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NFIP escrow changes could harm CUs CUNA

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WASHINGTON (8/17/11)--Draft National Flood Insurance Plan (NFIP) reforms could have the unintended effect of driving some small mortgage lenders, including credit unions, out of the mortgage business, the Credit Union National Association (CUNA) and related trade groups have warned. At issue is Section 111 of an NFIP reform discussion draft, which would require all mortgage lenders to escrow for NFIP premiums. Current law only requires lenders that escrow for taxes and insurance to also escrow for NFIP premiums. CUNA, the American Bankers Association, the Independent Community Bankers of America, the Mortgage Bankers Association, and the National Association of Federal Credit Unions co-signed a Tuesday letter that was sent to Senate Banking Committee chairman Sen. Tim Johnson (D-S.D.), leading minority member Richard Shelby (R-Ala.), and all other members of the committee. The trades noted that “there is a significant cost involved with establishing escrow accounts, particularly for community banks, credit unions, and community-based lenders that have small lending volumes. “These lenders must outsource their escrow services, and they are not eligible for volume discounts,” and financial institutions in rural and underserved areas are concerned by the costs that outsourcing escrow services would create. “A reduction in the number of loan originators would lead to more consolidation of the mortgage market, thereby reducing credit options in an already troubled market,” the letter added. NFIP reforms are expected to be discussed by the committee when congress returns in early September. The U.S. House last month overwhelmingly supported legislation that would continue the NFIP for a further five years. The NFIP was set to expire on Sept. 30. The legislation (H.R. 1309) preserves the rights of credit unions and others to protect their collateral from flood hazards and would clarify that flood insurance purchases "would date back to the date the existing policy lapsed or became insufficient in coverage amount, including any premiums or fees incurred during the 45-day notification period." CUNA has backed these changes. Legislators from both bodies of Congress and both sides of the aisle, including Sens. Johnson and Shelby, have called for reforms to the NFIP. The U.S. Government Accountability Office (GAO) in recent months said that Congress should act to increase the financial stability of NFIP and limit taxpayer exposure. The NFIP provides more than $1.2 trillion in coverage to Americans in flood-prone areas, but it is an estimated $18 billion in debt to the U.S. Treasury.

CDCUs should be eligible for CDFI bond program

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WASHINGTON (8/17/11)--The Credit Union National Association (CUNA) has recommended that credit unions that are designated Community Development Financial Institutions (CDFIs) be eligible for guarantees on notes that could be used as secondary capital. Specifically, CUNA said in a comment letter, CDCUs that are CDFIs should be eligible for the U.S. Treasury Deparment's CDFI Fund's developing Bond Guarantee Program. Under the CDFI Fund’s bond program, notes or bonds of up to 30 years duration issued by CDFIs would have full guarantees from the U.S. Treasury. The bond program, which is still being developed, would “support CDFI lending and investment by providing a source of long-term, patient capital to CDFIs,” the CDFI Fund said. The bond guarantee program was enacted by the Small Business Jobs Act of 2010. CUNA added that credit unions should be allowed to count any proceeds from these bonds as supplemental capital. CUNA also suggested that some types of CDCU subordinated notes should be eligible to be considered as supplemental capital for low-income credit unions, consistent with the National Credit Union Administration’s net worth regulations. Allowing credit unions to count bond proceed as supplemental capital would help them “leverage their net worth to add deposits and generate loans for a range of credit needs in low-income communities, including but not limited to microenterprise, providing working capital for small businesses, education, and other essential needs of their members,” CUNA added. The CDFI Fund should also consider revising its definitions of "low-Income," "underserved." and "rural area" to better conform to those of the National Credit Union Administration, CUNA said. CDCUs are among the financial institutions that may apply for membership in CDFI Fund programs. The CDFI Fund helps locally based financial institutions offer small business, consumer and home loans in communities and populations that lack access to affordable credit. A total of 960 financial institutions are certified CDFIs. For the full CUNA comment letter, use the resource link.

Former CU manager banned from further work

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ALEXANDRIA, Va. (8/17/11)--The National Credit Union Administration (NCUA) on Tuesday prohibited Brian Zimmerman, a former manager and treasurer of Lebanon, Pa.-based LEBCO Educators FCU, from future work at any federally insured financial institution. The agency noted that violation of a prohibition order is a felony offense punishable by imprisonment and a fine of up to $1 million. The prohibition order did not list Zimmerman’s offense. Zimmerman denied guilt, but agreed to the prohibition order to “avoid the time and expense of litigation,” according to the NCUA. LEBCO, which served its nearly 1,300 members through a single branch, was merged into $360 million-asset Belco Community CU in June.

Base large participant definition on market share CUNA says

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WASHINGTON (8/17/11)--The Consumer Financial Protection Bureau (CFPB) should base its definition of non-depository-institution “larger participants” on the relative, local market share of those participants, the Credit Union National Association (CUNA) suggested in a comment letter. CUNA warned that using something other than the local, state-wide or metropolitan-area-based market share to define what type of firm is considered a “larger participant” could result in the CFPB “only regulating the largest nationally-active non-depository financial service providers.” Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is authorized to supervise all sizes of nonbank payday lenders, private student lenders, and mortgage companies. The CFPB is considering regulating non-financial institution auto lenders, debt collection agencies, credit reporting agencies, prepaid credit card firms, debt relief firms, and money transfer firms. CUNA encouraged the CFPB to subject non-depository institutions to the same level of consumer protection regulations as credit unions and other depository institutions. Specifically, the CUNA letter encouraged the CFPB to regulate companies that provide check cashing, money transfers, and other services in the same manner that it plans to regulate payday lenders. The CFPB should also examine debt relief services that are provided outside of the traditional, court-based bankruptcy process to determine if these services actually benefit consumers, and should require these companies to “fairly disclose” the costs and limitations of their services. CUNA noted that debt relief services “often make misleading claims to consumers about the benefits they provide in order to collect large, upfront fees.” CUNA was among several groups that recently met with the CFPB to discuss the agency’s approach to regulating non-bank/non-credit union "larger participants" in consumer financial services. The CFPB is expected to issue an initial rule on large non-bank firm regulation no later than July 21, 2012. For the CUNA comment letter, use the resource link.

Inside Washington (08/16/2011)

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* WASHINGTON (8/17/11)--Federal regulators had planned in July to adopt a rule describing how large financial institutions would unwind themselves in a crisis without disrupting the financial system (Dow Jones Aug 16). But adoption of the rule, which affects roughly 124 financial institutions, has been delayed until later this month, because banks that don’t get their “living wills” approved by regulators must raise capital or divest assets. How to divide a big failing global bank’s assets and what parts of a financial institution’s structure and investments should be publicly disclosed are among the issues facing the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) as they craft rules for the living wills. Some observers believe the plans will create more streamlined and smaller financial institutions. With transparent organizational divisions, the Fed and FDIC will know the value of different units and which assets can be sold off when an institution is failing …