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No CRA for CUs CUNA urges

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WASHINGTON (9/16/09)--The Credit Union National Association (CUNA) has voiced its opposition to H.R. 1479, the Community Reinvestment Act (CRA) Modernization Act of 2009, in a letter sent to House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) ahead of Wednesday’s House hearing. Rep. Eddie Bernice Johnson (D-Texas), National Community Reinvestment Coalition President/CEO John Taylor, Massachusetts Commissioner of Banks Steven Antonakes, and National Urban League President/CEO Marc Morial will testify during the hearing, along with academics and representatives from various Washington-based interest groups. H.R. 1479, as currently written, would broaden the reach of CRA requirements to more entities, including credit unions. Under this legislation, credit unions would need regulatory approval to place new branches and would be forced to hold 30-day public comment periods before relocation, mergers, or field of membership expansions could be completed. While CUNA and credit unions in general support providing greater financial services to the underserved, CUNA opposes bringing credit unions under the purview of the broadened CRA legislation, saying that the “significant regulatory burdens” imposed on credit unions by this bill would create “unnecessary and possibly harmful” consequences for credit unions. According to CUNA, credit unions, which have not engaged in redlining nor reduced the amount of credit available to their members, “have done nothing to deserve the regulatory framework that has been rightly imposed on banks for their misdeeds.” The letter also takes issue with a recently released National Community Reinvestment Coalition (NCRC) paper that addresses whether or not credit unions are fulfilling their mission of serving their members. CUNA recently addressed the NCRC report, which unfavorably compares credit union lending practices to those of banks, dismissing it as a flawed report that should be dismissed by policymakers. This NCRC paper is expected to be discussed during the hearing, which is scheduled to take place at 10 a.m. today. The letter, which has also been delivered to members of the committee, includes a detailed response laying out what CUNA sees as the “fundamental flaws” in the NCRC report. To see the CUNA letter in full, and NewsNow’s coverage of the NCRC’s paper, use the resource links.

Inside Washington (09/15/2009)

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* WASHINGTON (9/16/09)--The Financial Crisis Inquiry Commission, which was established by Congress to investigate the causes of the financial crisis, scheduled its first public meeting for Thursday (Dow Jones Sept. 15). Thomas Greene, a lawyer in the California Attorney General’s office, will serve as executive director. Greene has been involved with coordinating multi-state, anti-trust remedies against Microsoft Corp. and civil actions against Enron. The 10-member commission will issue a final report to Congress by December 2010 ... * WASHINGTON (9/16/09)--The future of Fannie Mae and Freddie Mac is still unknown as the first anniversary of the day the federal government took the enterprises into conservatorship passed. Mike Williams, Fannie’s CEO, said in a speech marking the first anniversary last week of the conservatorship that his focus is on the housing crisis. At a Thursday press briefing, a Treasury Department official said Fannie and Freddie are “more of next year’s business than this year’s” (American Banker Sept. 15). The Obama administration has stated it would propose reforms to the enterprises this year ... * WASHINGTON (9/16/09)--President Barack Obama says job losses are bottoming out and the economy is growing again. However, in an interview with Bloomberg News, he warned against stopping government aid too early because it could stifle recovery plans ( Sept. 15). Since December 2007, the U.S. has lost 6.9 million jobs. In other news, Obama said he was confident that plans to overhaul financial regulation would pass Congress this year, and said he would overcome bankers’ efforts to kill a proposal for a consumer protection agency. Obama also has opposed limiting pay to financial industry executives, despite criticism over the bonuses and high salaries Wall Street is paying. He questioned why the executives’ pay would be limited but not that of Silicon Valley entrepreneurs or NFL football players ...

Potential fair value changes concern Fed Reserve gov.

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WASHINGTON (9/16/09)--Federal Reserve Governor Elizabeth Duke this week expressed concern regarding whether or not financial institutions would be able to adequately comply with a potential new fair value rule, stating that the Federal Reserve has “very little actual experience in fair-valuing liabilities." Speaking on her own behalf at the American Institute of Certified Public Accountant’s conference on Banks and Savings Institutions, Duke said that it is “frustrating” to assess “the viability of individual financial institutions and the financial system as a whole” when the worth of an asset “is based on the nature of its acquisition rather than the way in which it is managed or the way in which its economic value is likely to be realized.” According to Duke, fair value has “relevance” in situations where business models are “predicated on the trading of financial instruments.” Increased use of fair value accounting “could create disincentives for lending to smaller businesses whose credit characteristics are not easily evaluated by the marketplace,” Duke added. Financial Accounting Standards Board Chairman Robert Herz recently disclosed that the agency plans to issue a broad-based exposure draft on fair value accounting around the end of this year. While Herz has not discussed the exposure draft in great detail, he said that the exposure draft would address fair value accounting rules for all financial instruments, including allowances related to loan loss accounts, adding that the board would provide the industry with the time needed to comment on the proposal once it has been issued. Any changes, if approved, would not go into effect until 2011, Herz added. The Credit Union National Association will discuss fair value and other matters of concern to credit unions during a Sept. 17 conference call with Chairman Herz.

Government lets UBIT filing date pass

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WASHINGTON (9/16/09)—The government let its 60 days come and go and failed to file an appeal to a federal court judge’s July decision that backed a favorable verdict for credit unions in an unrelated business income tax (UBIT) case. The U.S. Department of Justice had until Sept. 12 to appeal the decision that backed Community First Credit Union in a suit against the Internal Revenue Service seeking refund for UBIT paid on credit life insurance, credit disability insurance and Guaranteed Asset Protection (GAP). The government’s decision to back off the lawsuit could have considerable impact on credit union UBIT issues. According to attorney Michael M. Conway of Foley & Lardner LLP, in Chicago, who represented Community First, “Now accountants and tax advisors to credit unions have this court decision as ‘substantial authority’ that UBIT is not due on income from credit life insurance, credit disability insurance and Guaranteed Asset Protection.” Back on May 14, a jury found in favor of the credit union's refund claim of $54,604, the full amount the credit union sought, plus costs. The Justice Department then asked a trial judge to overturn the jury's verdict, which resulted in a July 14 ruling by U.S. District Judge William Griesbach. Griesbach said that the government's challenge, which asked the court to "re-weigh the evidence and find that the jury should have preferred its version of the evidence" to the credit union's, was "outside the bounds" of what is allowed under Federal Rule 50. Under Federal Rule 50, courts may "grant judgment as a matter of law when a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue." Eric Richard, general counsel of the Credit Union National Association, said Tuesday, “This event—or non event—is important to credit unions and could significant to the future of IRS UBIT opinions.” “After putting enormous Government resources into defending against this ‘test case’ and having lost at the trial level, the Government chose not to seek to overturn this decision on appeal,” said CUNA General Counsel and Executive Vice President Eric Richard. “Clearly, the government was unwilling to expose its reasoning to review by the Court of Appeals even though it had an absolute right to obtain this appellate review. Now accountants and tax advisors to credit unions have this court decision as substantial authority that UBIT is not due on credit life insurance, credit disability insurance and GAP.” In another UBIT case, Bellco Credit Union V. U.S. , Judge Christine Arguello asked both parties earlier this month reconsider their requests for a jury trial, which is currently set for Dec. 7. Bellco, of Grand Junction, Colo., has challenged the IRS assessment of UBIT on income from three of its products, and is seeking a refund of $199,293. The amount reflects what was paid on products such as accidental death and disability insurance (AD&D), credit life and disability insurance, and financial services such as investments in 2000, 2001 and 2003, plus statutory interest.