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CUNA, Coalition Ready Response, Strategy on Interchange Ruling

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WASHINGTON (8/6/13)--The Credit Union National Association will meet with a broad coalition of finance industry representatives this week to chart a response strategy and approach to last week's U.S. District Court decision striking down the Federal Reserve's price caps on debit interchange fees.

CUNA also is contacting Federal Reserve staff to detail the negative impact of the ruling on credit unions and other small card issuers as that agency considers an appeal.

"While the Fed will make its decision independently, CUNA will make sure that Fed attorneys are aware of the potential negative impact of this decision on credit unions," CUNA General Counsel Eric Richard said.

U.S. District Court for the District of Columbia Judge Richard Leon last week ruled the Fed did not follow congressional intent when it implemented the cap and other changes imposed by what is known as the Durbin amendment. 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. A hearing has been set for Aug. 14.

Richard said the court's decision will challenge credit unions to continue their debit card programs without incurring drastic cuts in revenue, or imposing additional fees on their members. Credit unions with under $10 billion in assets will still be shielded from the interchange rule, he emphasized.

The court decision will not immediately impact interchange regulations. Those rules will stay in place for the time being. However,  CUNA notes, all issuers, regardless of size, will be affected by the decision and the Durbin regulation with regard to routing and exclusivity provisions.

The Fed interchange standard limits debit interchange fees for issuers with assets of $10 billion or more to 21 cents, and allows an additional five basis points per transaction to be charged to cover fraud losses. An extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards. Most credit unions are exempt from the fee cap.

CUNA Derivatives Comments Reach WSJ Audience

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WASHINGTON (8/6/13)--Credit Union National Association concerns regarding potential credit union derivatives changes received a broad audience this week, as Deputy General Counsel Mary Dunn outlined CUNA's objections to the National Credit Union Administration's proposal in The Wall Street Journal.

The NCUA derivatives proposal, released at the May open board meeting, would allow well-run federal credit unions to use simple derivatives for the sole purpose of hedging against interest rate risks. The NCUA plan would allow only well-managed credit unions with $250 million or more in assets, and which have appropriate expertise, to apply for an agency derivatives investment program. Simple swaps and caps will be the only approved investments, and fees will be charged to cover costs related to application processing and supervision of the program.

"If derivatives reduce [interest rate risk], then NCUA should be encouraging credit unions to make appropriate use of permissible derivative options instead of erecting barriers to their use, such as fees to apply the authority or for supervision," Dunn told the Journal.

CUNA in a comment letter filed last month said the proposed derivatives rule compliance costs are excessive and would place derivatives authority out of reach for many, if not most, credit unions seeking derivatives authority.

Credit unions are also concerned by portions of the rule addressing:
  • The possibility of waivers to gain additional derivatives authority;
  • The $250 million net worth requirement to qualify for derivatives authority; and
  • Expertise requirements.
CUNA and credit unions do not think the NCUA's derivatives proposal framework enables reasonable participation subject to appropriately calibrated requirements.

If the regulation is adopted as proposed, the NCUA "will virtually assure minimal use of derivatives, thus undermining the very purpose of the agency's own rule," Dunn said.

Corporate Assessment, MBL, CUSO Rule Changes Urged In CUNA Letter To NCUA

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WASHINGTON (8/6/13)--There are a number of immediate actions the National Credit Union Administration could take that would greatly improve the credit union regulatory framework, the Credit Union National Association told the agency Monday.

The NCUA should consider:
  • Ending assessments for the Temporary Corporate Credit Union Stabilization Fund (TCCUSF);
  • Revamping its member business lending (MBL) rule; and
  • Cancelling or revamping a proposed credit union service organization (CUSO) rule that has been delayed for nearly two years.
CUNA Deputy General Counsel Mary Dunn made the recommendations in a CUNA comment letter as NCUA reviews one-third of it body of regulations, as it does each year.

The agency should alter its MBL rule to give credit unions more latitude and authority to conduct those loans, Dunn recommended in the CUNA letter.

Dunn suggested that "all of the regulatory requirements for MBLs that are not specifically required by the Federal Credit union Act" be eliminated for well-managed, well-capitalized credit unions that operate successful MBL programs, including:
  • The requirement for the personal guarantee of the borrower(s);
  • Loan-to-value ratios;
  • Construction and development loan limits;
  • Appraisal requirements.
"At the very least, we urge the agency to develop and implement in all regions a waiver process that will be timely and allow credit unions to obtain much needed flexibility in operating their member business loan programs," Dunn wrote. She also urged the agency to revisit exemptions for federal credit unions under the "history of primarily making" language in the FCU Act.

The CUNA letter also called on the agency to minimize CUSO regulatory requirements and revamp CUSO requirements contained in its proposed derivatives rule. "A new broad rule regarding CUSOs should not be driven by problems a few credit unions have encountered with their CUSOs, particularly when the vast majority of CUSOs are operated in a safe and sound manner, providing much needed services to credit unions and their members," Dunn said.

TCCUSF assessments "are a major burden to credit unions," she added. The CUNA letter reiterated recent CUNA comments that this year's assessment of 8 basis points should cover the remaining losses on the legacy assets. "With the improvement in the performance of legacy assets, assessments are no longer necessary," the letter added.

Overall, the CUNA letter noted, compliance costs resulting from regulatory burdens continue to be one of the major concerns and operational hurdles for credit unions. The annual regulatory review is an opportunity for the agency to minimize the regulatory burden for credit unions and decrease their costs, Dunn said.

For more CUNA comment on other items on the NCUA's full 2013 review list, use the link.

NEW: NCBA Urges House, Senate Tax Policy Writers to Support CU Status

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WASHINGTON (8/6/13, UPDATED 4: 33 p.m. ET)--The National Cooperative Business Association (NCBA) has sent letters to every member on the House Ways and Means and Senate Finance committees to "strongly encourage" the federal tax policy makers to "advocate for the retention of the credit union tax exemption during your deliberations on tax reform."

NCBA President/CEO Michael Beall wrote, "As not-for-profit, member-owned financial cooperatives, credit unions return almost all of their earnings to their member-owners. Whether this is in the form of better rates on savings and loans, lower fees, or generally better services, this is a real-world example of how credit unions use the tax exemption to make a difference in the financial lives of their members.
"In addition, the credit union presence in the financial marketplace demonstrably benefits non-members as well, by providing marketplace competition and enhanced consumer choice.
"Studies have shown that credit unions provide over $10 billion annually in benefits to members and non-members, an amount that far exceeds the Joint Committee on Taxation estimate of $500 million that a tax on credit unions would generate."

Credit Union National Association President/CEO Bill Cheney said credit unions deeply appreciate cooperatives' voice in supporting the credit union tax exemption.

Comments Due Sept. 30 For NCUA Minority CU Program

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 WASHINGTON (8/6/13)--As the National Credit Union Administration moves forward to create a Minority Depository Institution (MDI) Preservation Program, credit unions and other interested parties have until Sept. 30 to make their views known.
At its July 25 open board meeting, the NCUA issued an  Interpretive Ruling and Policy Statement (IRPS 13-1) to prescribes an MDI program and its eligibility criteria, initiatives and benefits. (News Now July 26)
The program is reflective of ones established in 1989 under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) for the Federal Deposit Insurance Corp. and the now-defunct Office of Thrift Supervision, in response to the failure of the Federal Savings and Loan Insurance Corporation.

FDIC and OTS developed various initiatives, such as training, technical assistance, and educational programs, aimed at preserving federally insured banks and savings institutions that meet FIRREA's definition of a minority depository institution.
Under the 2010 Dodd-Frank Act, FIRREA was applied to the NCUA, the Office of the Comptroller of the Currency and the Federal Reserve Board. Dodd-Frank also requires these agencies, along with FDIC, to each submit an annual report to the U.S. Congress describing actions taken to carry out FIRREA.

Use the resource link to read the NCUA IRPS published in the Federal Register, which set the Sept. 30 comment deadline.