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NEW: Senate Confirms Metsger For NCUA Board

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WASHINGTON (8/1/13, UPDATED 8:48 p.m. ET)--The nomination of Richard Metsger to be the third member of the National Credit Union Administration board has been approved by the full U.S. Senate. All that remains to be done before Metsger takes his place on the board isfor himto be sworn in.
 
Credit Union National Association Bill Cheney welcomed the news and thanked the Senate for confirming Metsger.
 
"We look forward to working with Mr. Metsger as he starts his tenure on the board, knowing that he can rely on his experience as a credit union board member in dealing with the challenges that credit unions face today," Cheney said.
 
Once sworn in, Metsger will join NCUA Chair Debbie Matz and board member Michael Fryzel, himself a former chair, to fill out the three-member board. Metsger will fill the seat vacated late last year after the term of board member Gigi Hyland expired.
 
The new NCUA board member's nomination was widely supported and moved fairly quickly through the confirmation process--at least compared to some controversial posts like newly confirmed Consumer Financial Protection Bureau Director's Richard Cordray's.
 
Metsger, a former Oregon state senator, was named as a candidate by President Obama in June and a hearing on his nomination was conducted June 27.
 

Ways and Means' Levin, More Back CU Tax Status

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WASHINGTON (8/1/13)--The ranking Democrat on the powerful congressional panel in charge of tax policy oversight, the House Ways and Means Committee, issued a public statement saying he is "committed" to a tax code that "ensures important policies, like the credit union tax exemption, continue to serve the best interest of the American taxpayer."
 
Rep. Sander Levin, from Michigan, said, "I have long supported credit unions and the critical role they play in our communities.
 
"Throughout the financial crisis, credit unions increased lending because of their cooperative membership structure--providing a needed lifeline to individuals and small businesses that other lenders and financial institutions could not. 
 
"I am committed to a thoughtful reform of our nation's tax code that ensures important policies, like the credit union tax exemption, continue to serve the best interest of the American taxpayer."
 
Rep. Gary Peters (D), also of Michigan, also weighed in today to support the credit union tax exemption.
 
"I completely support the tax exempt status of credit unions," said Peters. "Credit unions are member-owned. It's about helping our middle class families who are part of credit unions all across the state. The savings that are realized are passed directly to millions of members in Michigan.

Credit unions help people access financial services in a cost-effective way every day.  Because of this, I will continue to support credit unions and their tax status."
 
Michigan Credit Union League & Affiliates CEO David Adams thanked Levin and Peters for adding their voices to the important public support of the credit union tax status and for their continued support of credit unions and the federal tax exemption.

Regarding Levin, Adams added, "As the immediate past chairman of the House Ways and Means Committee and now as ranking Democrat on the committee, Mr. Levin's strong position will carry significant weight with his colleagues, both Democrats and Republicans.  Rep. Levin knows that credit unions make a difference in the lives of millions of middle-class Americans and small businesses."
 
"As the immediate past chairman of the House Ways and Means Committee and now as ranking Democrat on the committee, Mr. Levin's strong position will carry significant weight with his colleagues, both Democrats and Republicans."

Levin's and Peters'endorsements of credit unions and their tax status join a growing body of lawmakers' recent public support--four of which come from Adams' state of Michigan.
 
In addition to Levin and Peters, House Intelligence Committee Chairman Mike Rogers (R-Mich.), a senior House Republican, today publicly endorsed the continued tax-exempt status of credit unions in any tax reform plan and added that credit unions play a critical role in the nation's economy.
 
Sen. Mark Begich (D-Alaska) and Rep. Dan Kildee (D-Mich.) have also spoken out in support of the credit union tax exemption.
 
In May, a 550-plus page report on tax policy reform created by 11 Ways and Means working groups was delivered to the Joint Committee on Taxation. And July 26 was the deadline for senators to submit their tax reform proposals to that chamber's Finance Committee leaders.

JEC Looks At 1986 Tax Lessons Learned

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WASHINGTON (8/1/13)--Academic and tax policy experts testified Wednesday before the Joint Economic Committee as that bicameral panel conducted a hearing generally on comprehensive tax reform and more specifically on lessons learned by the Tax Reform Act (TRA) of 1986.
 
Witnesses encouraged policymakers to move forward on comprehensive tax reform, and at the very least, comprehensive corporate tax reform. In fact, the majority of the testimony and discussion centered on corporate tax reform agenda items including tax rates, repatriation, capital gains, and tax expenditures.
 
Laura D'Andrea Tyson, a professor at the University of California Haas School of Business, and former chair of the Council of Economic Advisers, for instance, testified that the numerous credits, deductions and exclusions in the current system results in high compliance costs for businesses and "undermines the efficiency of business decisions."

CUNA: Court Interchange Ruling Could Devastate Small Issuers

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WASHINGTON (8/1/13)--The Credit Union National Association Wednesday said that a U.S. District Court decision striking down the Federal Reserve's price caps on debit interchange fees will have "a potentially devastating impact on the ability of small debit card issuers, particularly credit unions, to continue offering this vital payments service to their members and customers."

U.S. District Court for the District of Columbia Judge Richard Leon said in his ruling that the Fed did not follow congressional intent when it implemented the cap and other changes imposed by what is known as the Durbin amendment.
 
CUNA General Counsel Eric Richard said, "The decision, no doubt, will challenge credit unions to continue their debit card programs without incurring drastic cuts in revenue, or imposing additional fees on their members--the last thing that credit unions want to do."

The court vacated the Fed's rule, finding that the agency disregarded Congress's intent when deciding how much financial institutions can charge merchants for debit card transactions.  The judge left the rule in place for the time being, pending the Fed's issuance of new rules; however, there will be additional briefings to determine the length of time the existing rule can stay in place. 

The Fed alone also has a right of appeal. An appeal, if made, would likely have the effect of keeping the existing rules in place pending the outcome.

"In either event, there is not an immediate impact on the current debit interchange rules," Richard said, and added, " It should also be noted that the Durbin Amendment's requirements do not apply to institutions with assets under $10 billion.  This is a statutory exemption that will not change as a result of this litigation."

CUNA and a broad coalition of trade groups filed an amicus brief in the case in April 2012 refuting the merchants' suit charges that the Fed cap is too high. The brief countered that it is, instead, too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments.

The joint brief described how small and large financial institutions are harmed by the Fed's tight fee ceiling. It underscored that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services.

The Fed was charged with setting the debit fee limit under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Fed's final rule, which became effective in October 2011, caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents.

Growth Planning Is Best Reason For Secondary Capital

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ALEXANDRIA, Va. (8/1/13)--Secondary capital basics, and practical tips on how eligible low-income designated credit unions (LICUs) can best use their secondary capital authority, were among the topics discussed in a Wednesday National Credit Union Administration webinar.

The LICU designation brings benefits that include the ability to offer and accept secondary capital accounts.

The secondary capital must take the form of subordinated debt--a borrowing transaction that must be repaid over time, if the funds are not used to cover operating losses, according to the NCUA. Eligible LICUs are subject to borrowing limitations and capitalization requirements, and their secondary capital plans must be approved by the NCUA.

Using secondary capital to create breathing room for credit unions experiencing temporary financial issues is the most common use, and obtaining secondary capital in anticipation of profitable growth is the best use, the NCUA said.

However, the agency warned, credit unions should not use secondary capital to stave off prompt corrective action orders or to hide ongoing business model problems in a credit union. The agency said this is the worst use of secondary capital.

The costs of secondary capital can be high, the NCUA said, with net worth and liquidity issues being frequent landmines. Anticipated growth also may not occur as quickly as the credit union had hoped, the NCUA added. The NCUA during the webinar also emphasized that secondary capital is not a substitute for deposits because it bears a higher interest rate reflecting its longer term and higher risk. The NCUA slides also noted that secondary capital cannot be used like a grant. It is a loan which must be paid back, the agency said.

Secondary capital can be accepted from other credit unions, investors, the National Community Investment Fund, the National Federation of Community Development Credit Unions, the U.S. Treasury's Community Development Financial Institutions Fund, investment conduits and other sponsors.

Secondary capital accounting tips were also addressed during the webinar, including details on how secondary capital should be treated during a merger. Basic scenarios for credit unions that have taken on secondary capital were also discussed.

Nearly one-fourth of credit unions that took part in the webinar said they were considering using secondary capital within the next five years. Nearly 25% of credit unions that attended the webinar had net worth ratios above 10%, and 38% had new worth ratios between 7% and 10%. Around half of the webinar participants were low-income-designated credit unions.

Balance Needed In Reg Relief: CUNA Tells Banker

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WASHINGTON (8/1/13)--A July 31 article in American Banker says many see regulatory relief for smaller financial institutions as one of the few items that can gain bipartisan approval in a clogged U.S. Congress this year.

However, Credit Union National Association Vice President of Legislative Affairs Ryan Donovan warned that, to go forward, any relief measures that address both credit unions and small banks must contain benefits that are balanced for both parties. Privacy notifications, escrow requirements, and the Consumer Financial Protection Bureau's mortgage underwriting regulations are among the items tackled in some bills that have been introduced.

Supporting increased member business lending authority for credit unions remains a CUNA priority, Donovan told the Banker, but it is not the only item on CUNA's regulatory relief agenda. In fact, the article notes, "credit union advocates also indicate they may be willing to support a regulatory relief package even if it lacks" MBL provisions.

Rep. Gary Miller (R-Calif.) has drafted a relief package for credit unions that does not include increased MBL "We would of course support legislation that included (an MBL cap increase), but when we look at balance in terms of regulatory relief we've got to look at: What's in it, how does it benefit us, how do the banks benefit and is that benefit balanced?" said Donovan.

"We're not going to measure it based on: Is the MBL provision in there or not? We know what the score is on that. We're trying to get balanced regulatory relief provisions.

"Where we get into some troubled waters is when we start talking about Basel relief or capital relief for community banks, in the absence of talking about the capital concerns that face credit unions," Donovan told the Banker.

"That's where we would take a more critical view of legislation, if it provided significant capital relief for community banks but didn't address the capital concerns for credit unions," he said.

CUNA Urges Congressional Support For Eminent Domain Language

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WASHINGTON (8/1/13)--Legislation is needed to prohibit the Federal Housing Administration (FHA) from insuring residential mortgages seized through eminent domain because of market developments in that arena threaten to freeze the return of private capital to housing markets, the Credit Union National Association said in a joint letter sent Wednesday to encourage members of the U.S. Congress to support such legislation.

The insurance prohibition has been offered as an amendment to the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act for Fiscal Year 2014 (H.R. 2610).

The amendment has become necessary because communities across the country are considering a plan developed by a vulture fund that would play on eminent domain powers, CUNA wrote. Vulture fund is a term used to refer to a private equity or hedge fund that invests in debt considered to be very weak.

The plan would use a municipality's eminent domain power to acquire performing-but-underwater mortgages held in private-label, mortgage-backed securities and then insure the new loans through the taxpayer-backed FHA, the CUNA letter explained. It noted that Richmond, Calif. is reportedly prepared to become the first city in the nation to start seizing loans in this unprecedented manner.

Such actions could freeze the return of private capital to housing markets.

This proposed use of eminent domain also raises very serious legal and constitutional issues, and would have lasting negative effects on existing and future homeowners and Main Street investors, the letter added.

"While we support a broad range of programs to assist struggling homeowners and the communities in which they reside, we are firm in our belief that using the power of eminent domain in this manner would harm our nation's housing markets and the very communities it is intended to help," the co-signors said.

The letter was signed by the American Bankers Association, American Council of Life Insurers, American Land Title Association, American Securitization Forum, Association of Mortgage Investors, Financial Services Roundtable, Housing Policy Council, Independent Community Bankers of America, Investment Company Institute, Mortgage Bankers Association, National Association of Federal Credit Unions, National Association of Home Builders, National Association of Realtors and the Securities Industry and Financial Markets Association.

NCUA Ends LUA With Lynn Municipal Employees CU

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ALEXANDRIA, Va. (8/1/13)--A Letter of Understanding and Agreement (LUA) has been lifted from Lynn Municipal Employees CU. The Lynn, Mass. credit union is no longer bound by its October 2012 agreement with the National Credit Union Administration and the Massachusetts Division of Banks.
 
When the LUA was imposed, Lynn Municipal Employees CU had agreed to "take steps to correct unsafe and unsound practices," including the following issues:
  • Failure to comply with the requirements of previous enforcement actions;
  • Operating without adequate supervision and direction by the credit union's board of directors over senior management;
  • Failure to maintain accurate books and records;
  • Failure to establish appropriate internal controls; and
  • Engaging in unsafe and unsound underwriting standards and practices.
The NCUA confirmed to News Now all issues were successfully addressed by the credit union.

The credit union had remained open and serving its members while corrective actions were undertaken.


Six Blocked By NCUA From Future FI Work

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ALEXANDRIA, Va. (8/1/13)--Embezzlement and grand theft, larceny, and making false statements were among the charges that sparked the National Credit Union Administration to issue prohibition orders prohibiting the six individuals from participating in the affairs of any federally insured financial institution.

The NCUA said the orders involve the following individuals:
  • Marivic Arano, a former employee of Sierra Point CU, San Francisco, Calif., entered a plea of no contest to felony charges of embezzlement and grand theft. Arano was sentenced to five years in prison and ordered to pay a fine of $1,040 and restitution in the amount of $202,205.97;
  • David Beard, a former board member of Health Alliance FCU, Somerville, Mass., admitted to facts sufficient for a finding of guilt of the charge of larceny. Beard was ordered to pay restitution in the amount of $7,709.38;
  • Shawn Lee Nelson, a former employee of Members Choice CU, Houston, Texas, consented to the issuance of a prohibition order to avoid the time, cost and expense of administrative litigation;
  • Michael Saad, a former appraiser used by DHCU Community CU, Moline, Ill., was sentenced on the charge of false statements to a federally insured credit union. Saad was sentenced to six months in prison, six months of home confinement, two years of supervised release and ordered to pay restitution in the amount of $131,575.06;
  • Nkajlo Vangh, a former board member of Hmong American FCU, St. Paul, Minn., consented to the issuance of a prohibition order to avoid the time, cost and expense of administrative litigation; and
  • True Yang Vangh, also a former employee of Hmong American FCU, consented to the issuance of a prohibition order to avoid the time, cost and expense of administrative litigation.
Violation of a prohibition order is a felony offense punishable by imprisonment and a fine of up to $1 million.

Use the resource link to access all NCUA enforcement orders.