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Interchange CUNA webinar addresses compliance concerns

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WASHINGTON (8/4/11)--Credit unions that do not have agreements with two unaffiliated payment networks should begin shopping for a new network now instead of waiting for the April 1, 2012 compliance date to draw closer, PayFusion CEO TJ Riha said in a Wednesday Credit Union National Association (CUNA) webinar on pending interchange debit fee cap regulations. Riha noted that it can take between 90 and 120 days for a financial institution to come to an agreement, do the necessary testing, and begin working with a payment network. This "exclusivity" -- or better put, nonexclusivity -- provision of the Federal Reserve Board's new interchange debit fee cap regulation is a key compliance requirement that CUNA notes all credit unions issuing debit cards have to address. Any new branding requirements, and associated network and processor fees, should be evaluated before going forward, Riha said. PolicyWorks Vice President Andrea Stritzke added that credit unions should take other due diligence steps before selecting a new processor, including requirements that the network operates nationally and can support anticipated merchant demand. Riha also noted some of the key "unknowns" surrounding the interchange regulation. One key unknown, Rhia said, is that although the major networks have said that they will create two-tiered fee systems, credit unions don’t know what actual fees will be established for smaller issuers exempted from the Federal Reserve Board’s 21-cent debit interchange fee. Moreover, since merchants will have some choice on how a transaction is routed, credit unions need to evaluate potential fee income from different networks and can’t assume the debit income they currently receive will remain at the same level, he added. Stritzke noted that while many credit unions are marketing free checking accounts as big banks increase their fees, credit unions that advertise free checking must make sure that they are truly providing free checking to their members and not imposing any maintenance or activity fee on the account. She also reminded credit unions that seek additional revenue from deposit services to determine what their account agreements allow and to review the disclosure requirements of the Truth in Savings Act. Stritzke also cautioned about trying to change terms of open and closed-end loans when looking for ways to make up lost revenue, and said that debit card rewards program agreements have to be carefully reviewed before instituting changes in those programs. Kathy Thompson, CUNA’s senior vice president for compliance, addressed a recurring question of what the Fed is going to do to make sure that the two-tiered system works. She noted that the Fed has made clear that the law doesn’t require any private payment network to maintain a two-tiered system and that the Fed has no authority to oversee any two-tiered system. The Fed is, however, taking steps to gather information after the interchange regulation is implemented to compare the interchange fees provided to small and large debit card issuers and whether merchants are discriminating in the debit cards they will accept. Thompson emphasized that, regardless of what the Fed learns in the next two years about whether there is actually a two-tiered system that benefits smaller financial institutions as envisioned in the Dodd-Frank Wall Street Reform and Consumer Protection Act, no one in Washington expects Congress to be willing to reopen the contentious issue of restrictions on debit interchange income. The webinar, which also covered portions of the new regulation that are effective Oct. 1 on how the “reasonable and proportional” fee cap will be calculated for debit card issuers over $10 billion in assets, will soon be archived by CUNA’s Center for Professional Development and available online. For more on the webinar, use the resource link.

CU v. appraiser suit becomes a federal case

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WASHINGTON (8/4/11)--A lawsuit filed early this year in state court, which claims the faulty work of a real estate appraiser cost a credit union hundreds of thousands of dollars when a borrower defaulted on a mortgage loan, has now become a federal case. The lawsuit was originally filed by Utah Central CU early this year. The credit union alleged it would not have provided a $584,000 mortgage in 2007 if Blaine Park, a licensed appraiser, had not provided an appraisal of $730,000 for the property involved. When the loan defaulted, the credit union sold the property for just over $170,000. The credit union suit charged that the appraiser violated Uniform Standards of Professional Appraisal Practice and claimed that under those standards the appraisal should have been closer to $520,000. The National Credit Union Administration (NCUA) liquidated Utah Central in April due to what the agency called the credit union’s “declining financial condition.” The agency arranged an assisted purchase and assumption with Chartway FCU, of Virginia Beach, Va., and under the arrangement the NCUA assumed millions of dollars of Utah Central’s losses—and succeeded to the credit union’s position as plaintiff in the appraiser lawsuit. Most recently in suit, the U.S. District Court District of Utah, Central Division granted NCUA’s request to move the case to federal court. Also, defendant Park filed a response to charges, including an argument that the plaintiff has fail to state a claim for which relief could be granted.

CUNA calls on Obama to urge MBL passage

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WASHINGTON (8/4/11)--Noting its appreciation for the Obama administration’s support for expanded credit union member business lending (MBL) authority, the Credit Union National Association (CUNA) Wednesday urged President Obama to call upon the U.S. Congress to pass legislation to that effect when it returns from the August recess. In a letter to Obama, CUNA President/CEO Bill Cheney noted that credit unions have been around for more than 100 years to serve their members and some of the earliest credit union members were small entrepreneurs in need of credit to start or run small businesses. “As the economy continues to recover from the financial crisis, Americans need credit unions now more than ever,” Cheney wrote. Legislation to allow increased credit union member business lending is “job-creation legislation that costs the taxpayers nothing and could help employ over 140,000 Americans in the next year, and many more in years to come,” Cheney said. Sen. Mark Udall (D-Colo.) has introduced S. 509 in the Senate and Rep. Ed Royce (R-Calif.) has introduced H.R. 1418 in the House. Both bills would increase the MBL cap to 27.5% of assets, up from the current 12.25%. “On behalf of America’s credit unions and their 93 million members, we appreciate your administration’s support for this legislation and we encourage you to build that support by calling on Congress to pass this bill when it returns from the August recess,” the CUNA letter said. The letter was sent a day after the president signed a bill to increase the nation’s debt ceiling into law and made remarks that Washington must now turn its focus to “what matters most to the American people”—things such as job creation and economic growth. In addition to stimulating job growth, the MBL cap increase would also provide $13 billion in new credit for small businesses in the first year of enactment, CUNA figures show.

Inside Washington (08/03/2011)

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* WASHINGTON (8/4/11)--A recent federal appeals court decision could delay the implementation of several Dodd-Frank Wall Street Reform and Consumer Protection Act regulations. The U. S. Court of Appeals for D.C. Circuit Court ruled last month that the Securities and Exchange Commission did not properly conduct a cost-benefit analysis before finalizing a proxy rule required by the regulatory reform law (American Banker Aug. 3). Financial industry observers say the ruling will cause regulators to carefully justify their decisions for the implementation of new rules moving forward. The entire implementation of Dodd-Frank is at risk if the rules do not withstand court challenges, said Hal Scott, Nomura Professor and director of the Program on International Financial Systems at Harvard Law School. Republicans who opposed Dodd-Frank and have fought many of its regulations said the ruling supports their arguments that the new rules would be costly and burdensome to banks and the financial system …