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New Market Tax Credit still a popular program

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WASHINGTON (6/10/10)--The U.S. Treasury's Community Development Financial Institutions (CDFI) Fund on Wednesday announced that it has received 250 separate applications for portions of the $5 billion in funds that are being made available during the 2010 round of its New Market Tax Credit (NMTC). Credit unions and other financial institution requested a combined total of over $23 billion in funds. The Treasury announced the first round of the 2010 NMTC program in April. In a release, CDFI Fund Director Donna Gambrell said that she is “very pleased to see demand for the New Markets Tax Credit continue to rise in light of the challenges that the current economic climate presents for underserved communities." “The sustained increase in the number of applications indicates how important the New Markets Tax Credit is for attracting new investment and promoting job creation and economic recovery in distressed communities,” Gambrell added. Organizations that have received the NMTC credits, which are awarded through a competitive application process, have raised $15.8 billion in equity investments since the program began in 2002, according to the CDFI Fund. Credit unions are among those eligible to participate in the NMTC, which seeks to spur the investment of new private sector capital into low-income communities by permitting individual or corporate taxpayers to receive a credit against federal income taxes for making Qualified Equity Investments. Those investments must be made in designated Community Development Entities. The list of applicants that will receive funds through NMTC allocations should be announced this December, the CDFI release said. For the full release, use the resource link.

Inside Washington (06/09/2010)

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* WASHINGTON (6/10/10)--In a Wednesday article, “Durbin’s Curb on Debit Fees Draws Fire for Hurting Consumers,” Bloomberg Businessweek highlights Rep. Debbie Wasserman Schultz’s (D-Fla.) concerns that a Senate proposal to limit card interchange fees will enrich merchants at the expense of consumers. Wasserman Schultz has opposed previous attempts to regulate interchange on credit cards. She intends, along with Rep. Kenny Marchant (R-Texas), to send a letter opposing the amendment to a bipartisan panel of House and Senate conferees who are charged with merging the two houses’ versions of the financial overhaul bill. In a related event, the Credit Union National Association (CUNA) issued a recent action alert on interchange that has resulted in more than 280,000 e-mail and phone contacts to federal lawmakers, which request opposition to the interchange provision. CUNA and the state leagues also have organized a “fly-in” effort, which has resulted in close to 1,000 credit union advocates coming to Washington, D.C. Tuesday through today to meet face-to-face with legislators. As part of the visits, CUNA has encouraged credit union reps to gather support for the Wasserman Shultz-Marchant letter to conferees today … * ALEXANDRIA, Va. (6/10/10)--The National Credit Union Administration (NCUA) Wednesday posted on its website the first of three videos to help credit unions understand the corporate credit union crisis. Track No. 1, which covers the history and services of corporate credit unions, is available at the link. Track No. 2 will describe types of corporate credit union investments, how the investments were affected by financial market declines, and how problems with investments affected corporates and threatened the credit union system. Track No. 3 will focus on NCUA's efforts to stabilize the credit union system, ensure access to adequate liquidity and uninterrupted lending and payment processing, and achieve the least costly outcome for federally insured credit unions. NCUA Board Chairman Debbie Matz said that "more information about the history, structure and function of the corporates will assist credit unions in making sound decisions about the future." When all three tracks are posted online, NCUA will send a free DVD of the tracks to all federally insured credit unions ... * ALEXANDRIA, Va. (6/10/10)--The National Credit Union Administration (NCUA) has selected Herb Yolles to serve as temporary Region III Director, effective through the end of this year. Yolles was named acting director or Region III, which covers Alabama, Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, Puerto Rico and the U.S. Virgin Islands, in May. The NCUA explains the difference between the two posts like this: a temporary posting is the the permanent Regional Director for a specific period of time. The agency can only detail a person to a higher position for up to 120 days. Any longer than that, and the agency must let all compete for the temporary position. Alonzo Swan previously served as Region III Director and was reassigned to the position of special assistant to Executive Director Dave Marquis early last month. Yolles first joined the NCUA in 1978 and has served as Chief Financial Officer, Deputy Director of Examination and Insurance, President of the Central Liquidity Facility, Inspector General, and, most recently, as Associate Regional Director of Operations in Region II … * WASHINGTON (6/10/10)--Legislation that would extend the current deposit insurance coverage of $250,000 per account at all financial institutions that failed in 2008 is gaining leverage and could be included in the final regulatory reform bill (American Banker June 9). The measure aims to assist depositors of IndyMac Bank, who lost money when the thrift failed. The bill, sponsored by Reps. Jane Harman (D-Calif.) and David Dreier (R-Calif.), has garnered support from House Financial Services Committee Chairman Barney Frank (D-Mass.) and the Federal Deposit Insurance Corp. IndyMac failed three months--in July 2008--before Congress extended the deposit insurance limit to $250,000 from $100,000. Credit unions’ deposit insurance through the National Credit Union Share Insurance Fund also was extended to $250,000 per account from $100,000 per account ... * WASHINGTON (6/10/10)--With conferees beginning discussions today on regulatory reform legislation, Sen. Susan Collins (R-Maine) said she is open to adding a phase-in of existing trust-preferred securities into a provision she’s sponsoring that would rid the use of such securities as Tier 1 capital. Collins, who has not abandoned her argument that trust-preferreds should not count toward capital, told American Banker that she’s looking into some suggestions regarding a transition period if the provision is implemented (June 9). Collins, who supported the Senate bill and will be a crucial swing vote to prevent a filibuster on the final reform legislation, didn’t comment on whether she’d oppose the legislation if her provision is dropped ... * WASHINGTON (6/10/10)--A bill that would create a $30 billion fund to boost small business lending is expected to pass the House this week and move to the Senate next week. The House Financial Services Committee approved the bill on May 19, which aims to provide capital to community banks to spark small business lending. Some lawmakers have said they oppose the bill, arguing it is a repeat of the Troubled Asset Relief Program (American Banker June 9). The Credit Union National Association (CUNA) is lobbying to raise the 12.25% of assets cap on member business lending at credit unions to 25%. CUNA estimates that if the cap is lifted, $10 billion would be freed nationally to help small businesses, and about 100,000 jobs could be created ... * WASHINGTON (6/10/10)--Senate Democrats are supporting a plan to raise taxes on investment fund manager profits (American Banker June 9). The plan proposes a 33% effective rate on fund-manager income, now taxed at 15%. The House passed a similar proposal last month that would impose a 35% tax on the income. The tax is part of a $140 billion package to provide jobless benefits and expired tax breaks, which the Senate began debating on Tuesday. Senate Democrats also proposed a 31% rate for carried-interest profits from investments of seven years or more to please senators concerned about the effect of the increase on venture capitalists and real estate partnerships ...

EPC broadcast highlights CUs small inst. interchange concerns

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WASHINGTON (6/10/10)—The Electronic Payments Coalition (EPC) brought together representatives of the Credit Union National Association (CUNA) and other groups representing small financial institutions to discuss the dangers government limits on interchange fees would pose for consumers, credit unions and small community banks. The focus of the EPC’s live online video news conference Wednesday was an amendment included in the Senate version of a broad financial regulatory reform package (S. 3217) that would require the Federal Reserve to set interchange fees. Addressing the concerns of credit unions, CUNA President/CEO Dan Mica explained that, if passed into law, government control of interchange fees is going to cost consumers “a lot of money.” If merchants are able to deflect some of the cost of using the electronic payments system, “there are millions, if not billions, of dollars of costs here and someone has to pick it up,” Mica said. “Credit unions will have to pass on the costs. Credit unions are not-for-profit financial institutions. The costs will have to (be covered) from somewhere,” Mica said. He noted that for their 100-year history, credit unions have been well known for charging smaller fees for financial services. “This (change in interchange rules) would force us to charge more fees,” Mica explained. "This (interchange provision) truly isn’t about consumers the way it is constructed right now. It’s about the big-box retailers trying to change the rules of the game and reap some really heavy windfall profits.” The CUNA leader also pointed out that the interchange amendment, attached during the last minutes of debate on the Senate bill, has no place in a regulatory reform package that is meant to address failures in the financial system that resulted in the economic meltdown. Worse yet, he added, is that interchange provisions have not been vetted through the congressional hearing process, and are not backed by either the White House or U.S. Treasury Department. “Our own federal agency that oversees credit unions just told me this morning they don’t have enough data to even comment on this. This is not the time to move forward on this.” CUNA Board Chairman Harriet May added another warning on behalf of consumers, saying that the poorest consumers could pay the heaviest price if merchants start to set minimum purchases on pre-paid benefits cards—forcing those consumers to buy more than they need at that time to reach a minimum. May is also CEO of GECU in El Paso, Texas, a low-income designated CU. The interchange proposal would allow merchants to offer discounts for cash, checks or competing card brands, as well as set minimum or maximum limits on consumer purchases that use credit cards. “A leading advocate for pre-paid debit cards to assist the poor came out and said ‘don’t rain on the poor.’ It will force individuals to buy more. This is not wise spending, and it’s not a way to help the consumer,” May said. She was alluding to a letter to Congress from Russell Simmons, the co-founder of the hip-hop record label Def Jam and the developer of the RushCard, a reloadable Visa debit-card for low-income consumers (News Now 6/8/10). Also participating in the half-hour broadcasts were representatives of the Independent Bankers Association of America (ICBA) and the National Association of Federal Credit Unions. Speaking on behalf of small banks, ICBA President Camden Fine also raised concerns about unintended consequences of the interchange provision. He said thousands of community banks may find they cannot offer their members cards. “Customers will lose” as will small, mainstream merchants, Fine said. The press conference will be available on line. Use the resource link below.

iWash. Timesi Interchange limits equal higher checkATM fees

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WASHINGTON (6/10/10)--Citing credit union concerns specifically, the Washington Times weighed in on the interchange battle raging right now in Washington, and in an editorial Wednesday said that asking the Federal Reserve to determine rates charged for use of the payments network would lead to consumers paying higher fees for checking and for ATM use. The editorial notes that “representatives from 1,000 credit unions around the country have descended on Congress for an ‘all-out assault’” to oppose the interchange amendment. It quotes the Credit Union National Association's top lobbyist, John Magill, who explains how “congressional meddling with the fees” would create unintended consequences that would harm credit union members. The editorial notes that lawmakers are being asked to take a stand on whether the government should be allowed to carve out a role in fee setting as congressional leaders continue to meet to hammer out differences between House and Senate versions of the financial regulatory reform bill. The Senate version contains the provision, added during the final amendment process, that would ask the Fed to determine fees for, as the editorial put it, “use of the payment network built by Visa, MasterCard and other companies.” The Washington Times piece notes:
* Fees vary, but based on industry averages, when a customer buys a $100 item from Wal-Mart using debit, the store keeps roughly $98. The remaining $2 takes care of the costs of processing the transaction and covering losses from fraud. The interchange fee, $1.50, goes to the bank that issued the card, and 50 cents goes to Wal-Mart's bank, which handled the initial transaction; and * It's important to note that [financial institutions], not credit-card companies, issue cards. Without the fee, [financial institutions] would have no incentive to offer such cards.
Merchants, pushing for lower fees through government intervention, have worked to convince lawmakers that consumers would benefit if retailers pay lowered interchange fees. The Times editorial says to that: Government by good intention frequently results in…unintended consequences. That's why Congress should not get involved in picking winners and losers in this battle. Banks need incentives to issue cards, and businesses need incentives to accept them. The market, not the Fed, is most able to strike the right balance.

CU interchange hikes cover the Hill

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WASHINGTON (6/10/10)—With the financial regulatory reform conference committee set to start this week, hundreds of credit union representatives from across the country combined forces to urge their legislators to remove the Senate's proposed interchange amendment from the bill during the final round of consideration. The interchange provision would allow government intervention in setting interchange fees. Twenty-two representatives from eight Iowa credit unions and the
Click to view larger imageSen. Tom Harkin (D-Iowa), who has been named as a Senate conferee to work out a final financial regulatory reform package, met with 22 credit union representatives from his state to hear their concerns regarding a provision that, if adopted, would allow the government to set interchange fees. Answering the senator's questions, the Iowa credit union delegation explained that a proposed carve out in the provision intended to shield credit unions and community banks from it's impact would not have the power to do so. Also shown is Legislative Assistant Zachary Schechter Steinberg to the senator's left. CUNA Chief Economist Bill Hampel (foreground)also attended the Iowa meeting. (CUNA Photo)
Iowa CU League met with Sen. Tom Harkin, a Democrat from that state. Harkin, named as one of the Senate’s conferees, listened to credit union concerns for almost 30 minutes, as the Iowa delegation explained how the interchange amendment could threaten credit union operations and harm consumers by driving up card costs. Harkin started the session by saying he is a “strong supporter of credit unions” and wondered if there was some "middle ground" that could be achieved on the interchange language. At the conclusion of the meeting, however, Harkin told the credit union officers that some of the information presented was new to him. “You’ve given me things to think about,” he told the Iowa Hike the Hill participants. Iowa Credit Union League President Patrick Jury acknowledged to Harkin that the issues are complicated and encouraged the senator to keep the provision out of the reform package as non-germane, and to consider it during the regular process of hearings where it can be considered "on its own, in the light of day." The interchange legislation did not make its way into the House version of financial regulatory reform, and credit union advocates are leaning on House members to convince their colleagues in the Senate that removing the interchange fee legislation from the final version of the reform bill is the right move. One of the many House members that met with credit union
Click to view larger imageThe Virginia Credit Union League’s Rick Pillow (left), along with other credit union advocates from throughout the Commonwealth, discussed with Rep. Rob Wittman (R-Va.) (pictured right) the challenges that interchange changes would impose on consumers and credit unions and the promise that lifting the member business lending cap could mean for for the country's economic woes.(CUNA Photo)
representatives on Wednesday was Rob Wittman (R-Va.). Wittman, a former community banker, told the assembled group of Virginia credit union representatives that he recognizes that the current carveout, which would exempt financial institutions with under $10 billion in assets from the interchange legislation, would not achieve its stated goal. While many have claimed that that carveout would protect credit unions, the Credit Union National Association and others have repeatedly warned that the carveout would not be meaningful because there is no requirement for the payment card networks to operate a higher rate system for small issuers. One credit union representative also discussed a previously unmentioned consequence of interchange changes, noting that funding to many nonprofit organizations could be reduced, as the credit unions that they work with to manage their finances would no longer have the ability to share interchange-related dividends with them. Member business lending was also discussed during the meeting. Another meeting that took place was between representatives from Illinois credit unions and Rep. Peter Roskam (R-Ill.). In that meeting, the Illinois group stressed the important role that interchange fees play in helping credit unions cover the costs of potential fraud cases and providing surcharge-free ATMs to their members. Carl Sorgatz, CEO of Naperville, Ill.-based Hawthorne CU and the Illinois Credit Union League’s Patricia Huffman also explained that retailers would likely be able to direct their consumers away from credit union cards and toward other preferred forms of payment. Several outlets have reported that Rep. Barney Frank (D-Mass.) and his staff are reviewing the Senate’s financial regulatory reform bill, which could be released today. The full list of Senate conferees has been released, and Rep. Ed Royce (R-Calif.) on Wednesday said that he would be one of the several House members that will take part in the committee's discussions. It is thought that the interchange amendment could be addressed by the conference committee early next week.