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Inside Washington (08/07/2012)

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  • WASHINGTON (8/8/2011) --The National Credit Union Administration (NCUA) should consolidate insurance rules, modify loan participation rules and make other changes, the National Association of State Credit Union Supervisors (NASCUS) wrote in a comment letter to the agency.  NASCUS Senior Vice President and General Counsel Brian Knight wrote that the agency should consolidate all share insurance rules applicable to federally insured state-chartered credit unions (FISCUs) into a single chapter or consecutive chapters. He said this change is needed because "identifying which rules incorporated by reference apply to (FISCUs) and which rules do not apply has caused confusion among credit unions and state and federal examiners.''  He also suggested the agency change the rule so that FISCUs don't have to get permission from their NCUA regional director approval before purchasing loans or assuming an assignment of deposits, shares, or liabilities from any entity other than another FISCU. Federal credit unions have fewer restrictions in this area, Knight noted. He also recommended that the NCUA change its rules to let states set thresholds acceptance of public deposits rather than require waivers. He added that state law should control whether FISCUs may issue secondary capital accounts. NASCUS  also recommended that the agency "defer to state rules governing FISCU conversion to federally insured non-credit union status and provide for an exemption under this provision."  The letter is the trade association's annual letter that is sent as part of NCUA's annual review of its Rules and Regulations. ...
  • WASHINGTON (8/8/12)--The Florida Office of Insurance Regulation is investigating the business practices of state force-placed insurance providers. Financial institutions purchase force-placed insurance when mortgage borrowers stop paying for homeowners insurance (American Banker Aug. 7). Although forced-place insurance is legal, investors and consumer advocates have charged that some banks charge a premium for the policies in exchange for kickbacks from insurance companies. Consumer advocates Birny Birnbaum and Robert Hunter allege that servicers and insurers inflate the price of force-placed policies and split the proceeds, creating a climate they call "reverse competition." In an interview Friday, Kevin McCarty, Florida's state insurance commissioner, said the growth of the marketplace has raised concerns in light of those allegations …
  • WASHINGTON (8/8/12)--The Office of Mortgage Settlement Oversight said Monday  it has selected five companies to oversee compliance by the five mortgage servicers that are subject to a $25 billion national mortgage servicing settlement. Joseph A. Smith Jr., monitor of the national mortgage servicing settlement, has selected BKD LLP, Baker Tilly Virchow Krause LLP, Crowe Horwath LLP, Grant Thornton LLP and McGladrey LLP to oversee the implementation of the settlement involving 49 states, the U.S. government and five of the nation's largest banks. The primary role of each firm is to assist the primary professional firm--BDO Consulting--by conducting the evaluation of one servicer that is party to the settlement. The five companies in the settlement are Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial …
  • WASHINGTON (8/8/12)--The National ATM Council (NAC), a trade group representing independent ATM providers, urged Senate leaders to support S. 3394, a bill to eliminate a requirement for a duplicative, external consumer fee disclosure on ATM machines. "The current fee sticker law provides no useful consumer protections and instead has only given rise to a deluge of frivolous litigation against ATM owners nationwide. It is harming a vital industry sector that provides ready access to the cash that helps make our economy tick," wrote NAC Executive Director Bruce Renard in a letter to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky..) last week. The Credit Union National Association (CUNA) supports legislation to eliminate the dual ATM disclosure requirements.  CUNA has said that unless such legislation is enacted, credit unions and other ATM operators will continue to be required to expend resources documenting compliance with a regulatory requirement that is outdated and unnecessary, and will continue to be subject to lawsuits despite their efforts to comply.  A comparable House bill (H.R. 4367) to S. 3394 awaits action in that chamber  …

NCUA issues FAQ on Interest Rate Risk rule

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WASHINGTON (8/8/12)--Credit  unions have to comply with the new rule regarding interest rate risk policies by Sept. 30 and the National Credit Union Administration (NCUA) has issued a document answering frequency asked questions.

The agency notes that compliance with the rule will be one of the preconditions for federal deposit insurance and its examiners will "review the policy and asset liability management programs for effective identification, measuring, monitoring and control of interest rate risk. The objective is to implement the rule consistently while taking into account size and complexity differences among FICU's.''

Credit unions between $10 and $50 million in assets where the Supervisory Interest Rate Risk Ratio ( SIRRT) ratio is less than 100% are exempt as are credit unions with assets of less than $10 million.

"The SIRRT ratio is calculated from call report fields. Total First mortgages is added to Total investments 5 years and greater and then divided by total net-worth. The result of the calculation is a ratio,'' according to the NCUA document (Letter to Credit Unions 12-CU-11).

Its purpose is to "to reduce regulatory burden without adding new reporting requirements to the call report,'' according to the document.

Credit union boards must approve these plans. Among the items that must be part of these each plans are statements of direct actions to ensure that management identifies, measures and monitors interest rate risk and a plan for assessing the impact on interest rate risk before launching new products.

The letter supplements previous letters which dealt with specific sources of risk such as non-maturity shares, liquidity, real estate concentration and balance sheet risk.

Use the resource link to access the NCUA letter.

1000 CUs informed of LICU eligibility

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WASHINGTON (8/8/12)--As promised last month in Chicago at the American Association of Credit Union Leagues (AACUL) summer meeting, the National Credit Union Administration (NCUA) sent letters Tuesday to nearly 1,000 credit unions indicating they are eligible for low-income designation. That designation brings benefits that include the ability to accept supplemental capital and an exemption from the small business lending cap under certain circumstances.

The NCUA touted its initiative to streamline the process for federal credit unions to receive a low-income designation (LICU) as a way to bring more small businesses across America greater access to needed capital from federal credit unions. The greater access to credit, Matz said in the letter, should translate into job creation.

"Providing small businesses with the money needed to open their doors, create jobs, or expand operations will help our economy. This action is particularly timely for the 27 states devastated by this summer's historic drought," Matz said.

The NCUA said its initiative was incorporated into a relief and recovery package for drought-stricken states announced at the White House yesterday. Of the LICU-eligible institutions, 470 federal credit unions--representing 47% of potential new LICUs, 52% of potential new assets, and 54% of potential new members--are headquartered in states identified by the National Oceanic and Atmospheric Administration as having "extreme" drought conditions.

The NCUA projected this initiative could unlock between $250 million and half a billion dollars in new, near-term business lending if all qualified federal credit unions participate. The initiative could double the number of LICUs and increase their member business lending by nearly 75%.

"Rather than waiting for credit unions to complete the required paperwork to become a LICU, NCUA today contacted 1,003 credit unions alerting them of LICU eligibility. Credit unions receiving letters may now opt-in with a simple reply that agrees to the LICU designation," Matz noted when announcing the agency's action.

To qualify as a LICU, a majority of a federal credit union's membership must meet low-income thresholds based on 2010 Census data. In addition to the exemption from the 12.25% statutory cap on member business lending for credit unions, other advantages derived from the LICU designation include:

  • Eligibility for Community Development Revolving Loan Fund grants and low-interest loans,
  • Ability to accept deposits from non-members, and
  • Authorization to obtain supplemental capital.


"Member business lending by credit unions sensibly diversifies portfolios and fills a market need," concluded Matz. "Credit unions often make the small business loans that other lenders avoid. A 2011 Small Business Administration-commissioned study also found that more than 80 cents of every dollar in credit union member business lending is an entirely new source of capital not available in the market today."

The average member business loan for all credit unions is $223,000.

Access to liquidity questions answered by NCUA

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WASHINGTON (8/8/12)-- Because the role of the Central Liquidity Facility (CLF) as a liquidity provider  will change when U.S. Central Bridge FCU closes, the National Credit Union Administration (NCUA) has issued a FAQ letter to credit unions.

"Some corporate credit unions may choose to become agents by subscribing to CLF stock on behalf of their natural person credit union members. NCUA is working with corporate credit unions to allow for an orderly transfer of the corresponding portion of CLF capital stock now held by U.S. Central Bridge.

"When the existing agent-group arrangement with U.S. Central Bridge terminates, those natural person credit unions without regular (direct) membership will not have CLF access for contingent liquidity unless their corporate credit union has purchased stock on their behalf,'' according to the NCUA in a Letter to Credit Union (12-CU-10).

Credit unions are permitted to use the Federal Reserve Discount Window to meet contingent liquidity needs. However, only credit unions holding liabilities subject to reserve requirements may establish borrowing privileges at the Federal Reserve.

A credit union can be a direct member of the CLF if it subscribes to the capital stock of the CLF and complete certain documentation. The required stock subscription amount equals 1/2 of one percent of the credit union's paid-in and unimpaired capital and surplus.

Last month, the board sent out for a 60-day comment period a proposed rule requiring all FICUs with assets of $10 million or more to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations.

Credit unions with less than $10 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action.

CUNA President/CEO Bill Cheney said CUNA has serious concerns about any new rule for credit unions, including in the area of liquidity. The CUNA CEO urged the agency to focus on the guidance the federal financial agencies have already produced on liquidity issues, rather than release new rules.

The NCUA has scheduled a webinar on the proposed rule and the status of the CLF on Aug. 14. The agency has also said it will have a webinar on the impact of U.S. Central's closing in October.

Upcoming comment deadlines cover range of issues

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WASHINGTON (8/13/12)--Congress is on recess until early September but there are several regulatory deadlines in the weeks ahead of which credit unions need to be aware.

They include:

  • The Commodity Futures Trading Commission: A proposed rule exempting certain swaps executed by cooperatives from the agency's swap-clearing requirement. The proposed rule allows cooperatives to be exempt if its members are non-financial entities or financial entities that are eligible for a small financial institutions' exemption. The rule would only allow the exemption to apply to swaps entered into with a member of the exempt cooperative in connection with originating loans for its members or swaps entered into to hedge or mitigate risk. Comments are due to the agency on Aug. 16.
  • Federal Deposit Insurance Corporation: A proposed rule that provides a list of the activities that would be considered in determining whether a company is predominantly engaged in financial activities for purposes of enforcing the Dodd-Frank Act. The proposed rule deals with activities such as extending credit, securitization, community development activities, and insurance. Comments are due to the agency on Aug. 17.
  • Consumer Financial Protection Bureau (CFPB): The bureau is seeking information regarding the programs and products that credit unions and other financial institutions have in place for senior citizens. It plans to use the information, combined with ongoing research, to develop goals for programs that provide financial literacy and counseling for senior citizens. The Credit Union National Association (CUNA) requests comment by Aug. 10. Comments are due to the bureau by Aug. 20.
  • CFPB: Combined Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) mortgage disclosure forms. This proposal describes the single form that credit unions and other lenders would have to give all persons to whom they are issuing mortgages. It combines the separate disclosure requirements mandated by RESPA and TILA and seeks to simplify the disclosure form and eliminate redundancies. In addition, the proposed rule would require most up-front costs associated with a closed-end mortgage secured by land or a dwelling to be included in the finance charge. The proposal would also require lenders to keep records relating to the new forms in a standard, "machine readable" electronic format which may be problematic for smaller institutions. Comments on the proposal are generally due Nov. 6. However, provisions regarding the finance charge and the annual percentage rate, as well as the delayed effective date of several of the new disclosures under the Dodd-Frank Act, are open for comment only through Sept. 7. CUNA asks credit union to submit their comments to CUNA by Aug. 10. Comments are due to the CFPB by Sept. 9.
  • CFPB: A proposed rule implementing changes on providing credit counseling information to people who take out high-cost mortgages. The proposal would mandate that lenders distribute a list of homeownership counselors or counseling organizations to consumers within a few days after applying for any mortgage loan. It implements provisions of the Dodd-Frank Wall Street Reform Act and makes changes to the Home Ownership and Equity Protection Act (HOEPA). The proposal also would implement a requirement that first-time borrowers receive homeownership counseling before taking out a negatively amortizing loan. According to the bureau, under the proposed rule "most types of mortgage loans secured by a consumer's principal dwelling, including purchase money mortgage loans, refinances, closed-end home-equity loans, and open-end credit plans (i.e., home-equity lines of credit, or HELOCs) are potentially subject to HOEPA coverage. Reverse mortgages would still be excluded.'' Comment due Sept. 7.
  • CFPB: Proposal on financial education practices. The agency is seeking information on what are the most effective financial education programs and how can the agency better disseminate financial literacy information. The agency asks respondents to answer questions, such as: In your experience, what are consumers' most common financial decision-making challenges? Is there a common set (or lack) of habits, attitudes, or practices, and if so, what are they?  Comments are due Oct. 31.
Use the links below to access the rules.

HARP refinances hit highest-ever level

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WASHINGTON (8/8/12)--In its just-released June Refinance Report, the Federal Housing Finance Agency (FHFA) said that one of every three refinances through Fannie Mae and Freddie Mac were made through the Home Affordable Refinance Program (HARP).  FHFA said that is the highest percentage claimed by the program since its inception in April 2009.

The FHFA attributed the HARP volume increase to record-low mortgage rates, as well as enhancement instituted to the program last fall.  Those changes included removal of the loan-to-value (LTV) ceiling for borrowers who refinance into fixed-rate loans and the elimination or reduction of fees for certain borrowers.

Also in the report, the FHFA reported that:

  • Through June of this year, Fannie Mae and Freddie Mac refinanced 422,969 loans through HARP, more than the total 400,024 HARP refinances for all of 2011;
  • HARP refinances for loans with LTV greater than 125% jumped to more than 40% of HARP volume in June as lenders began to sell Fannie Mae and Freddie Mac securities containing these loans June 1;
  • More than two-thirds of borrowers in Nevada, Arizona and Florida-- states hard-hit by the housing downturn--refinanced through HARP in June, compared with 33% nationwide;
  • Also in Nevada, Arizona and Florida, underwater borrowers (with LTV greater than 105%) represented more than 80% of HARP volume in June;
  • Since 2009, Fannie Mae and Freddie Mac refinanced more than 2.2 million loans through their existing programs and more than 1.4 million loans through HARP.

NCUA reminder 18 rate on loans by FCUs

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WASHINGTON (8/8/12)--Federal credit unions (FCUs) may charge no more than 18% on most of their loans, the NCUA reminded them in a letter (12-FCU-04).

"We must reconsider an approved rate over 15% at least every 18 months. The current established 18% percent rate ceiling expires on September 10, 2012. Our decision extends the 18% ceiling for 18 months beginning September 11, 2012 through March 10, 2014,'' NCUA Chairman Debbie Matz wrote.

She noted that the board extended the rate at its July meeting.

The 1980 Depository Institutions Deregulation and Monetary Control Act raised that ceiling to 15%, up from 12%, and authorized further increases--up to 21%--at NCUA board discretion for periods not-to-exceed 18 months provided.

The ceiling has been re-set at the current 18% level since May 1987.

The interest-rate ceiling applies to all federal credit union lending, except originations under the short-term small loan program. The current limit on short-term small loans is 28%.

Increases over the 15% cap may only occur if money market interest rates have risen in the last six months and disintermediation threatens the credit union system.

The NCUA staff discussed at the July meeting that a reduction in the ceiling could impact a large number of federal credit unions and their loans, since about 62% have some loans at rates above 15%.

In the letter, Matz said the decision also preserves the ability of FCUs to offer a payday loan alternative at a rate of 28% under NCUA's Short-Term Small Loan Program.

Use the resource link to read the NCUA's Letter to Federal Credit Unions.

CFPB sets exemptions to remittance disclosures

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WASHINGTON (8/8/12)--The Consumer Financial Protection Bureau (CFPB) Tuesday released its long-anticipated rule that will provide a safe harbor exemption for certain institutions from the requirements of the remittances rule issued previously by the CFPB that implements provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding new consumer disclosures for remittance transfers.

The Credit Union National Association (CUNA) had warned the bureau that its remittance transfer rule, as proposed, would impose unsustainably high compliance costs and legal liabilities that could force credit unions with relatively small volume international payments programs to eliminate such programs.

CUNA had urged the bureau to increase its proposed safe harbor exemption for small remittance issuers from 25 remittances per year to no fewer than 1,000 remittances a year.

Although the CFPB did increase the safe harbor exemption in the final rule, it extended it only to providers that transact 100 or fewer remittances per year.  The CFPB indicated at least 80% of credit unions that offer remittance services would be exempt.

In response to the CFPB announcement Tuesday, CUNA president/CEO Bill Cheney said CUNA remains very concerned about the safe harbor provisions.

"Together with state credit union leagues and associations, credit unions and other trade groups, we have advocated for meaningful relief from this requirement during the enactment of the Dodd-Frank Act and throughout the rulemaking process over the past two years.

"We are reviewing our options including appealing the rule with the Financial Stability Oversight Council (FSOC), which can overturn CFPB rules," the CUNA leader said.

The CFPB, in a release, said it concluded that those institutions that consistently conduct 100 or fewer remittance transfers per year do not provide transfers in the "normal course of business" and therefore are not subject to the new requirements.

Also, the CFPB said,  if a company that provided 100 or fewer remittance transfers in the previous year provides more than 100 remittance transfers in the current year, the rule provides a reasonable transition period to come into compliance

The bureau's new remittance disclosure rule will take effect Feb. 7, 2013. This final rule is only on the safe harbor and preauthorized transfers.  It affects international wires and international ACH transfers.

Disclosures must generally be provided when the consumer first requests a transfer and again when payment is made. The rule also provides consumers with error resolution and cancellation rights.

CUNA's Cheney is scheduled to discuss credit union issues with CFPB Director Richard Cordray on Aug. 14, and Cordray also will be the speaker on a CUNA webinar Aug.  30, with Cheney, to discuss credit union concerns and issues on a range of topics, including remittances.

Also, CUNA Deputy General Counsel Mary Dunn is one of three financial institution representatives who is addressing CFPB staff today at an agency conference.  She will be pointing out credit unions' many concerns with the CFPB, including those involving remittances rules. She will also address concerns that the CFPB is creating undue regulatory burdens for credit unions.

Use the resource links below to read the CFPB rule, and also to access CUNA's Comment Letters on the bureau's proposal.

Streamlined LICU eligible to help credit access NCUA

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WASHINGTON (8/8/12)--As promised last month in Chicago at the American Association of Credit Union Leagues (AACUL) summer meeting, the National Credit Union Administration (NCUA) sent letters Tuesday to nearly 1,000 credit unions indicating they are eligible for low-income designation. That designation brings benefits that include the ability to accept supplemental capital and an exemption from the small business lending cap under certain circumstances.

The NCUA touted its initiative to streamline the process for federal credit unions to receive a low-income designation (LICU) as a way to bring more small businesses across America greater access to needed capital from federal credit unions. The greater access to credit, Matz said in the letter, should translate into job creation.

"Providing small businesses with the money needed to open their doors, create jobs, or expand operations will help our economy. This action is particularly timely for the 27 states devastated by this summer's historic drought," Matz said.

Credit Union National Associaton (CUNA) President/CEO Bill Cheney said of the NCUA announcment, "The NCUA board clearly understands the pressing need for expanded authority in credit union member business lending to help spur the economy, and to give credit unions more flexibility to match their growth with supplemental capital. We appreciate the effort.

"The fact remains, however, there are thousands of credit unions that cannot win the LICU designation, for one reason or another. These credit unions can go no further in helping their members help their local economies--or to grow in order to match their members' needs--without changes in the law that limits credit union member business lending.

"We will continue to vigorously pursue those changes with Congress on behalf of our members."

The NCUA said its initiative was incorporated into a relief and recovery package for drought-stricken states announced at the White House yesterday. Of the LICU-eligible institutions, 470 federal credit unions--representing 47% of potential new LICUs, 52% of potential new assets, and 54% of potential new members--are headquartered in states identified by the National Oceanic and Atmospheric Administration as having "extreme" drought conditions.

The NCUA projected this initiative could unlock between $250 million and half a billion dollars in new, near-term business lending if all qualified federal credit unions participate. The initiative could double the number of LICUs and increase their member business lending by nearly 75%.

"Rather than waiting for credit unions to complete the required paperwork to become a LICU, NCUA today contacted 1,003 credit unions alerting them of LICU eligibility. Credit unions receiving letters may now opt-in with a simple reply that agrees to the LICU designation," Matz noted when announcing the agency's action.

To qualify as a LICU, a majority of a federal credit union's membership must meet low-income thresholds based on 2010 Census data. In addition to the exemption from the statutory 12.25% statutory cap on member business lending for credit unions, other advantages derived from the LICU designation include:

  • Eligibility for Community Development Revolving Loan Fund grants and low-interest loans,
  • Ability to accept deposits from non-members, and
  • Authorization to obtain supplemental capital.
"Member business lending by credit unions sensibly diversifies portfolios and fills a market need," Matz said.

She added, "Credit unions often make the small business loans that other lenders avoid. A 2011 Small Business Administration-commissioned study also found that more than 80 cents of every dollar in credit union member business lending is an entirely new source of capital not available in the market today."

The average member business loan for all credit unions is $223,000, according to the regulator.

NEW CFPB issues final rule on remittance disclosures

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WASHINGTON (UPDATED 8/7/12 4:05 p.m. ET )--The Consumer Financial Protection Bureau (CFPB) just released its long-anticipated rule implementing provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act that require remittance transfer providers to disclose fees upfront, as well as the exchange rate and the amount to be received by the recipient.

The Credit Union National Association (CUNA) had warned the bureau that its remittance transfer rule, as proposed, would impose unsustainably high compliance costs and legal liabilities that could force credit unions with relatively small volume international payments programs to eliminate such programs.

CUNA had urged the bureau to increase its proposed safe harbor exemption for small remittance issuers up from 25 remittances per year to no less than 1,000 remittances a year.

Although the CFPB did increase the safe harbor exemption in the final rule, it extended it only to providers that transact 100 or fewer remittances per year.

The bureau's final remittance rule will take effect Feb. 7, 2013.

Disclosures must generally be provided when the consumer first requests a transfer and again when payment is made. The rule also provides consumers with error resolution and cancellation rights.

This final rule is only on the safe harbor and preauthorized transfers.  It affects international wires and international ACH transfers.

Watch tomorrow's News Now for more detail.