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Wis. bankers mischaracterize tax report says league

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PEWAUKEE, Wis. (9/2/10)--The Wisconsin Bankers Association (WBA) is mischaracterizing an advisory panel's report on possible tax law revisions by focusing on one option mentioned, according to the Wisconsin Credit Union League. After the President's Economic and Recovery Board (PERAB)--an outside advisory panel that is not part of the Obama administration--released Monday a report listing possible options to consider for tax reform, WBA issued a press release urging the elimination of credit unions' corporate tax exemption. (To access the release, use the link.) The 118-page report lists the exemption among a number of options. "There they go again," said Brett Thompson, president/CEO of the Wisconsin Credit Union League. "WBA is blatantly mischaracterizing information to suit its own anti-consumer agenda." He noted the report, "which is by an independent panel not tied to government despite its use of the term 'presidential' in its name, merely states a list of options the government could pursue to reform tax law." WBA failed to mention the report "has at least six mentions of Subchapter S arrangements--arrangements often used by banks to reduce their tax obligation," Thompson said. "While banks have forever wished to heap more taxes on the already tax-burdened residents of Wisconsin who own credit unions, no one who sets public policy has ever deemed that a good move--and for good reason," he said. "I don't believe for a second that the President or Congress wants to raise taxes on 92 million Americans in this manner considering the current economic climate." When the PERAB report was released, the Credit Union National Association (CUNA) sent a letter PERAB board members to underscore the public-policy value of the federal credit union tax status. CUNA President/CEO Bill Cheney immediately and adamantly defended the credit union tax exemption, explaining that the strong public-policy reasons that first inspired that tax status remain valid today. "It may be the case that not all tax preferences have lived up to expectations, but the credit union tax exemption is one of the highest-yielding investments the federal government has made," Cheney wrote. CUNA figures show that America's 92 million credit union members receive substantial benefits in the form of better pricing on services, saving them about $7.5 billion a year. The savings to consumers is especially significant when measured against the $1.5 billion in potential revenue a year that the government says is represented by the credit union tax exemption. "The tax exemption helps to ensure consumers have choices beyond commercial banks in the financial marketplace. It is appropriate to view these results not as an economic distortion," Cheney said, referring to the report's own language, "but as evidence of sound public policy." "CUNA will continue our strongest efforts to ensure that policymakers understand the purpose and effects of the credit union tax exemption," Cheney concluded, offering to meet and discuss points raised in his letter. The letter was sent also to representatives of the U.S. Treasury Department and White House, as well as to congressional leaders and National Credit Union Administration Chairman Debbie Matz.

Inside Washington (09/01/2010)

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* ALEXANDRIA, Va. (9/2/10)--Credit unions interested in accessing the Federal Reserve Board’s sample opt-in notice for overdraft services can do so through a regulatory alert (10-RA-12) recently posted by the National Credit Union Administration. As of Aug. 15, financial institutions are prohibited from charging consumers fees for paying overdrafts on ATM transactions and one-time debit card transactions unless consumers specifically “opt in” to overdraft services. While the alert noted that credit unions are not required to use the Fed’s sample notice, the NCUA said the model is a convenient way to provide the required notice to members. “The Fed’s easy-to-understand notice was created to raise consumers’ awareness of overdraft fees, as well as options available to reduce those fees,” the alert said … * WASHINGTON (9/2/10)--The Financial Crimes Enforcement Network (FinCEN) last week assessed a civil money penalty against a North Carolina limited liability company (LLC) for what the agency identified as a host of offenses against anti-money laundering (AML) and suspicious activity rules under the Bank Secrecy Act (BSA). Pinnacle Capital Markets, LLC, based in Raleigh--without admitting or denying either the facts or determinations of FinCEN--consented to the penalty. Among the charges alleged by FinCEN were these failures: lack of adequate internal controls combined with deficient training and independent testing, resulting in an ineffective AML compliance program not tailored to the risks of Pinnacle’s business; failure to verify the identity of customers by not obtaining required customer identification program information for accountholders; and deficiencies in the firm’s procedures and monitoring for suspicious transactions leading to failure to file suspicious activity reports in accordance with the BSA. FinCEN also determined that Pinnacle’s business model encompassed heightened AML risk due to concentrated exposure to high risk foreign jurisdictions. This civil money penalty order states that the fine will be paid in two $25,000 payments to the Treasury Department … * WASHINGTON (9/2/10)--Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said the agency is preparing an interim rule regarding its new resolution authority over systemically important financial institutions and nonbanks. The rule will clarify how the agency will treat creditors, Bair said (American Banker Sept. 1). The FDIC will follow the same priority that bankruptcy court does in regards to concerns over the regulatory reform law--signed July 21--which gives FDIC flexibility to differentiate among creditors during a resolution. The authority would be used only to maximize recovery she added ... * WASHINGTON (9/2/10)--The Financial Crisis Inquiry Commission Wednesday tried to overturn the notion that Wells Fargo’s purchase of Wachovia was completed without the government’s help. During a hearing, members focused on a change to tax code made by the Internal Revenue Service (IRS) after the Federal Deposit Insurance Corp. said it would provide open-bank assistance to Wachovia (American Banker Sept. 1). Under the deal, announced Sept. 25, 2008, the FDIC would have guaranteed Wachovia’s sale to Citigroup. A few days later, the IRS announced a change to allow banks to carry over losses from the acquisition of a troubled institution. Robert Steel, former Wachovia CEO, said the deal wasn’t a government bailout because it helped several institutions. Bill Thomas, commission vice chair, said the change was a “rifle shot,” because the IRS modified the law for a certain group of institutions. Congress later reversed the change ...

136.9 million-asset First American CU closed

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ALEXANDRIA, Va. (9/2/10)--First American CU, a $136.9 million-asset credit union, was closed by state authorities Tuesday due to what regulators termed its declining financial condition. The National Credit Union Administration (NCUA) was appointed liquidating agent. First Community FCU, of Parchment, Mich., signed an agreement with the NCUA under which it assumes the assets and liabilities of the closed credit union and serves its almost 17,500 members. First Community, with its 12 branches, also serves those who live, work, worship, or attend school in and businesses and other legal entities located in Allegan, Barry, Berrien, Branch, Calhoun, Cass, Kalamazoo, St. Joseph, or Van Buren Counties, Michigan. It has $474 million in assets and serves approximately 61,000 members. First Community FCU is a full-service credit union with 12 branches in Michigan. First American CU's declining financial condition led to its closure and subsequent purchase and assumption. At closure, First American CU had $136.9 million in assets and served over 17,447 members. First American is the 15th federally insured credit union liquidation in 2010.

Compliance Have whistleblower policy in place

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WASHINGTON (9/2/10)--Does your credit union have a whistleblower policy? This is the opening question in Credit Union Magazine’s September compliance article, “Consider Whistleblower Policy Protections.” The article explains how a whistleblower policy can protect a credit union, its employees, and volunteers when there are concerns about possible wrongdoings in the credit union. Christopher Pippett, a Pennsylvania attorney who advises credit unions, explains the growing interest in these policies. “Tax-exempt organizations began seriously focusing on the desirability of having a whistleblower policy a couple of years ago when the Internal Revenue Service (IRS) revised its Form 990…The IRS explains in its instructions that it believes having a whistleblower policy is one indicator of good governance practices.” Form 990, “Return of Organization Exempt from Income Tax,” requires state-chartered credit unions to report annually whether they have a whistleblower policy. Pippett also notes provisions in the new financial reform law that, while not applicable to credit unions, address whistleblower policies to protect employees against employer retaliation for reporting suspicious securities activities of publicly traded companies. This shows the government’s continued interest in businesses providing employees a way to report concerns, he writes. In his article, Pippett discusses what a good whistleblower policy should address, and suggests an outline of a possible policy for credit unions, which should state:
* The purpose of the whistleblower policy; * The expectation that employees and volunteers will report concerns; * The reporting process; * The fact that no retaliation for reporting will occur, as long as the person is acting in good faith; * The fact that reports will be handled confidentially; * What the credit union will do in general terms to investigate any reported concern; and, * How the credit union will inform employees and volunteers of the whistleblower policy.
Pippett notes that numerous examples of whistleblower policies from a variety of non-profit organizations are readily available on the Internet. All of Credit Union Magazine’s compliance articles can be found on CUNA’s compliance webpage.

NCUA files amended complaint in WesCorp suit

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ALEXANDRIA, Va. (9/1/10)—In its roles as conservator of Western Corporate FCU (“WesCorp”) and plaintiff in a lawsuit against the corporate’s former directors and current and former officers, the National Credit Union Administration (NCUA) Tuesday filed an amended complaint with the U.S. District Court for the Central District of California. The action amends a November 2009 complaint filed by the original plaintiffs--lst Valley CU, Cascade FCU, Glendale Area Schools FCU, Kaiperm Northwest FCU, Northwest Plus CU, Stamford FCU, and Tulare County FCU—which were all members of WesCorp. But like that complaint, the new documents allege various breaches of fiduciary duties of care and gross negligence on the part of fifteen former WesCorp directors and officers in connection with over-concentration of certain types of Option ARM Mortgage Backed Securities. The complaint also alleges breaches of fiduciary duty and fraud on the part of two former WesCorp officers and unjust enrichment on the part of one former officer in connection with irregular payments from WesCorp’s Supplemental Executive Retirement Plans. Credit Union National Association (CUNA) President/CEO Bill Cheney is among the former directors named in the suit. Learning of NCUA’s amended complaint, CUNA Chairman Harriet May strongly disagreed with NCUA’s decision to include Cheney and noted that she and the CUNA board recognized his service to WesCorp ended in February 2006, before most of the securities that caused losses were even purchased and during a time when NCUA had an examiner of its own on-site at WesCorp. “Bill served voluntarily on the corporate board with utmost professionalism, adhered strictly to his fiduciary duties and acted in the best interests of Wescorp’s member credit unions--including his own at the time,” noted May, who is also CEO of GECU in El Paso, Texas. “Bill is a man of the highest integrity who has spent 25 years in the credit union movement--actively seeking and attaining state and national leadership roles--with a singular dedication to its success, and nothing else,” she said.