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House committee okays data breach bill

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WASHINGTON (10/1/09)—The House Energy and Commerce Committee Wednesday passed the Data Accountability and Trust Act (H.R. 2221) by voice vote. The bill would require businesses to notify affected customers when outside parties gain access to sensitive information due to a security breach. The Credit Union National Association (CUNA) has called the bill “well-intentioned,” but has expressed concerns to lawmakers that its does not adequately address the notification issue. In a letter to the committee, CUNA President/CEO Dan Mica said pointed out that the entities that have experienced data breaches in recent years do not typically have the necessary contact information to reach the individuals whose accounts may have been compromised. However, he added, the financial institutions of affected accountholders certainly do. Mica said CUNA backs language to state that breach notification would to be done by the financial institutions of the affected accountholders at the expense of the entity that has lost the data. “Credit unions currently do this at their own expense for members when they are notified of breaches by the merchant or card associations. They have the contact information, but should be compensated for the expense caused by the data breach,” Mica wrote. He added, “Further, we would encourage you to include language that permits the financial institutions to disclose the source of the breach or loss to affected accountholders. “Without being able to disclose the source, credit unions are exposed to reputation risk—the loss of confidence in the credit union by the members—in addition to actual monetary costs.”

CUNA CFPA legislation could create redundant rules for CUs

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WASHINGTON (10/1/09)--The Credit Union National Association (CUNA) in a Wednesday letter noted that while legislation that would create the proposed Consumer Financial Protection Agency (CFPA) takes "several steps in the right direction," credit unions remain concerned that the duplicative and redundant regulations that could potentially face credit unions have not been addressed. The letter, which was sent to members of the House Committee on Financial Services and submitted and was added to the record of a hearing held on Wednesday, sought assurance that the additional credit union concerns over the examination and enforcement authorities that could be conveyed to the CFPA. However, CUNA stated, the CFPA should be given “back-up examination powers” over regulated depository institutions, and the CFPA examiners could also be used to examine financial institutions “on a random, backup basis.” Some of the additional protections sought by CUNA include clarification that the Chairman of the National Credit Union Administration will be given a seat on the CFPA Oversight Board and directing the CFPA Director to take into account disclosure requirements under other laws in order to enhance consumer compliance and reduce regulatory burden. The discussion draft, which was the subject of a Wednesday Financial Services Committee hearing, also seeks to ensure that the CFPA does not create additional fees or assessments for financial institutions. Protections for depositor data and the treatment of state consumer protection law would be given “serious consideration” as the Committee continues its debate and mark-up of the legislation. For the full CUNA letter, use the resource link.

Non-profits need health care incentives CUNA

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WASHINGTON (10/1/09)--While it supports health care assistance for small employers, the Credit Union National Association (CUNA) said Wednesday that the same standards should also apply to non-profit employers, including federal- and state-chartered credit unions, that seek the same benefits for their employees. CUNA made its remarks in a letter to Senate Finance Committee members Max Baucus (D-Mont.) and Charles Grassley (R-Iowa) which addressed a modified version of the America’s Healthy Future Act of 2009 which provides tax credits to help small employers cover the cost of purchasing health insurance for their employees. As written, an amendment to the bill that was offered by Sens. Kerry, Snowe, Schumer, Lincoln and Cantwell would extend these same benefits to non-profits, but only to those that are organized under Section 501(c)(3) of Internal Revenue Service Code. While positive, this would still exclude 27 types of non-profits that are organized under Section 501(c) of the IRS code. In closing, CUNA President/CEO Dan Mica asked for “employer parity and basic fairness” to “prevail” by allowing the bill’s incentives to apply to “all small employers.”

NCUA Town Hall includes alt capital corporate CUs

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WASHINGTON (10/1/09)—National Credit Union Administration (NCUA) Chairman Deborah Matz Wednesday stated that the agency is conducting a "post mortem" on what contributed to the problems in the corporate credit unions, including NCUA's role. The chairman made her remarks before an NCUA Town Hall meeting here, one
Click to view larger image CUNA's Dan Mica, left, and Mary Dunn, right, pose with NCUA Chairman Deborah Matz, who gave attendees substantial insight into the NCUA's future rulemaking and examination agenda. (CUNA Photo)
of three such meetings organized under the new chairman. Matz said the priority now, though is to "get through the crisis" period. She also stated that the agency is adding more personnel and providing additional training to staff. "We are getting to where we should have been and need to be to effectively examine credit unions," she said. She added the agency is going back to a 12-month examination cycles because the 18 month cycle has not served the system well. The town hall meeting was attended by 180 other credit union representatives, among them Credit Union National Association President/CEO Dan Mica and other CUNA officials. Matz acknowledged that 2010 and perhaps 2011 could still be difficult years for natural person credit unions, and said that the NCUA's examiners are currently scrutinizing credit unions' call reports. Many of the issues found by the examiners relate to loan participations and a general failure to conduct proper due diligence. NCUA board member Michael Fryzel, Office of Corporate Credit Union Director Scott Hunt, General Counsel Bob Fenner, and NCUA Deputy Executive Director Larry Fazio were also in attendance, and the NCUA officials discussed the financial condition of the corporate credit unions and NCUA's ongoing implementation of its efforts to address problems within the corporate system. While the NCUA has not yet released its comprehensive plan for corporate credit union governance, the NCUA representatives previewed some elements of the proposal. Key elements will include proposed new capital standards that call for a 4% leverage ratio, which will include retained earnings and paid-in capital from members. The proposal will also address over concentration of risks in mortgage-related securities and other asset-backed securities, and will also propose limits on the weighted life of assets, perhaps two years. The proposal will also recommend yearly disclosures of the total compensation packages of all senior staff members, and will prohibit so-called "golden parachutes." The proposal is expected to be issued for comment in November. During questions from the audience, CUNA Board Member Tom Dorety, of Suncoast Schools FCU in Tampa, Fla., raised the issue of the need for alternative capital for a number of credit unions. Matz said that she was open to a reasonable proposal that would allow cedi unions to have additional sources of capital. Board member Gig Hyland noted that a that a comprehensive white paper on allowing credit unions to raise alternative capital could be presented to the NCUA board before its previously expected deadline of December of 2009. Hyland is heading an NCUA resource group that is developing an alternative capital proposal to send to COngress. The NCUA will hold its final Town Hall meeting in San Diego, Calif. on Oct. 5.

SBA extends GO Loan program

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WASHINGTON (10/1/09)--The Small Business Administration (SBA) this week announced that it is extending its Gulf Opportunity Pilot Loan Program (GO Loans) for a further year, extending them until September 30, 2010. The SBA began its GO Loan program in November of 2005 to provide financing on an emergency basis to small businesses in areas affected by Hurricanes Katrina and Rita. According to an SBA release, the GO Loan program, which provides 85 percent guarantees for eligible lenders, resulted in 301 loans for a total of $25.2 million in funds during 2008. The SBA also reported that the demand for GO loans “increased significantly” during 2009. The maximum loan amount is currently $150,000. The full notice detailing the extension of the GO loan program can be found in the most recent edition of the Federal Register.

2008 mortgage trend info available

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WASHINGTON (10/1/09)—Data on mortgage lending transactions by credit unions, banks and thrifts throughout the United States in 2008 is now available through the Federal Financial Institutions Examination Council (FFIEC). The number of reporting institutions fell to 8,388, about 3% less than the 8,610 covered by the Home Mortgage Disclosure Act (HMDA) the year before. The drop was attributed primarily to a relatively large decline in the number of independent mortgage companies. The FFIEC is comprised of the National Credit Union Administration, Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision. The Credit Union National Association (CUNA) is currently analyzing the just-released mortgage lending data, particularly credit union information, and will report any significant trends. In general terms, an FFIEC release noted that the 2008 HMDA data reflect ongoing difficulties in the housing and mortgage markets, with decreases in the both the number of reporting institutions and the number of loans written. The total number of originated loans of all types reported fell about 3.3 million, or 31%, from 2007. However, the story does not stop there. While the number of reported first-lien conventional loans fell sharply from 2007 to 2008, first-lien loans backed by Federal Housing Authority (FHA) insurance increased dramatically, the FFIEC noted. In fact, FHA loans rose 169% in 2008 and the FHA’s share of such loans expanded to 19.5% in 2008, up from 5.5% the year prior. First-lien loans backed by Veterans Administration (VA) guarantees also increased markedly. The number of VA-guaranteed loans in 2008 increased by 48 percent over the number in 2007. The VA market share increased from 1.5%in 2007 to 2.9% in 2008. The incidence of higher-priced lending declined in 2008, but racial disparity remained. The FFIEC reported that among all HMDA-reported loans, about 12% were higher-priced, down significantly from the historic high point of about 29% in 2006 and 18%t in 2007. However, the 2008 HMDA data, similar to the data from earlier years, indicate that black and Hispanic white borrowers were more likely, and Asian borrowers less likely, to obtain higher-priced loans than were non-Hispanic white borrowers. Mike Schenk, CUNA vice president of economics and statistics, noted it will take time to cull the enormous HMDA database. However, he said CUNA expects the numbers to show that credit unions, compared to other lenders, continue to be more likely to approve mortgage loan applications, and that their relatively high approval rates will continue to stand out across the income spectrum and in all key ethnic groupings. Schenk said the FFEIC numbers also historically have shown credit unions to be much less likely to saddle consumers with high-cost loans and that credit unions remain true to their mission: compared to other lenders, credit unions reported a larger share of the total mortgage lending to low/moderate income consumers. "My expectation is that, at a minimum, the new numbers will show a continuation of these impressive credit union results,” Schenk said Thursday. He anticipated the FFEIC data will reflect that credit unions have remained active, responsible lenders during the ongoing housing downturn, which has caused many other lenders to significantly tighten underwriting standards and substantially curtail or completely abandon the mortgage market. "Credit unions were not contributors to the subprime mess, and have remained active, responsible lenders - the FFIEC data should reflect this fact," the CUNA economist said.

Compliance What an accelerated CARD ACT date would mean

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WASHINGTON (10/1/09)—Credit unions, faced with the specter of a bill that would accelerate the effective date of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, have been seeking guidance on what should be done now to prepare for the possibility, said Kathy Thompson, Credit Union National Association senior vice president for compliance. Credit unions are worried, Thompson said Wednesday, about how they could possibly comply with the CARD Act if Congress were to pass legislation introduced last week to change the effective date to Dec. 1 of this year, rather than the Feb. 22, 2010 deadline in the law enacted last May. “We’ve received calls from credit unions asking what they should be doing right now if the effective date were accelerated by almost three months,” reports Thompson. “It’s something we have taken a close look at and CUNA has concluded that it would be virtually impossible for card issuers to comply with all the changes required by the new law in a matter of 60 days. “Data processing changes are still being developed and need to be tested, and implementing Regulation Z changes were just proposed two days ago. The Regulation E amendments required by the CARD Act to impose restrictions on gift cards haven’t even been proposed. Many steps need to be taken before being able to comply with the new law in any orderly fashion.” Key members of the U.S. Congress have expressed concerns about large banks rushing to make changes in the terms and conditions of their credit cards prior to the February date. Last week, Rep. Carolyn Maloney (D-N.Y.) introduced H.R. 3639, the “Expedited CARD Reform for Consumers Act of 2009,” a vehicle to move up the effective date. “I was surprised to see a quote from a supporter of a December 1 effective date saying that such a change would only affect large financial institutions because ‘small financial institutions don’t issue credit cards.’ “Half of the nation’s credit unions issue credit cards. Accelerating the effective date could raise even greater compliance concerns for credit unions because they don’t run their own credit card operations and therefore can’t simply pour more resources into their programs to comply on short notice. They rely upon third-party vendors to provide necessary support, and these vendors are working diligently to comply by the early 2010 effective date,” noted Thompson. She advised credit unions to focus on the 800-page proposed credit card regulation and explanatory materials released by the Federal Reserve Board this week, rather than trying to anticipate potential compliance problems if the effective date were moved to December. “Right now, we urge the 4,000 credit unions with credit card programs to provide CUNA with input on the practical problems you see with the Fed’s credit card proposal,” Thompson urged. Once the Fed formally issues its proposal, there is only a 30-day turn around for comments, so October is the time to focus on what additional guidance is needed from the Fed. Also credit unions should be considering what changes may be needed in their credit card programs to address issues raised in the credit card law, such as fixed versus variable rate cards, credit for members under 21 years of age, and over-the-limit transactions, to be ready for the CARD law's implementation, noted Thompson. Thompson reminded credit unions that not only the controversial 21-day mailing requirements but also the 45-day change-in-terms notice requirements have already gone into effect. “And one other provision in the new credit card law – although it doesn’t actually go into effect until next summer – requires credit unions to start tracking any interest rate increases they make in members’ credit card accounts since January 1, 2009 due to market conditions or a member’s risk profile,” warned Thompson. Starting August 22, 2010, the credit union will have to review these accounts at least every six months to assess whether a reduction in the interest rate is warranted.” Thompson emphasized that if a bill to accelerate the effective date begins to gain traction in Congress, CUNA and the leagues will meet with lawmakers and their staff to explain the regulatory burden and potential liability to credit unions. Even if Congress doesn’t take action to move up the effective date of the credit card law, it will be closely watching what is happening. The Fed is required to deliver to Congress next May a study on creditors’ practices in raising interest rates or reducing credit limits since 2007, and to report every other year on the impact of the new credit card law has on consumers.

Inside Washington (09/30/2009)

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* WASHINGTON (10/1/09)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is drafting a bill for a single financial regulator, despite opposition from community bankers and the House. Dodd’s bill would consolidate all regulation for financial institutuins into one, except credit unions (American Banker Sept. 30). “I want to make it clear that this does not relate to credit unions. Before I get calls from around the country, I wanted to make that point. Credit unions: You are O.K.,” Dodd said during a hearing Tuesday. Dodd’s proposal goes further than the Obama administration’s plan to consolidate regulation. Obama would merge the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Dodd’s plan would strip authority from the Federal Reserve Board and Federal Deposit Insurance Corp. Though community bankers have voiced opposition to Dodd’s plan because they fear it would hurt the dual banking system, several said they support it. A consolidated regulator is critical to improving the financial system, according to Sen. Mark Warner (D-Va.). A single banking regulator could eliminate “arbitrage” and preserve the dual banking system without harming community banks, he said. Having too many regulators leads to unnecessary regulatory burden, added Eugene Ludwig, former comptroller. Several Government Accountability Office (GAO) reports also make the case for a single regulator. Regulatory consolidation could decrease fragmentation in the system and improve regulatory independence, said Richard Hillman, managing director of financial markets and community investment for the GAO ... * WASHINGTON (10/1/09)--The insolvency of the Deposit Insurance Fund (DIF) will likely span years--until 2012, according to Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair. DIF--the FDIC’s reserve--was significantly depleted this year because of 95 bank failures. But a DIF negative balance doesn’t mean the agency will “run out of money,” Bair told reporters Tuesday (American Banker Sept. 30). The FDIC is planning to raise $45 billion by requiring banks to pre-pay their premium assessments until 2012. Under that plan, the DIF will reach its minimum balance in 2017. The DIF has always been expected to have at least $1.15 (1.15%) reserved for each $100 of insured deposits, but the ratio has been pushed much lower. For instance, on June 30, the reserve ratio was 0.22% ...