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What CUs Need To Know About Wednesday's Interchange Developments

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WASHINGTON (8/22/13)--Federal Reserve Board General Counsel Scott Alvarez on Wednesday said the Fed plans to appeal a recent district court decision that invalidated the agency's debit interchange fee rule. The U.S. District Court judge currently handling the case said that he would allow the status quo to be maintained for now.

Following the afternoon hearing, Credit Union National Association President/CEO Bill Cheney said CUNA is relieved to learn that the Fed is defending its rule.

"Although the Fed's rule is far from perfect for credit unions, the district court's decision compounds Durbin's already negative consequences and is the wrong result for consumers.  We appreciate that the Fed is prepared to take this issue to the next level, and CUNA will do everything it can to ensure the D.C. Circuit Court of Appeals is aware of credit union concerns as the case moves forward," he added.

The Fed will also file a motion to expedite this appeal. An expedited appeal could bring the case to its conclusion within nine months to one year, litigators at the hearing said. Alvarez said the Fed wishes to bring this case to finality quickly, and would work expeditiously to address interchange case issues once the appeal is filed.

Leon said he is not inclined to let the interchange issue linger.

Here are some other key points for credit unions highlighted by CUNA regulatory staff:
  • Alvarez said the Fed would also request a stay of Leon's July 31 interchange decision. The Fed and merchant representatives both said they support a longer stay of Leon's order, pending a resolution of the Fed's appeal. "The Fed raised the possibility of the merchants having to live for a while in a world with no rule at all. The possibility of returning to a pre-Durbin world, even temporarily, might allow financial institutions to charge whatever they want for interchange fees," CUNA General Counsel Eric Richard said;
  • CUNA agrees with the Fed's position that an interim rule is unnecessary here, because it would force all involved parties to adopt a new rule on a short-term basis when the original rule could ultimately be upheld by the D.C. Circuit Court. CUNA always wants to limit unnecessary compliance obligations on credit unions, and will strongly advocate for this position before the court; and
  • Counsel for a group of financial institutions, including CUNA, told the judge Wednesday that the group is considering instituting new litigation on constitutional grounds should the Fed put in place an interim rule that does not allow financial institutions to recoup their investment.
Additional hearings in the case remain on the schedule: Briefs on a potential Fed interim interchange rule must be submitted by Aug. 28.

CUNA continues to closely follow the progress of this debit interchange case, and is exploring a variety of options to ensure credit unions' interests are protected going forward.

NCUA Sets Two September MBL Webinars

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ALEXANDRIA, Va. (8/22/13)--Member business lending (MBL) underwriting, strategy and policy will be addressed in a pair of upcoming National Credit Union Administration webinars.

The first webinar, which will address MBL strategy and policy, is scheduled for 2 p.m. ET on Tuesday, Sept. 17. MBL underwriting will be the topic of the next webinar, which is set for 2 p.m. ET on Wednesday, Sept. 25.

"Prudent member business lending is an important investment in communities, and it strengthens a credit union's balance sheet," NCUA Board Chairman Debbie Matz said. "Credit unions are frequently the only lenders willing to make small loans to expand a car repair shop, start a daycare center or open a corner bodega. Member business lending also diversifies credit union portfolios and improves their ability to withstand economic cycles," she added.

NCUA Office of Small Credit Union Initiatives and Region IV Division of Special Actions staff will present the webinars. A credit union business development specialist will also provide step-by-step guidance on setting up a successful, safe and sound MBL program.

Webinar participants may submit questions in advance by sending an e-mail to WebinarQuestions@ncua.gov. The subject line of the e-mail should read, "Member Business Lending Webinar."

To register for the NCUA webinars, use the resource link.

Illegal Fees, Consumer Deception Alleged In CFPB Suit

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WASHINGTON (8/22/13)--The Consumer Financial Protection Bureau (CFPB) has sued Nevada debt-relief firm Morgan Drexen Inc. for allegedly deceiving consumers and charging illegal upfront fees.

Morgan Drexen President/CEO Walter Ledda was also named in the suit.

The company "took advantage of people who were struggling," CFPB Director Richard Cordray said in a bureau release. "The company charged consumers illegal fees and deceived them about the services provided. We will hold them accountable for these actions," he added.

In the suit, the CFPB alleged Morgan Drexen violated the Telemarketing Sales Rule and the Dodd-Frank Wall Street Reform and Consumer Protection Act by claiming that consumers:
  • Would not pay up front for debt-relief services provided by the firm. In reality, the CFPB said, consumers  who worked with the firm paid hundreds, if not thousands, of dollars in upfront fees; and
  • Would be "debt free in months." The CFPB found that only a tiny fraction of consumers who worked with the company ever became debt free.
Consumers who engage with the company are presented with one contract for debt-settlement services and a separate contract for bankruptcy services. A CFPB investigation of the company's practices, however, has shown that Morgan Drexen charges consumers for bankruptcy services while doing little or nothing to address bankruptcy issues, the agency said.

The bureau in a release claimed the bankruptcy service contract "is a ruse designed to disguise the illegal upfront fees the company is charging consumers for debt-relief services as bankruptcy-related fees."

More than 22,000 customers have enrolled in Morgan Drexen's bankruptcy services program since October 2010, reaping millions of dollars in upfront fees for that firm.

The CFPB suit asks Morgan Drexen to stop the illegal activities, and seeks penalties for both the company and the CEO, Ledda.

For the full CFPB release, use the resource link.