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Original CU plaintiffs ask to drop out of WesCorp suit

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WASHINGTON (9/3/10)--The original credit union plaintiffs in a lawsuit against Western Corporate FCU (WesCorp) and its former directors and current and former officers have decided to forego further participation in the case. Late last year, the National Credit Union Administration (NCUA) successfully petitioned the court to intervene as plaintiff in the lawsuit. The NCUA is conservator of WesCorp. In a brief filed with the U.S. District Court for the Central District of California, the seven credit unions that first brought the suit against the corporate asked that the NCUA be viewed as the sole plaintiff “to further prosecute this action.” The credit unions are 1st Valley CU, Cascade FCU, Glendale Area Schools FCU, Kaiperm Northwest FCU, Northwest Plus CU, Stamford FCU, and Tulare County FCU--all of which were all members of WesCorp. Earlier this week, the NCUA filed an amended complaint in the case, which alleged various breaches of fiduciary duties of care and gross negligence on the part of 15 former WesCorp directors and officers in connection with over-concentration of certain types of Option ARM Mortgage Backed Securities.

Inside Washington (09/02/2010)

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* WASHINGTON (9/3/10)--Regulators should be ready to shut down large financial institutions that threaten the financial system, said Federal Reserve Board Chairman Ben Bernanke. He testified before the Financial Crisis Inquiry Commission this week. Bailing out the risky institutions is not a healthy solution, he said. The regulatory reform law empowers regulators to shut down the firms whose collapse would bring down the system. Too-big-to-fail institutions were a source of the financial crisis and impeded policymakers’ efforts to contain it, Bernanke said (The Associated Press and Reuters Sept. 2). Bernanke also noted that legally, he could not have saved Lehman Brothers, which collapsed in 2008. Commission Chairman Phil Angelides had questioned whether politics were involved in the Fed’s decision not to bail out Lehman, but the Fed has said it had no authority to rescue the firm. Lehman did not have the capital to borrow enough to prevent collapse ... * WASHINGTON (9/3/10)--The Financial Crimes Enforcement Network (FinCEN) Wednesday reminded financial institutions of concerns and anti-money laundering guidance regarding informal value transfer systems (IVTS). Although FinCEN issued guidance in 2003 on money services businesses, the agency also warned that the systems have been used to fund terrorism (American Banker Sept. 2). IVTSs operate in the U.S. and interact with other financial institutions to store currency, remit and receive funds and clear checks. They must register with FinCEN ... * WASHINGTON (9/3/10)--The Federal Deposit Insurance Corp. has extended the application period by 30 days for a pilot program that will evaluate the feasibility of insured depository institutions offering low-cost transactional and savings accounts for the underserved. The extension responds to several institutions that indicated more time is needed to evaluate their programs. The new deadline is Oct. 15. Institutions will be notified of their selection by Oct. 29. The program was announced Aug. 10 ...

Treasury tries to reach unbanked through refunds

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WASHINGTON (9/3/10)--The U.S. Treasury Department, in a move meant to seize tax refund season as an opportunity to bring unbanked Americans into relationships with financial services providers, announced the launch of a new debit card pilot program that would require delivery of refunds through direct deposits. Treasury said its pilot will deliver targeted offers to certain low- and moderate-income individuals to sign up for new accounts with debit card access at tax time in order to receive their refunds through direct deposit. It will also test offering accounts that can be used year-round in the future to deposit other sources of income, store money safely, make purchases, pay bills, withdraw cash, and build savings. "Far too often, unbanked and underbanked Americans are forced to turn to high-cost alternative financial products--such as check-cashing and other services--that take a big bite out of the savings of those who can least afford it," said Assistant Treasury Secretary for Financial Institutions Michael Barr in a release announcing the program. "For many individuals, a tax refund is the single largest payment that they will receive each year. That's why tax season is a great opportunity to deliver safe, low-cost financial products to the unbanked and underbanked that will help those Americans build stronger foundations for their financial futures." The pilot is expected to launch during next year's tax return filing season. Treasury will reach out to eligible taxpayers in early 2011 through direct mail and by partnering with the private sector to insert enrollment into the paychecks and paystubs of select individuals who are not already using direct deposit to receive their tax refunds. Treasury has said that by March 2013 all federal payments, other than those made by the Internal Revenue Service (IRS), will only be delivered by electronic direct deposit or debit cards. With the new pilot, observed Kathy Thompson of the Credit Union National Association CUNA), Treasury seems to be trying to figure out to what degree the government can encourage people, who are getting paper refunds, to accept receiving a debit card loaded with the refund instead. Thompson is a CUNA senior vice president and associate general counsel for regulatory compliance.

Required use consumer protections backed by CUNA

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WASHINGTON (9/3/10)--The Credit Union National Association (CUNA) supports efforts by the U.S. Department of Housing and Urban Development (HUD) to ensure consumers are protected as they enter into real estate settlements. CUNA, in a comment letter to HUD on an advance notice of proposed rulemaking (ANPR), encouraged the agency to continue to seek ways to revise the exceptions to the current prohibitions on the "required use" of affiliated settlement service providers for residential mortgage transactions under the Real Estate Settlement Procedures Act (RESPA). The HUD ANPR aims to address situations in which some homebuyers commit to using a homebuilder's affiliated mortgage lender in exchange for construction discounts or discounted upgrades without sufficient opportunity to review the transaction or comparison shop among other lenders. CUNA believes increased scrutiny in this area is important because often, in practice, consumers aren’t given adequate time to shop for mortgage loans and settlement services, either from credit unions or other financial service providers, many of whom may be able to provide loans and services at a competitive rate and cost, even taking into account the benefits being provided by the homebuilder. CUNA recommended that consumer disclosures regarding the practice be beefed up, especially those given to first-time homebuyers, a group that may be more likely to rely on a homebuilder for objective advice. Under RESPA rules, referrals to affiliated settlement service providers are generally prohibited on the basis that the referrers’ return on investment in the affiliate would be considered a kickback or otherwise “a thing of value” in exchange for the referral, which is prohibited under Section 8 of RESPA. However, RESPA does allow such a referral if the following conditions are met, which has allowed these referrals to become a common industry practice:
* The referral is accompanied by a disclosure of the affiliation and estimated charges by the provider to which the consumer is referred; * The consumer is not specifically “required to use” a particular settlement service provider; and * The arrangement does not otherwise involve prohibited compensation.

Official insurance signs have March 2011 deadline

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WASHINGTON (9/3/10)--Starting March 2, 2011, federally insured credit unions must abandon any jury-rigged public displays that disclose a 2006 change in law that increased share insurance levels to $250,000, up from $100,000. That increase was first approved on a temporary basis and the National Credit Union Administration has allowed credit unions, in effect, to magic-marker over existing signage to declare that the ceiling has been raised. However, enactment of the Dodd-Frank Reform and Consumer Protection Act (Dodd-Frank Act) on July 21 made the $250,000 standard maximum share insurance amount (SMSIA) permanent. And while the SMSIA is still subject to adjustments for inflation, such an adjustment will not be made until the value of the $100,000, inflation adjusted since 2005, exceeds the current SMSIA. That is not expected to happen in the foreseeable future. So the NCUA, in a Federal Register document published Thursday, said all federally insured credit unions need to display updated official signage as of the March 2011 compliance date. The Federal Register document noted that the higher SMSIA became permanent as of Sept. 2.