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Payday lending program guidance from NCUA

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ALEXANDRIA, Va. (7/30/09)--The National Credit Union Administration (NCUA) in guidance released on Wednesday said that while a number of credit unions are interested in offering short-term loans to their members, credit unions should use these programs to provide their members with a bridge from short-term loans to “more mainstream products and services.” According to the NCUA release, credit unions can avoid the negative perception of payday loan products by “clearly” disclosing “the costs and risks associated with loans” and providing transparent application processes and advertisements to their members. Credit unions should also ensure that their loan products “comply with applicable consumer protection laws, including the Equal Credit Opportunity Act, Regulation B, the Truth in Lending Act and Regulation Z, and other related regulations. Credit unions should also control credit concentration risks through setting “borrower and program limits,” the NCUA said. The NCUA also suggested that credit unions provide terms that encourage their members to take part in more traditional financial programs by limiting the number of payday loans and roll-overs a member may take part in, “imposing substantial waiting periods between loans,” providing financial counseling to members that take out short-term loans, and allowing their members to rescind a loan within 24 hours, free of charge. In instances where an FCU refers its members to a third-party vendor that services payday loans, that FCU would be “in violation” of NCUA rules if the terms of those loans are misleading to consumers. Referring credit union members to a third-party vendor in exchange for finder’s fees would also create a “significant reputation risk” and would run “contrary to the FCU’s central mission to serve its members,” the NCUA release added. To see the NCUA’s full guidance on payday loans, use the resource link.

Inside Washington (07/29/2009)

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* WASHINGTON (7/30/09)--The financial industry expects a push for legislation forcing lenders to rework mortgages because the Treasury’s Home Affordable Modification Program may not yield desired results (American Banker July 29). To make the modifications more permanent, some observers expect that a bill by Sen. Dick Durbin (D-Ill.) addressing the modification issue may resurface. Durbin proposed legislation that would allow bankruptcy judges to rework mortgages--a move that was defeated about three months ago. Durbin, however, said he planned to return to the Senate with similar legislation. The Credit Union National Association (CUNA) opposes allowing bankruptcy judges to rework loan terms because it could lead to borrowers’ gaming of the system. Other financial observers say Congress will have to consider mandatory modification measures. The Obama administration needs to require servicers to rework mortgages, said Bruce Marks, CEO of Neighborhood Assistance Corp. of America. The administration’s plan has yielded 200,000 trial modifications, and 55,000 refinancings. But the figures are below the administration’s goal to help up to nine million borrowers ... * WASHINGTON (7/30/09)--The Federal Deposit Insurance Corp. (FDIC) has scheduled a meeting for today of the Advisory Committee on Economic Inclusion. The committee was formed to provide advice and recommendations on initiatives to expand access to banking services to underserved populations. The meeting will focus on prize-linked savings, and issues and challenges related to reaching out to the underserved and low- and moderate-income consumers, the FDIC said in a release. Witnesses at the hearing include Peter Tufano, Harvard professor, and Ellen Lazar, senior adviser to FDIC Chairman Sheila Bair for consumer policy ... * WASHINGTON (7/30/09)--When planning for the future, financial institutions should “hope for the best” while planning for the worst, according to the president/CEO of the Federal Reserve Bank of San Francisco. During a meeting Tuesday with an Indiana banking group, Janet Yellen said stress tests can be helpful to assess potential effects on capital and earnings, and to develop contingency plans. Institutions also should have back-up plans and procedures for using the Fed’s discount window, she added (American Banker July 29). Yellen, a former Fed governor, has been mentioned as a candidate to lead the Fed if President Barack Obama does not nominate current Fed Chair Ben Bernanke. Bernanke’s term expires in January. Also during the meeting, Yellen said consumer protection and systemic risk oversight need to be strengthened, but did not indicate which agency should have systemic risk oversight powers ... * ALEXANDRIA, Va. (7/30/09)--National Credit Union Administration (NCUA) Chairman Michael Fryzel presented NCUA Vice Chairman Rodney Hood with an NCUA gold medal Wednesday to congratulate him for successfully completing his tenure as vice chair. Hood’s term expired in April, but he will continue to serve in his position until a successor is found. While at NCUA, Hood served on the board of the Neighborhood Reinvestment Corp. (NeighborWorks), which was created by Congress to assist in the revitalization of urban residential neighborhoods. “Vice Chairman Rodney Hood’s legacy will be a strong one: his foresight and diligence on risk mitigation came at a time when much of the financial world was devoting its energies elsewhere; his commitment to credit union professional development, embodied in his ’Blueprint 20/20’ initiative, was impressive,” Fryzel said. “And in countless other ways he encouraged the agency to think ahead, to innovate, and to always apply the best, most forward-looking approach to the challenges confronting us. Hood’s service was an essential part of NCUA’s success in recent years, and his contributions will be missed.” From left are Fryzel, Hood, and NCUA Board Member Gigi Hyland. (Photo provided by the National Credit Union Administration) ...

Donovan tells iThe Hilli CUNAs willing to talk on CFPA

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WASHINGTON (7/30/09)—The Credit Union National Association (CUNA) believes that it is preferable to remain open to discussing the Obama administration’s plan for a Consumer Financial Protection Agency (CFPA) and other ongoing financial reform efforts with lawmakers, CUNA vice president of legislative affairs Ryan Donovan told The Hill newspaper. In comments posted in The Hill on Wednesday, Donovan said that “there is an advantage to being at the table and willing to talk," adding that those who simply refuse to discuss these issues are likely missing a chance to affect legislative decisions as the process moves forward. While the banking industry and other groups have discussed joining forces to oppose the CFPA and other regulatory reforms and have held finance-industry strategy sessions aimed at fomenting total opposition to the Obama administration’s plans, CUNA has not participated in those meetings or in the coalition. CUNA has been approached by democratic lawmakers, however, and Donovan indicated that CUNA is communicating the concerns of credit unions to legislators. CUNA has communicated with key legislators, including House Financial Services Committee chairman Barney Frank (D-Mass.), in recent months. In a recent letter to Frank, CUNA said it could support the creation of the CFPA if seven key parameters are incorporated into the proposal. These parameters include allowing the CFPA to write the rules but leaving "examination, supervision and enforcement" of the consumer protection rules "to each credit union's prudential regulator." CUNA has also urged legislators to complete the regulatory streamlining and modernization that is promised in the CFPA proposal and has advocated for the inclusion of credit union industry representatives and state or federal credit union regulators in the CFPA’s proposed governance board. Debate on financial regulatory reform continues to be a hot topic in Washington, and the CFPA, along with other reform measures, will return to prominence once the Congress returns from August recess in early September.

CUNA pursues CARD Act compliance solutions

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WASHINGTON (7/30/09)—The Credit Union National Association (CUNA) continues its efforts to address what is for credit unions a troublingly short compliance framework for new Federal Reserve Board rules implementing the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. CUNA is pursuing both regulatory and legislative fixes to the compliance date problem. Illustrating the level of concern, approximately 2,500 credit union representatives tuned in this week for CUNA’s audio conference, "Requirements of the New Credit CARD Act," which featured a Fed senior attorney and other experts to explore compliance issues. The CARD Act aims to prevent lenders from making arbitrary changes to interest rates and terms associated with credit cards that have an existing balance. However, CUNA has been working with the Fed to convey credit union concerns regarding a specific requirement in Section 106. That section prohibits creditors from claiming a payment is late unless that creditor adopts reasonable procedures to ensure that periodic statements are delivered to consumers no later than 21 days before the payment due date. The section, says CUNA, is very problematic both because it is one of the very few provisions that apply to all open-end credit, not just credit cards, and because of the upcoming Aug. 20 effective date. CUNA Senior Assistant General Counsel Jeff Bloch said audio conference discussion focused exclusively on the huge compliance problems associated with the 21-day disclosure requirement. “One suggestion for compliance that was discussed, and seemed the most viable, was an idea of putting due dates on the statements for both the current month and the next month to ensure that members receive the 21-day notice for all payments, without requiring the dismantling of consolidated statements or altering due dates, many of which are chosen by the members themselves,” Bloch said “Unfortunately, the Fed attorney said that approach would violate the ‘spirit’ of the rule,” Bloch said, but assured that CUNA will continue to pursue the "multiple due dates" approach with the Fed because it seems to be “the most viable, and maybe the only realistic, means in which to comply with these provisions.” There is an archived version of the CUNA audio call available through the website. Use the resource link below to access registration.