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PPI In U.S. News: 'Don't Make CUs Die For Banks' Sins'

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WASHINGTON (9/18/13)--Jason Gold, senior fellow for financial markets policy for the Progressive Policy Institute--a Washington, D.C.-based "think tank" established in 1989--took to the pages of U.S. News and World Report this week to urge loud and clear, "Don't makes credit unions die for banks' sins."

In an article with that title, Gold draws attention to bank attacks on the federal credit union tax status and calls bank arguments "hollow."
 
Under federal law, credit unions are exempt from income tax because of their cooperative structure, but still pay property and sales taxes, and regulatory fees.
 
Gold notes in his article that now, five years after a "collapsing housing bubble plunged America into its worst financial crisis since the Depression," credit unions are "drawing fire from the banking industry for their not-for-profit tax status."
 
He notes the banks claim the credit union exemption should be revoked because it gives credit unions an unfair competitive advantage over for-profit banks.
 
"Eliminating the tax exemption is a terrible idea that would deal a fatal blow to 6,815 credit unions that provide low-cost financial services to 93.8 million members nationwide. It would also eliminate one of the safest and soundest segments of the financial services industry that stewards more than $1 trillion," Gold writes.

Also to the banks' charges of unfair competition Gold says, "Last time I checked, there aren't any credit unions that maintain a profitable global derivatives business and an essential investment-banking unit that underwrites multi-billion dollar corporate mergers and acquisitions like some of his members."

Gold calls it "popular lore" that the misuse of exotic instruments like collateralized debt obligations and mortgage-backed securities were to blame for the financial crisis.  The fuse, he says, was the "concentration and perversion of a single underlying asset: the single-family mortgage."

"So how did the mortgages that the credit unions originated perform?" he asks. "In 2009, credit unions saw their delinquency for mortgage loans peak at 1.61% compared to 8.86% at the banks. Since 2009, credit unions' share of first mortgages has actually increased as a percentage of total loans by 3.3%. Those are some pretty eye-popping statistics considering the severity of the crisis."

Gold concludes by saying the country's economy needs financial institutions of all types and sizes to provide an array of different services: "Big banks play a crucial and indispensible role in an increasingly complex global economy."

"Nonetheless, credit unions have an established model that tens of millions of Americans find reliable and infinitely more accessible than the supranational banking behemoths. And credit unions don't have a mandate to lend and invest far out on the risk curve. That's for the banks, and a certain amount of risk-taking is not only appropriate, but also necessary."

CFPB Lays Out Exam Guidelines For Payday Lenders To Servicemembers

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WASHINGTON (9/18/13)--Consumer Financial Protection Bureau (CFPB) examiners should be clear on how to identify consumer harm and risks related to Military Lending Act (MLA) violations when supervising payday lenders under new guidelines released Tuesday by that agency.

"Protecting servicemembers is a priority for the CFPB," said CFPB Director Richard Cordray. "We will use the authority Congress gave us to enforce the Military Lending Act and to safeguard our men and women in uniform from illegal payday loans." The act provides protections for military families, such as capping the annual percentage rates (APR) for short-term, small amount loans at 36%.

Because most payday loans are for several hundred dollars and have finance charges of $15 or $20 for each $100 borrowed, a typical two-week term can equate to an APR ranging from 391% to 521%, the CFPB noted.

Loans from federal credit unions are generally limited to an annual percentage rate of no more than 18%, although there is some flexibility under the National Credit Union Administration's short-term, small-amount loan program. That program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. For now, this amounts to an interest rate ceiling of 28%.

A Department of Defense (DoD) report issued in 2006 concluded that predatory lending practices by payday lenders and other creditors near military bases were a threat to military personnel and their families. The next year, the U.S. Congress passed the MLA to help address the problem.
 
Under the law, lenders must follow certain requirements for all closed-end loans of $2,000 or less and with terms of 91 days or less. In addition to the 36% cap, these requirements include:
  • No rolling over of loans. Payday lenders are banned from rolling over loans for servicemembers, unless the new transaction results in more favorable terms for the servicemember;
  • No signing away of servicemember rights provided under the Servicemembers Civil Relief Act or other state or federal laws that provide consumer protections. The MLA also prohibits lenders from requiring servicemembers to waive their right to seek resolution of any legal claims in court; and
  • No requiring allotments to repay. The MLA bans lenders from requiring military members to pay by the allotment system and gives servicemembers control over how their income is spent. When servicemembers pay by allotment, they lose certain consumer protections as well as their flexibility to adjust their budget if a financial emergency comes up.
In general, the MLA shields active-duty military personnel, active National Guard or Reserve personnel, and their dependents. In 2012, Congress gave the CFPB MLA enforcement authority.

In a related event, last month, in response to a DoD request for information regarding limitations on terms of credit extended to servicemembers, the Credit Union National Association and the Defense Credit Union Council jointly filed a comment letter that included a list of 35 credit unions operating on military installations that currently offer small-dollar alternative loan products.

Sen. Judiciary Members Call For Patent Law Reforms

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WASHINGTON (9/18/13)--Sens. Patrick Leahy (D-Vt.) and Mike Lee (R-Utah) penned a recent opinion piece in <I>Politico.com</I> that stated in no uncertain terms their belief that abuse of the country's patent system must be addressed.

The senators announced they are working to craft bipartisan legislation to address abusive practices and restore confidence in the American patent system. They said their bill will "increase the transparency of patent ownership, protect the customer of a patented product when the manufacturer should really be the defendant and improve the process for reviewing patents at the U.S. Patent and Trademark Office.

"America's patent system, when operating as intended, is the envy of the world. It fuels the technological advances that invigorate our economy, create jobs and benefit American consumers," the senators wrote.

However, they warned, some patent holders are abusing the system and rather than incentivizing the creation of the next-generation of advancements, they are "misusing patents by suing unsuspecting consumers and extorting settlements."

It is a concern shared by the Credit Union National Association, which signed onto a joint letter to Congress in July that was supported by 42 trade associations in Washington, D.C. and which urged statutory changes.
 
At that time CUNA expressed deep concerns about the "patent troll" issue because credit unions have become a target of the abusive practices. CUNA Deputy General Counsel Mary Dunn said, "The past year has seen an increase in litigation and demands involving low-quality patents in an effort to extract settlements from credit unions.  This is an abuse of the patent system.  Credit unions aren't out there stealing someone's ideas--they are buying technologies from vendors in order to better serve their members. They should not be sued for doing that." 

Leahy and Lee are members of the Senate Judiciary Committee, tasked with overseeing issues involving patents, copyrights and trademarks.

New Resource Compiles CUNA Mortgage Compliance Tools

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WASHINGTON (9/18/13)--There is a new, one-stop compliance resource page to help all Credit Union National Association members with compliance issues related to the Consumer Financial Protection Bureau's 2013 mortgage rules.
 
Valerie Moss, CUNA senior director of compliance analysis, in unveiling the new resource noted that the CFPB has issued more than 5,000 pages of new regulatory requirements for mortgages, including its Qualified Residential Mortgage and Ability-to-Repay rules. They go into effect in January 2014.
 
"CUNA's compliance team has been working at a feverish pace over the past few months to provide credit unions with useful compliance information to help them make sense of the 5,000-plus pages of new regulatory requirements," Moss said. "CUNA members can now access all that information in a single location." (Use resource link.)

Notable resources available to credit unions on the new mortgage rules include:
  • CUNA's e-Guide, a dues-supported online compliance manual, which contains summaries, resources, latest developments and frequently asked questions on the rules;
  • CompBlog, CUNA's dues-supported compliance blog, which regularly covers the new rules among many other hot compliance topics;
  • CUNA's CompBlog Monthly Wrap Up newsletter, a compilation of the month's best compliance information;
  • Compliance articles in Credit Union Magazine exploring several of the new mortgage rules;
  • Compliance charts on the various regulations, complete with key dates;
  • Training opportunities available from CUNA's Center for Professional Development; and
  • CompNotes, CUNA's newest resource that breaks each rule down into more manageable pieces.
To access CUNA's new, one-stop compliance resource page, CUNA members can use the resource link below.

NEW: Matz Announces NCUA To Propose Stress Testing Rule

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COEUR D'ALENE, Idaho (9/18/13, UPDATED 12:20 p.m. ET)--National Credit Union Administration Chairman Debbie Matz announced this morning that the agency's Office of National Examinations and Supervision is drafting a requirement for annual stress tests at credit unions with assets exceeding $10 billion.

Speaking at the National Association of State Credit Union Supervisors' annual State System Summit, Matz noted that the agency is likely to issue the proposed rule for public comment before the end of the year.

"At NCUA, we need to utilize all the tools at our disposal to look ahead in order to protect the industry in the future," Matz said. "Stress tests are forward-looking measures. They're designed to determine whether an institution is holding an adequate capital cushion to survive adverse scenarios and to allow credit unions to make adjustments before a crisis hits."

Now that the agency has made public its plan to pursue a new rule in this area, the Credit Union National Association will be talking with affected credit unions and NCUA officials to minimize the impact and contain regulatory burdens.

The Dodd-Frank Act requires certain financial firms with more than $10 billion in assets to conduct annual stress tests. Matz noted that stress testing is just as important for credit unions of comparable size.

A credit union that fails a stress test would be required to revise its capital plan to demonstrate how it would meet minimum stress test capital ratios, an agency release said.  A credit union that passes the test would benefit from the analysis by identifying potential improvements in its enterprise risk management system.

Matz said one issue still being reviewed is whether stress test results would be publicly available. She noted banks are required to disclose their results, but banks are publicly traded entities, unlike credit unions.

She said public disclosure would enhance transparency to members but results could also be misinterpreted and lead to inaccurate conclusions about a credit union's current stability.