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NCUA to AACUL 1000 CUs to get LICU eligibility letters

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CHICAGO (7/30/12)--The National Credit Union Administration (NCUA) soon will send letters to nearly 1,000 credit unions indicating they are eligible for low-income designation, a status whose benefits include the ability to accept supplemental capital and an exemption from the small business lending cap under certain circumstances, NCUA Chairman Debbie Matz told league presidents last Friday attending the American Association of Credit Union Leagues (AACUL) summer meeting in Chicago.

"Almost 1,000 credit unions would meet the LICU designation but don't have it," Matz said. "I know with some credit unions there's a stigma to a low-income designation. I hope you will help them get over that," she told the league presidents.

Matz said a letter to these eligible credit unions would likely go out this week or next.

CUNA President/CEO Bill Cheney said NCUA's action will give credit unions greater awareness of their options. "It is a determination that needs to be made by individual CU CEOs and their boards, and the NCUA letter will help them make a more informed decision," he said. Cheney also noted many credit unions that desire more member business lending (MBL) authority or supplemental capital will not qualify as LICUs, "so the agency's action should have no bearing on the need for Congress to pass these two very important pieces of legislation."

Matz also told the AACUL group NCUA plans to "improve the regulatory environment" based on input received from her recent series of "listening sessions" with credit unions around the U.S., including plans to expand the regulatory definition of small credit union beyond the current $10 million asset level, a change CUNA has long advocated through its Small Credit Union Committee. Matz added interest in such an expansion is shared by NCUA Board Member Gigi Hyland, who also addressed the AACUL meeting.

Other changes the agency is considering include removing the personal guarantee requirement on MBLs, expanding the definition of rural field of membership to make it more flexible, allowing CUs to hold Treasury Inflation Protected Securities, and liberalizing rules to encourage more CUs to offer low cost payday loan alternatives.

The actions are part of a broader agency regulatory modernization effort, which also included recent Board decisions to improve its rule on troubled debt restructuring (TDR) and to pull back pending proposals on credit union service organizations (CUSOs) and loan participations based on concerns expressed by CUNA, leagues and credit unions.

"We heard you on a number of different issues," Matz said, taking special note of CUNA Deputy General Counsel Mary Dunn's help pulling together a credit union/league working group to provide input to improve the TDR rule.

Matz also repeated announcements from earlier last week on agency plans to create a new Office of National Examinations and Supervision to focus on credit unions with assets over $10 billion and corporate credit unions, and to expand the work of NCUA's Office of Small Credit Union Initiatives to provide more training and consultation for those small credit unions that have been struggling. She said she hopes leagues will also assist in this regard with small credit unions.

Lastly Matz urged leagues and CUNA to help explain liquidity options to credit unions in light of the agency's recent liquidity proposal and the impact the closing of U.S. Central Bridge in October will have on dramatically reducing available emergency liquidity through the Central Liquidity Facility. CUNA has a task force working expressly on this issue.

In her remarks Board Member Hyland also encouraged leagues to urge credit unions to comment on the liquidity proposal. "Ensure credit unions are at least thinking about this--'What will happen should I need emergency liquidity and where will I go?'"

Matz and Hyland also responded to concerns voiced by several league presidents about the impact on the dual chartering system of the agency's proposed rule on troubled state credit unions, which would permit NCUA to assign a lower CAMEL rating when theirs conflicts with a higher one assigned by the state regulator.

Matz emphasized the proposal is needed in the agency's role as protector of the National Credit Union Share Insurance Fund, and said it only affects about  2% to 4% of state credit unions. Hyland said she believes "It's better to have two guards on watch than one," especially when some state regulatory authority budgets have been cut back.

Trinity CU taken under NCUA conservatorship

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ALEXANDRIA, Va. (7/30/12)--Trinidad, Colo.-based Trinity CU has been taken under conservatorship, the National Credit Union Administration (NCUA) announced Friday.

The Colorado Division of Financial Services placed the $4 million asset, 1,100-member credit union into conservatorship and appointed the NCUA as conservator last week.

The credit union is in troubled financial condition, and the NCUA said it would work to resolve safety and soundness issues at the credit union. The credit union will provide normal member services during the conservatorship, the NCUA said.

Trinity was founded in 1939 to serve the members of Trinidad's Holy Trinity Parish, but has expanded its charter to serve residents of Las Animas County, Colo.

Fed finalizes interchange fraud-prevention charge

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WASHINGTON (7/30/12)--The Federal Reserve on Friday made final an interim final rule that will allow some debit card issuers to charge an extra penny per transaction in debit interchange transaction fees.

To be eligible for the extra transaction fee, financial institutions must develop and implement policies and procedures to reduce the occurrence and costs of fraudulent debit card transactions, the Fed said. These policies and procedures also will need to be reviewed annually, at minimum. The procedures may be updated from time to time, the Fed noted.

Issuers that do not comply with fraud prevention standards would not be permitted to charge the extra penny in debit interchange fees, the Fed said.

The final rule amendments will be effective on Oct. 1. Credit unions with less than $10 billion in assets will not be subject to the final rule.

The Credit Union National Association (CUNA) last year urged the Fed to allow debit card issuers to charge four to five cents per transaction to cover fraud prevention costs. That adjustment would better cover costs  incurred when financial institutions investigate the source of a data breach or theft, attempt to stop any instances of fraud, and deal with the aftermath of the theft or data breach, CUNA said. The increased fraud prevention adjustment also would help protect smaller issuers whose fraud prevention costs often represent a larger portion of their total debt card program costs, CUNA added.

CUNA also recommended that the Fed periodically revisit the fraud prevention cost issue to see if the costs have changed and whether any future adjustments are necessary.

The Fed's final interchange rule, which became effective last year, sets a debit interchange fee cap of 21 cents and allows an additional five basis points of the value of the transaction to cover fraud losses.

For the Fed release, use the resource link.

CFPB nonbank supervision efforts get CUNA support

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WASHINGTON (7/30/12)--The Credit Union National Association (CUNA) in a comment letter said it strongly agrees with the Consumer Financial Protection Bureau's (CFPB) plan to begin supervision and regulation of non-depository institutions that provide risky consumer financial products or services.

The Dodd-Frank Wall Street Reform Act gave the CFPB the authority to supervise any nonbank that it has reasonable cause to determine is posing a risk to consumers, based on complaints or other information it receives. Nonbanks, as defined by the CFPB, would be companies that offer or provide consumer financial products or services, but do not have bank, thrift, or credit union charters. Mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors, and money services companies would meet this definition, according to the CFPB.

Under the CFPB's proposed nonbank rules, the agency would first tell a regulated nonbank that one or more of the products it is offering may be harmful to consumers. The nonbank entity would then be given a chance to respond to the CFPB allegations and to provide any documentation that might support its argument.

Nonbanks could also consent to CFPB regulatory actions, instead of filing a response, or  they could petition the CFPB to terminate supervision authority over their business after two years.

CFPB Director Richard Cordray earlier this year said the proposed rules would allow the agency to reach nonbanks it would not otherwise supervise, while providing "a streamlined process that is fair and efficient."

CUNA said it supports the CFPB's efforts to "maintain a bright line between entities subject to its rulemaking and regulated entities that should not be." CUNA in the letter added that supervised nonbanks that ask the CFPB to stop supervising their activities "should adequately demonstrate why supervision is no longer required" and include a progress report demonstrating how the institution has reduced its risks to consumers.

The CFPB should also identify any remaining gaps in consumer protection in the financial markets, including under rulemakings concerning "larger participants" and other non-depository entities, CUNA added.

For the full comment letter, use the resource link.

CUNA WOCCU back FATCA action

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WASHINGTON (7/30/12)--The Credit Union National Association (CUNA) supports recent congressional efforts to delay implementation of the Foreign Account Tax Compliance Act (FATCA), and will continue to work to raise awareness of the burden that will be imposed on credit unions if this regulation is allowed to be implemented, CUNA Senior Vice President of Legislative Affairs Ryan Donovan said last week.

FATCA is designed to create a tax information reporting and withholding system for certain payments that are made to foreign financial institutions (FFIs) and other entities.

The Internal Revenue Service's (IRS) proposed regulations to implement FATCA would require FFIs, including credit unions, to register with the IRS and detect taxable account activity by U.S. citizens in foreign countries.

The IRS has said that its FATCA rules would also require U.S.-based credit unions and financial institutions to file Forms 1042-S for payments of deposit interest or dividends in amounts of $10 or more that are made to nonresident alien members and customers. These financial institutions must also conduct due diligence regarding whether credit union members' payments to overseas FFIs are to an FFI that is not FATCA compliant.

FATCA would also require U.S. credit unions to withhold 30% of any funds that are transferred to non-FATCA compliant FFIs.

The rule would apply to payments made on and after Jan. 1.

CUNA has urged Congress to pass legislation to prevent FATCA from going into effect on Jan. 1, noting that the compliance burdens and overhead costs credit unions would face as a result of these proposed changes would far exceed any benefit to the IRS.

Rep. Bill Posey (R-Fla.) last week introduced legislation that would stop FATCA from being implemented. Posey's bill was added as an amendment to the Regulatory Freeze for Jobs Act (H.R. 4078), which passed the U.S. House by a 245 to 172 vote. H.R. 4078 has moved on to the Senate, but may not pass that body due to its partisan nature.

Sens. Jim DeMint (R-S.C.), Rand Paul (R-Ky.), Saxby Chambliss (R-Ga.) and Mike Lee (R-Utah) have also criticized FATCA in a letter sent to U.S. Treasury Secretary Tim Geithner last week. The senators asked for more information on the potential costs of FATCA changes, and whether FATCA-related agreements that the Treasury is entering into with foreign governments would violate consumer privacy.

The World Council of Credit Unions (WOCCU) has also been advocating for repeal or significant modification of FATCA, including by testifying at an IRS Public Hearing on FATCA in May.

"We are glad that members of Congress are concerned about FATCA's undue compliance burdens on small, locally owned credit unions. Repealing FATCA will help free credit unions around the world to use their resources to serve their members," WOCCU President/CEO Brian Branch said.

For more on the issue, use the resource links.

Inside Washington (07/27/2012)

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  • WASHINGTON (7/30/12)--Treasury Secretary Timothy Geithner Thursday said he opposed an extension Transaction Account Guarantee program (TAG), during testimony before the Senate Banking Committee. The Federal Deposit Insurance Corp. initiated TAG as a voluntary program in 2008 during the financial crisis to address concerns that a large number of account holders might withdraw their uninsured account balances from financial institutions due to economic uncertainties (American Banker July 27). Geithner said it is not necessary to extend the program, based on the judgment of "relevant authorities." Geithner's comments drew criticism from bankers, who favor the extension of TAG.  The American Bankers Association last week said it supported a two-year extension of the program …
  • WASHINGTON (7/30/12)--A proposal by the Securities and Exchange Commission (SEC) to reform money market mutual funds should be released to the public for comment as soon as possible, said Treasury Secretary Tim Geithner Thursday. The public's comments are needed so the SEC can move forward with reforming money market mutual funds in the event of another financial crisis, Geithner said (American Banker July 27). The proposal was delayed due to gridlock among the SEC's commissioners, the Banker said. Among the approaches to reform being considered are using a floating net-asset value in place of fixing the value at $1 per share, as funds are priced now. During the 2008 financial crisis, the value of one money market fund fell below $1 per share. The government subsequently guaranteed $3.5 trillion in funds …
  • WASHINGTON (7/30/12)--The House of Representatives voted Thursday to postpone an Internal Revenue Service (IRS) rule that would require U.S. banks to report tax information on foreign deposits. The regulation, set to go in to effect next January, requires that U.S. banks disclose to the IRS the identities of foreigners with deposits (American Banker July 27). Bankers in borders states such as Florida and Texas that rely on deposits from Latin America worry that the rule would affect their local economies. By a 251-165 vote, the U.S. House backed a measure to delay implementation of the IRS measure until nationwide unemployment improves to 6%. However, the bill is unlikely to become law, according to the Banker. A similar Senate measure has 21 co-sponsors, but Sen. Bill Nelson (D-Fla.) is the only Democrat to co-sponsor the measure …