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CUNA warns of opt-out rule burdens

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WASHINGTON (7/22/08)—The Credit Union National Association (CUNA) endorsed the idea behind a Federal Reserve Board plan that would allow consumers to “opt out” of overdraft protection plans, but strongly opposed forcing financial institutions to give notice of opt-out rights to consumers in any periodic statement period in which the service is used. The repeated opt-out notices would be too burdensome for credit unions, with very little benefit for consumers, CUNA said in a comment letter sent to the Fed late last week. CUNA also believes that the proposed opt-out notice requirements should not apply at all to credit unions or other financial institutions that currently use an “opt-in” approach in which consumers affirmatively choose to enroll in these plans. “Under this approach, consumers have clearly expressed their intentions, and it is simply unnecessary to provide them with additional notices of their right to opt-out of a service in which they voluntarily elected to participate,” wrote CUNA Senior Assistant General Counsel Jeffrey Bloch. The Fed’s proposed rule to amend Regulation DD, the Truth in Savings Act, if adopted, would not apply directly to credit unions. However, the National Credit Union Administration is required to adopt substantially similar rules for federal credit unions. Also, the Fed, NCUA and Office of Thrift Supervision worked jointly on related proposed rules for unfair and deceptive practices. CUNA also will be submitting a comprehensive comment letter on this to the NCUA. “Because this (RegDD) proposal is intended to complement and be consistent with the proposal recently published by NCUA, the Board, and the OTS that addresses unfair and deceptive practices as they pertain to credit cards and overdraft protection plans, we strongly believe that the effective date of these proposals should be the same,” the CUNA letter recommended. “Furthermore,” it added, “mandatory compliance should not be required until at least two years after these rules are finalized since they are intertwined with several comprehensive proposals that will amend the Regulation Z open-end credit rules.” To read more on CUNA’s comments, use the resource link below.

Inside Washington (07/21/2008)

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* WASHINGTON (7/22/08)--According to a recent Kehrer-Jackson bank annuity sales data report, annuity sales are up 53% from last year. Regulatory agencies, including the Financial Industry Regulatory Authority and the Securities and Exchange Commission, are broadening their oversight of annuity sales and fraud, while banks such as SunTrust are working to document profiles of customers who purchase them. States such as Florida also have cracked down on annuity fraud. Florida recently enacted the John and Patricia Seibel Act, which penalizes sellers up to $250,000 for unfair annuities. The National Association of Insurance Commissioners created a Suitability of Annuity Sales Working Group in May to recommend standards for the annuity industry, modeled after Wisconsin’s annuity sales advisory committee (American Banker July 21) ... * WASHINGTON (7/22/08)--Bankers have asked the Securities and Exchange Commission (SEC) to extend a rule stopping short-selling so it would include holding companies and publicly traded banks. The American Bankers Association sent a letter to the SEC July 17 saying that the rule could cause problems for banks that aren’t included on the rule. The SEC has not commented on the letter (American Banker July 21). The rule took effect Monday ... * WASHINGTON (7/22/08)--The Federal Reserve Board is moving closer to filling a larger systemic role without input from members of Congress, Sen. Christopher Dodd (D-Conn.) noted at a hearing Wednesday. On July 13, the Treasury and the Fed proposed a plan to help Fannie Mae and Freddie Mac. The plan also would require that an agency oversee the enterprises--a role that some have suggested for the Fed. At Wednesday’s hearing, Treasury Secretary Henry Paulson signaled his support for positioning the Fed as a systemic overseer, while Ben Bernanke, Fed chairman, said the central bank must be able to fulfill that responsibility before agreeing to it (American Banker July 21). The Fed also is consulting with the Securities and Exchange Commission (SEC) on oversight of investment banks. Sen. Jack Reed (D-R.I.) said he was skeptical of that collaboration because banking agencies working together in the past missed the subprime mortgage mess ...

Durbin bill would set 36 APR consumer credit cap

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WASHINGTON (7/22/08)—Sen. Richard Durbin (D-Ill.) introduced legislation late last week that would set a federal usury cap of 36% APR on all consumer credit transactions. Durbin, who is Senate Majority Whip, said his bill is intended to eliminate “the excessive rates that some consumers are charged for payday loans, car title loans and other types of credit.” “Within blocks of my home in Springfield, Illinois, there are payday lenders charging interest rates of two and three hundred percent of the value of the loan,” Durbin said in a release. “These excessive rates are often hidden and can have crippling effects on those individuals who can afford it least. Congress must enact protections against predatory lending. America’s working families depend on it.” Called the Protecting Consumers from Unreasonable Credit Rates Act, the bill’s lending cap takes into account all interest, fees, defaults, and other finance charges. The bill clarifies that the cap does not preempt any stricter state laws. Durbin noted that his proposed cap is similar to usury caps already enacted in many states and is the same as the cap already in place for military personnel and their families.

NCUA reviews options in court FOM decision

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ALEXANDRIA, Va. (7/22/08)—The National Credit Union Administration (NCUA) said Monday that it is currently reviewing a U.S. District Court decision that the agency’s approval in 2003 of a six county area in South Central Pennsylvania was “arbitrary and capricious.” An agency statement said the NCUA is disappointed in the decision, but noted that “this decision did not challenge NCUA’s community charter regulations.” “Rather it was a fact-specific challenge to the granting of a six county community in Pennsylvania and affects only those credit unions serving that community,” the NCUA pointed out. The case was known as American Bankers Association vs. NCUA. The court has asked parties to the suit to file briefs addressing the appropriate remedy. (See related story: Court rules against NCUA in Pa. FOM case.)

Court rules against NCUA in Pa. FOM case

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WASHINGTON (7/22/08)--The Credit Union National Association (CUNA) Monday expressed disappointment in a federal court ruling that the National Credit Union Administration’s record was not sufficient to sustain its decision granting a six-county area community credit union expansion in Pennsylvania. However, CUNA pledged to begin work immediately to help credit unions deal with the judge’s order. CUNA President/CEO Dan Mica stated Monday: “We are certainly disappointed that the court has made this decision, but we are focusing on the next steps. Right now, our top concern is to work with the credit unions, the Pennsylvania Credit Union Association and (National Association of Federal Credit Unions) NAFCU to help the credit unions deal with the judge’s order. “Above all, we are concentrating on the credit unions’ abilities to continue providing needed services to consumers, and for existing members to continue receiving those services from credit unions.” Rick Wargo, executive vice president and general counsel of the Pennsylvania CU Association, concurred: “We note Judge Kane did not prescribe a remedy. We will work with the three credit unions and NCUA on the remedy phase of the case in an effort to mitigate the decision.” The decision, issued by Chief Judge Yvette Kane for the U.S. District Court, Middle District of Pennsylvania, involved a lawsuit filed by the American Bankers Association and the Pennsylvania Bankers Association. The bankers argued that the NCUA acted in an arbitrary and capricious way in 2003 when it approved Harrisburg, Pa.-based Members 1st FCU’s charter request. The agency decision was later used as basis to authorize two other charter requests, one from New Cumberland FCU and the other from AmeriChoice FCU. The court concluded that “under all the circumstances, the decision of the NCUA is arbitrary and capricious and must be set aside.” The court determined that “after a careful review of the record, that the NCUA’s analysis is insufficient in this case…” The Court determined the analysis was not adequate on two grounds:
* NCUA did not provide an explanation for discrediting evidence that was contrary to its findings that the area constituted a single trade area and; * The agency did not explain why it ignored the existence of numerous political jurisdictions in approving the application for Members 1st, which was then relied upon by the other two credit unions to expand. NCUA had previously rejected Members 1st applications for an eight county area and then a six county area, before the final application was approved in April 2003.
(See related story: NCUA reviews options in court FOM decision.)