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Inside Washington (09/13/2010)

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* WASHINGTON (9/14/10)--The Obama administration will likely announce a nominee to head the Consumer Financial Protection Bureau soon, President Barack Obama said Friday during a news conference (American Banker Sept. 13). He noted the top candidate for the position, Elizabeth Warren, is a close friend. Consumer advocates have supported Warren to head the bureau. Warren, who chairs the Congressional Oversight Panel, recently cancelled classes she teaches at Harvard University. The cancellation, and a meeting she had with the president in Washington, D.C., last week, triggered rumors about the possibility of her heading the bureau ... * WASHINGTON (9/14/10)--Higher capital standards aren’t enough to fix structural problems in the financial industry, according to Paul Volcker, former Federal Reserve Board chairman. When a bank “goes bad,” it doesn’t matter how much capital it has, Volcker said during an economic roundtable in Calgary, Alberta. The problem of “too big to fail” has not been solved, and there should be some rules that maintain separation between the central bank and trading activity, he added. The Volcker Rule, named after Volcker, was included in financial regulatory reform and aims to limit commercial banks’ ability to engage in proprietary trading (American Banker Sept. 13) ... * WASHINGTON (9/14/10)--The Office of Financial Research (OFR), created under the regulatory reform bill, will collect data for the Financial Stability Oversight Board to identify risks to the financial system. Observers told American Banker (Sept. 13) the office will likely encounter some challenges, such as deciding who to target, how much information will be collected and how to analyze the data. Too much data could overwhelm regulators, observers said. Sifting through the data could be tough, said Phil Swagel, professor at Georgetown University and former Treasury economist. Andrew Freeman, executive director of the Deloitte Center for Financial Services, said the OFR could be a “game-changer” because it could help policymakers make more informed decisions ...

NCUA closes merges P.R.-based 3.6M asset FCU

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ALEXANDRIA, Va. (9/14/10)–-The National Credit Union Administration (NCUA) on Monday approved the liquidation of the $3.6 million asset, 1,956 member Industries Puerto Rico FCU. The credit union, which was based in Manati, P.R., was then purchased by $16.3 million asset Borinquen Community FCU. In a release, NCUA said that Industries Puerto Rico’s worsening financial condition resulted in its liquidation. Industries Puerto Rico FCU is the 15th federally insured credit union to be liquidated this year. NCUA recently said that it would look for ways to improve the overall merger process. It told the Credit Union National Association that it would release a national merger registry, which would provide the names of potential credit union merger partners, in October. For the full NCUA release, use the resource link.

More on SAFE Compliance Sample policy

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WASHINGTON (9/14/10)--The Credit Union National Association (CUNA), in response to inquiries, has written a sample policy that credit unions may find useful to review in developing their own Safe and Fair Enforcement for Mortgage Licensing Act (SAFE) policy that must be adopted by Oct. 1. “Credit unions are concerned about how to devise a policy to comply with the SAFE regulations when they are uncertain about all the actual registration requirements,” said Valerie Moss, CUNA’s director of compliance information. “CUNA has put together a sample drawn from the regulatory requirements and definitions. As the National Credit Union Administration admitted in a recent Letter to Credit Unions on SAFE (No. 10-CU-13), a credit union is going to have to revisit whatever SAFE policy it adopts and develop its actual procedures once the registration procedures are announced by the Conference of State Bank Supervisors (CSBS), which is in charge of developing the national registry,” she added. “Besides requests for a sample policy, we’ve received a number of questions on who is actually required to do the background check,” Moss noted. “The CSBS told us last week that it will be a ‘fingerprint-based criminal background check.’ The employee required to register will be directed to local offices where fingerprints will be taken in order to maintain a secured process. The registry’s network, not the credit union, will conduct the background check based on the fingerprints.” CSBS told CUNA last week that 95% of the fingerprints taken in its current licensing system have been digital, which provides greater accuracy with a quick turnaround time. Credit unions should generally expect to receive the background report within 24 hours, unless there are problems with the quality of the fingerprints, which of course will delay the ability to get the individual employee registered. As reported yesterday, credit unions will be charged a fee, yet to be announced, for the background check. Use the resource links below.

CUNA backs Treas. core educational concepts

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WASHINGTON (9/14/10)--The Credit Union National Association (CUNA) has come out in support of the U.S. Treasury Financial Literacy and Education Commission's proposed core financial literacy concepts, adding that the concepts the commission has proposed--earning, spending, saving, borrowing, and protecting against risk--are clear, concise, and thorough. The commission’s core concepts provide an excellent foundation “on which to structure financial education,” CUNA added. CUNA also thanked the commission for avoiding references to any specific type of financial institution in its developed financial education core competencies. In addition, CUNA recommended that the commission enhance the list of core concepts by adding information on debt reduction, credit scores, financial planning, and credit rating establishment, among other issues. Though classroom financial education is “crucial,” CUNA said that to create large-scale positive change, “financial education efforts must also focus on other aspects of an individual's daily life—such as education in the workplace.” For the full CUNA letter, use the resource link.

Small biz on agenda as Senate House return

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WASHINGTON (9/14/10)--Small business job creation legislation is high on the list of priorities for the Senate as the U.S. Congress returns to Washington following an extended August break. The small business legislation could come up for a full vote at the end of this week. Amendments will likely be offered today, perhaps including one that would increase the member business lending (MBL) cap and one to repeal some 1099 reporting requirements. Its is not known whether the MBL legislation, which would more than double the current cap imposed on credit unions to 27.5% of total assets, will be added to the final small business legislation. However, Credit Union National Association Senior Vice President of Legislative Affairs John Magill recently said that while the protracted legislative battle over small business legislation has dimmed the overall prospects of that legislation, credit unions have been able to use the process to shine a positive light on the MBL increase proposal. Specifically, CUNA and credit union backers have powerfully made the case for the MBL increase to legislators and the media, and the Obama administration has also come out in favor of lifting the cap. "This is the closest credit unions have ever gotten in their pursuit for increased MBL authority,” Magill added. Also of interest to credit unions is a midweek House Financial Services capital markets subcommittee hearing on "the future of housing finance.” Treasury Assistant Secretary for Financial Institutions Michael Barr and Federal Housing Finance Authority Acting Director Edward DeMarco will testify during the haring, which will focus on government-sponsored entities Fannie Mae and Freddie Mac.

CU tax exemption gets outside support

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WASHINGTON (9/14/10)--Imposing a tax on credit unions “would hurt Americans’ pocketbooks, damage the economy, undermine the social purposes for which credit unions exist, and raise little revenue,” a group of DC-based think tanks said in a letter to the Obama administration. The President's Economic and Recovery Board briefly mentioned taxing credit unions as one of many potential moves to increase government funding. The letter, which was co-signed by representatives from The Heartland Institute, Americans for Tax Reform, and the League of United Latin American Citizens, added that there is “simply no reason” to impose any new taxes on credit unions. While credit unions provide many of the same financial services that banks provide, credit unions are “democratically governed, member-owned cooperatives that serve limited fields of membership and, quite often, provide credit and banking services that would not otherwise be available,” and, thus, are “not the same as banks, ” the letter read. Credit Union National Association President/CEO Bill Cheney late last month directly opposed the notion of taxing credit unions, saying that the $7.5 billion in savings that is gained by consumers far outweighs the estimated $1.5 billion in federal revenue that is lost due to the exemption. "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 added.

2010 Hill hikes kick off this week

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WASHINGTON (9/14/10)—Credit union advocates from across the country will meet the returning Congress this week as the Credit Union National Association (CUNA) kicks off the fall 2010 edition of CUNA’s Hike the Hill. The hikes, which will take place until the end of the month, will give credit union representatives from Oregon, Montana, Kentucky, West Virginia, Wisconsin, Massachusetts, New Hampshire, Rhode Island, Illinois, Minnesota, Idaho, and Ohio the chance to advocate on behalf of credit unions. Member business lending, alternative capital, the credit union tax exemption, and other related topics will be on the agenda for these meetings. Hundreds of credit union backers from various state leagues and individual credit unions have already met with congressional representatives during February’s Governmental Affairs Conference and in a pair of subsequent national hikes held later in the year. Credit union backers also met with their respective legislators during in-district work periods. Elizabeth Furey, director of grassroots advocacy for political affairs, said that the hikes are a vital part of CUNA’s credit union advocacy strategy, adding that CUNA, credit unions and the leagues must use every tool available to make their political voices heard.

High school students challenged on fin. ed.

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WASHINGTON (9/14/10)--High school educators have another tool to help with students’ financial education. The Obama administration Monday announced the launch of its National Financial Capability Challenge for the 2010-2011 school year. The Challenge is a voluntary online exam and classroom toolkit that teaches about saving, budgeting, investing, the safe use of credit, and other skills that build a strong basis for financial decisions. In announcing this year’s Challenge, U.S. Treasury Secretary Tim Geithner said financial literacy is not only important to the financial security of American families. "The recent financial crisis taught us an enduring lesson…Ensuring that young people have the skills they need to make wise financial choices today and into adulthood will help us build a stronger foundation for our nation's economic future." In late Fall, educators will be able to download a new "Teacher Toolkit" with ready-to-use lesson plans. The online exam will take place between March 7 and April 8, 2011. Educators and students who score in the top 20% nationally, and those who are among the top scorers in their schools, will receive official award certificates. The administration announcement said it wants to build on last year’s experience--when more than 76,000 students and 2,500 educators in all 50 states participated--and increase that by 15% to 87,000 students and 2,800 educators. Use the resource link for more information.

990 filers CUNA reminds dont lose exemption

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WASHINGTON (9/14/10)--The Credit Union National Association (CUNA) wants to remind state-chartered credit unions of the importance of making very sure that they are filing annually with the Internal Revenue Service (IRS) their Form 990, “Return of Organization Exempt for Income Tax." Tax-exempt organizations that haven’t filed their 990 form for three consecutive years are in danger of losing their federal tax exemption under a provision included in the Pension Protection Act of 2006. State-chartered credit unions are required to file the 990 form annually. The deadline for filing to make sure there isn’t any revocation of income tax-exemption is Oct. 15. Federal credit unions are not required to file the form. The IRS is worried that 300,000 small charities may be caught by this new law, and has a new "toolkit" on its website that includes a list of organizations that have failed to file their forms for the last three years. The toolkit includes answers to frequently asked questions about revocation and reinstatement. “Although the IRS is focusing on small charitable organizations that may have overlooked their reporting responsibilities, CUNA is concerned that there may be a handful of credit unions that didn’t realize that their own state regulator discontinued filing a group 990 form in recent years and failed to start filing the annual tax return themselves,” said Kathy Thompson, CUNA’s senior vice president for compliance. “There are a few states still filing a group 990, so if you have any question about this, you should contact your league or state regulator.” Thompson said that the IRS list includes names of some credit unions that she recognizes have merged in recent years and has “some strange listings” that include “credit union” in the name. She reports that a number of leagues have gone through the IRS list and contacted a few credit unions in their states to make sure there hasn’t been an oversight in filing. “But ultimately the responsibility rests with the state-chartered credit union to protect its federal tax exemption by making sure there hasn’t been any gap in 990 filings,” stressed Thompson. User the link below for the IRS toolkit explaining the 990 filing requirement and the special relief that the IRS is offering to small organizations this fall. The toolkit includes a section of what the credit union should do if it thinks the IRS records are wrong.

CUNA What Basel III could mean to CUs

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WASHINGTON (9/14/10)--As global bank regulators, including those in the U.S., reached a Basel III agreement over the weekend on broad reforms that will make banks hold more capital as a buffer against future financial shocks, credit unions may wonder how the accord’s ripples may affect them. The international bank rules, which create a new leverage ratio for banks with a 7% requirement, of course, do not apply to credit unions. However, as domestic bank regulators begin to discuss these new capital standards for banks, that discussion could provide a new backdrop for and focus on a conversation about alternative capital for credit unions. “The good part is the 7% capital ratio for banks would now be the same as the credit union requirement, and we should be able to use that to support the case for letting credit unions count more than just retained earnings as capital,” said Credit Union National Association (CUNA) Chief Economist Bill Hampel Monday. U.S. credit unions--excluding those with low-income designation--are among the only financial institutions in the world lacking access to capital beyond retained earnings. And fallout from the country’s economic crisis has underscored the importance of investigating alternatives. “In a low-earning environment, retained earnings is a painfully slow way to build needed capital,” Hampel noted. Gaining access to sources of alternative capital would require congressional action, so if the Basel III agreement helps turn federal regulators’ and lawmakers’ attention to the topic of financial institution capital, it might help ramp up the volume of credit union arguments for the need for alternatives, Hampel noted. The National Credit Union Administration issued a supplemental capital white paper in April that outlined three models for alternative capital: voluntary patronage capital, mandatory membership capital, and subordinated debt. Use the resource link for more information.