-Ill.), would require businesses to notify affected customers when outside parties gain access to sensitive information due to a security breach. Although it supports the goal of granting greater information to consumers whose personal information has been compromised by security breaches, the Credit Union National Association (CUNA) on Wednesday asked legislators to alter some portions of the bill. In a letter to ranking subcommittee members, CUNA said that while most businesses lack the contact information needed to alert their customers, financial institutions normally have the means to directly communicate with their account holders. While any notification of data breach victims should be done by the financial institutions, the cost of this notification should be covered by the entity that compromised the data. Financial institutions should also be allowed to disclose the source of the information leak to their cardholders to avoid any harm that could be done to their reputation, CUNA added. The bill, as currently drafted, excludes federally insured credit unions from Federal Trade Commission (FTC) oversight of their security risk mitigation procedures. However, businesses following standard security precautions of equal or greater quality to those set out by the bill would be deemed compliant by the FTC. The House subcommittee, during the same markup session, voted 16 to 9 to approve H.R. 2309, the Consumer Credit and Debt Protection Act. This bill would direct the FTC to examine its existing rules and possibly to create new rules governing debt settlements and auto sales. The bill would also enhance the FTC’s rulemaking authority as it relates to consumer credit and debt. The House Energy and Commerce Committee has not announced when it may consider these bill.