News Now Archive

Filed on April 30, 2004–May 2, 2004, published the first business day after.

• Inside Washington
• Johnson touts NCUA’s disclosure guidelines
• Clarification urged for CU deferred comp plans
• Hawaii CUs models of outstanding service, says Matz
• Mica supports NCUA positions on SBA, FASB
• CU System briefs
• CUs’ loan-to-share ratio stays steady
• Judge stays Georgia's payday lending ban
• Michigan rule bans credit scores for insurance
• Michigan foundation to create research fund
• Small Washington CUs talk survival with regulators
• CUs on Pennsylvania's working-families task force
• Vermont elects officers, OKs bylaw change
• West Virginia league officers elected
• Roth IRAs, 2004 election new stuffer topics
• Northwest Corporate marks 26th anniversary
• Market News
• News of the Competition
• Keep fuel costs in check
• Products and Services briefs
• WOCCU educates Caribbean regulators

Inside Washington

• WASHINGTON (5/3/04)--Kevin Chandler, president and CEO of the Minnesota CU Network, and Fred Becker, president/CEO of the National Association of FCUs, were re-elected to the National Cooperative Business Association (NCBA) Board of Directors. The election took place last week during NCBA's Cooperative Conference in Washington, D.C. Ann Hoyt, professor of consumer science at the University of Wisconsin-Madison and a senior faculty associate at the University's Center for Cooperatives, was elected board chair. Larry Blanchard, senior vice president, CUNA Mutual Group; and CUNA Executive Vice President Pete Crear also serve on the board. Crear is a former board chairman...

• WASHINGTON (5/3/04)--The House Financial Services Subcommittee on Housing and Community Opportunity, led by Subcommittee Chairman Robert W. Ney (R-Ohio), will meet for a field hearing entitled, "Improving Housing Opportunities for Native Americans," today at the Greyhills Academy High School Auditorium, on the western portion of the Navajo Reservation, in Tuba City, Ariz. The field hearing, the first ever to be held by the Housing Subcommittee on tribal lands, will focus on the complications many Native Americans face in seeking to own homes...

Johnson touts NCUA’s disclosure guidelines

WASHINGTON (5/3/04)--In her last week before being promoted from NCUA Board vice chairman to chairman, JoAnn Johnson detailed, during a National Cooperative Business Association (NCBA) conference, NCUA's disclosure requirements for credit unions considering a conversion to a mutual savings bank. The conference was held in Washington, D.C.

In a panel discussion about cooperative conversions, Johnson said she firmly believed that as leaders of member-owned financial cooperatives, officials have an "ethical and fiduciary responsible to be straight forward, open and transparent with all decisions affecting its membership, charter, and structure."

"Recognizing that we have about 10,000 credit unions in America, I do not believe 25 conversions in the last ten years to mutual savings banks represent a trend," said Johnson.

"Rather a trend may be found in the conversion from a thrift to a stockholder-owned bank," she said. "As owners of the credit union, members have the right to vote to convert and change their structure. Our focus is to make certain that members are well informed and aware of the consequences of a conversion."

She also, expressed interest in reviewing a proposal that would include confidential balloting and independent third-party tabulations of votes, "helping to ensure the integrity of the voting process itself."

During a separate coordinated federal cooperative policy panel, Johnson discussed how NCUA has become a more recognized agency among its federal partners in its Access Across America Initiative to create economic empowerment for Americans from all walks of life.

Resource Links

National Cooperative Business Association

NCUA’s Access Across America

Clarification urged for CU deferred comp plans

WASHINGTON (5/3/04)--CUNA and CUNA Mutual Group are working to obtain clarification from the Internal Revenue Service (IRS) about a recent ruling on deferred compensations plans.

Eligible employers--including tax-exempt organizations as well as state and local governments--can offer highly compensated executives deferred compensation plans under Section 457 of the Internal Revenue Code (IRC). Many federal credit unions use the plans to attract and retain talented executives.

On April 9, the IRS responded to a federal credit union's inquiry about establishing a non-qualified deferred compensation plan and whether Section 457 of the IRC applied to such a plan. In its response, the IRS determined that the federal credit union was a "federal governmental instrumentality" and, therefore, is not an eligible employer. As a result, the IRS concluded that the credit union could not offer a Section 457 plan.

However, Kathy Thompson, CUNA senior vice president and associate general counsel for compliance, pointed out that the IRS letter was silent about what rules would apply to the credit union's deferred compensation plan.

"If federal credit unions cannot offer deferred compensation plans under Section 457, then it seems the logical alternative would be to let federal credit unions offer deferred compensation plans under Section 451 of the IRC," said Thompson.

Section 451 is the IRC provision applicable to the deferred compensation plans offered by "for-profit" employers, explained Thompson.

"A 451 plan provides greater flexibility that an 457 plan in that there is no annual dollar contribution limit, and participants have more flexibility in taking distributions which affects when taxes must be paid," she said. "Also, if federal credit unions are not subject to Section 457, this would mean that federal credit unions would be able to offer discounted mutual fund options to their employees."

Dave Fowler, CUNA Mutual Group associate general counsel, said CUNA Mutual next week would send an advisory about the IRS ruling to the federal credit unions for which it administers compensation plans.

The advisory will describe several options that federal credit unions have in the face of this private letter ruling:

• Take no action and wait for IRS to provide further clarification;

• Request a private letter ruling from the IRS specific to the federal credit union's situation, since the ruling that was just issued is only applicable to the credit union making the inquiry;

• Create/amend the current deferred comp program to comply with IRC Section 451, while understanding the risks of doing so; or

• Request a revenue ruling from the IRS, which would apply to all federal credit unions. The advisory will include a sample letter that the federal credit union can use to request a revenue ruling.

Given the need for further guidance, Thompson said CUNA and CUNA Mutual would urge the IRS to issue a revenue ruling to clarify the treatment of deferred compensation plans offered by federal credit unions to their executives.

Resource Links

CUNA Compliance Resources

Hawaii CUs models of outstanding service, says Matz

KONA, Hawaii (5/3/04)--In a state where more than half the residents are credit union members, NCUA Board Member Debbie Matz shared innovations that have raised Hawaii credit unions' member penetration rate to more than twice the national average--and she suggested that all credit unions can learn from their examples.

"As I learn more about the innovative ways that your credit unions are serving members," Matz told 750 attendees at the Hawaii CU League's 66th Annual Convention, "I can say that credit unions on the mainland could learn a great deal from credit unions here in Hawaii."

In her welcoming keynote address and her speech to the league's Government Affairs Forum, Matz shared stories of innovative services from 11 different Hawaii credit unions. For example:

• Alternatives to Predatory Lending--Windward Community FCU offers loans as small as $100 for members who face short-term emergencies and need help stretching funds from payday to payday. The credit union also offers risk-based loans for those with poor payment records. "This program's success is evidenced in the fact that no payday lenders have set up shop outside the military base where this credit union is stationed," Matz observed.

• Affordable Mortgages--For those who cannot afford to purchase land and a house at the same time, University of Hawaii FCU makes land loans with no time limit on when members must build. This allows members to accumulate wealth as their land rises in value. When they can afford to build, members have access to affordable mortgages with only half the points charged by for-profit competitors.

• Financial Education--So far this school year, volunteers from Hawaii credit unions, led by Hawaii USA FCU and Hawaii State FCU, have made nearly 70 classroom presentations, teaching financial literacy to nearly 2,200 students. The staff at CU Hawaii FCU is training tellers at a new independent credit union run by students at Waiakea High School. And Hawaiian Tel FCU has developed a speaker's bureau offering free presentations on topics such as building savings, balancing checkbooks, applying for loans, and maintaining good credit.

• Member Business Loans--One in three Hawaii credit unions make business loans, compared to only one in six nationally. "These Hawaii credit unions have been rewarded with extraordinary membership growth of 5.6%--nearly triple the national average," Matz reported. "So far in Hawaii, credit unions are managing the risks of business lending very well: At the 33 Hawaii credit unions making business loans, delinquencies are identical to all other Hawaii credit unions."

Matz described NCUA's initiatives to help credit unions reach new members and improve member services. She encouraged credit union leaders to explore the opportunities provided by NCUA's field of membership regulation, member business lending regulation, Technical Assistance Grants (TAGs), and her Partnering and Leadership Successes (PALS) initiative.

Resource Links

Partnering and Leadership Successes (PALS)

NCUA Technical Assistance Grants (TAGs)

Mica supports NCUA positions on SBA, FASB

WASHINGTON (5/3/04)--CUNA President/CEO Dan Mica Thursday commended NCUA for the agency's recent efforts related to members business lending and accounting standards for credit union mergers.

The agency's guidance to regional directors urging support for the Small Business Administration's 504 program "will facilitate greater participation on the part of credit unions as well as assist their small business members," wrote Mica in a letter to NCUA Board Chairman JoAnn Johnson and Board Member Debbie Matz.

Mica also thanked the board members for NCUA's work with the Financial Accounting Standards Board (FASB) business combination project. FASB has indicated it would like to issue guidance that would forestall the inclusion of a merging credit union's net worth in the net worth of the continuing credit union.

"CUNA is adamantly opposed to such guidance, which will deter mergers, and we have met with FASB officials on this matter a number of times," wrote Mica.

CU System briefs

• PLYMOUTH, Mich. (5/3/04)--Michigan Gov. Jennifer Granholm will speak during the opening day of the Michigan CU League's annual convention and exposition. Granholm is scheduled to address attendees May 20 in Detroit. League President/CEO David Adams said, "The governor has been a faithful supporter of Michigan credit unions and has enjoyed the strong support of Michigan credit unions in return." (Monitor May 3) ...

• ST. LOUIS (5/3/04)--A 33-year-old man who admitted to robbing 15 financial institutions in four states was sentenced to four years in federal prison Friday. Charles Lynch pleaded guilty in January to robbing eight banks in the St. Louis area, two in Illinois, three in Atlanta, one in Nashville and a credit union in Columbia County, Ga. All told, he stole more than $64,000 (Associated Press April 29) ...

• RICHMOND, Va. (5/3/04)--Richmond, Va., police were on the lookout for a man who robbed VACAP FCU April 26. The man passed a note to a teller but did not show a weapon (The Richmond Times-Dispatch April 27) ...

• GRAND JUNCTION, Colo. (5/3/04)--On Saturday, Mesa County Teachers FCU, Grand Junction, Colo., officially changed its name to Western Rockies FCU. The credit union has expanded its charter to offer membership to Mesa, Garfield, Pitkin and Eagle counties. In July, Burning Mountain CU, Rifle, will join Western Rockies FCU to add another branch to the ones in Grand Junction and Clifton. The $60 million asset credit union also is a member of CU Service Network ...

• HARRISBURG, Pa. (5/3/04)--Nancy Hudson of Lancaster, Pa., died April 27. She was 69. Hudson was general manager of the former RCA CU--now known as Lancaster Red Rose CU--from 1984 until her retirement in 1990. From 1969 to 1983, she was general manager of Lancaster Belltel FCU until it merged with Harrisburg BELCO FCU. Hudson was credited with being a leader in the conversion of credit union bookkeeping from manual to computerized systems (Lancaster New Era April 28 and Life is a Highway April 30). She was a board member for the Lancaster Chapter of CUs ...

• MESA, Ariz. (5/3/04)--Percy Avram of Mesa, Ariz., died April 1. He was 84. Avram worked with CUNA's World Extension Department (which expanded later into the World Council of CUs Inc.) as a training and extension director for South America through the U.S. Agency of International Development and the U.S. State Department (Arizona Republic April 3) ...

CUs’ loan-to-share ratio stays steady

MADISON, Wis. (5/3/04)--With loans and savings growing at a similar pace, the loan-to-share ratio remained at 70% in March, according to the Monthly CU Estimates released by CUNA Economics and Statistics. Loans outstanding rose 0.8% in March to $392.9 billion, a 10.3% increase from the $356.3 billion a year earlier. This also brings the increase to 1.1% for the first quarter of 2004.

Loan growth was driven by second mortgages at 2.4% followed by new-auto lending at 1%. "New-auto lending really picked up," said CUNA Senior Economist Steve Rick. For the first quarter of 2004, new-auto loans increased 1.5% compared with a decrease of 1.2% the same period a year earlier.

Rick said the increase was notable because new-auto loans have tended to be a weak area for credit unions, especially with the competition from dealers and their 0% financing deals. Savings balances increased to $561.9 billion--0.9% of growth--in March, compared with 1.2% in March 2003 when savings logged in at $526.4 billion. However, year-to-date growth is 3.1%, which is a slight decline from the 5.3% posted for the same quarter last year.

Rick said that share certificates grew a little with 0.8% increase in March compared to remaining flat the previous month. This is surprising, he said, because with interest rates bottoming out and an expected increase in rates in coming months, consumers would be expected to park their money in a regular share accounts not certificates.

For more information, use the resource link.

Resource Links

CUNA Economics and Statistics

Judge stays Georgia's payday lending ban

WASHINGTON (5/3/04)--U.S. District Court Judge Marvin Shoob imposed a temporary restraining order delaying implementation of Georgia's law banning payday lending (American Banker and Associated Press April 30).

The law, one of the strictest anti-predatory lending state laws in the nation, was to take effect Saturday, but Judge Shoob imposed the order to get more time to review a lawsuit filed by payday lenders.

Georgia CU Affiliates supported the law, which made it a felony to offer short-term loans above the state's cap of 60% a year. Gov. Sonny Perdue signed it into law April 9.

Separate suits were filed Tuesday by four banks and their payday-lender partners seeking to invalidate the law as unconstitutional. They also argue that federal law preempts the state law.

The law classifies all payday lenders as industrial loan companies subject to the annual percentage rate cap at 60% and forbids banks from indirectly making payday loans through payday lenders.

The judge could take up to 10 days before deciding whether to suspect the law while the suit is in court.

Resource Links

Payday Loans: The Hard Truth About Some Easy Money

Michigan rule bans credit scores for insurance

LANSING, Mich. (5/3/04)--To tackle the increasing cost of insurance, Michigan Gov. Jennifer Granholm and Office of Financial and Insurance Services Commissioner Linda Watters proposed a rule that would ban using credit scores as a basis for determining insurance rates.

"The use of credit scoring in Michigan has caused base rates to rise beyond what's affordable to many Michigan citizens, especially those who do not quality for any kind of discounts." Granholm said.

Since 1999 when insurance companies began using credit scoring, average automobile insurance base rates increased between 45% and 90% while homeowner rates grew between 86% and 152%.

The rule would eliminate the use of credit scoring for discounts, with an estimated decrease of 10%-45% in base rates.

Granholm said insurance companies should offer discounts based on consumer actions such as car alarms or smoke detectors rather than "an unrelated, unreliable credit score."

If the rule is approved, it would affect all personal lines of insurance.

Michigan foundation to create research fund

PLYMOUTH, Mich. (5/3/04)--The Michigan CU League Board approved a grant of up to $60,000 to create the first designated research project to be managed by the Michigan CU Foundation (Michigan Monitor April 30).

The league gave a check for $750,000 and approved the first $60,000 for a project that will focus on the competitive benefits of the credit union charter and credit union brand, says league President/CEO David Adams.

Michigan CU Foundation President Daniel Moss, left, receives two checks from Michigan CU League President/CEO David Adams during MCUF's Trustee March meeting. MCUF's International CU Development fund will receive $50,000, and an additional $750,000 will help create a new research fund for Michigan-specific academic research. (Photo provided by the Michigan CU League)

Other action at Tuesday's board meeting included taking a formal position on risk-based capital standards. The board:

• Supports CUNA's position regarding the standards in the CU Regulatory Improvement Act (CURIA) bill and
• Encourages NCUA's regional director and state regulators to implement risk-based capital standards in the supervision and examination process.

Small Washington CUs talk survival with regulators

FEDERAL WAY, Wash. (5/3/04)--Forty small credit unions in Washington state met Thursday with regulators from across the nation to discuss survival issues and regulatory relief. As a result of the roundtable, which the Washington CU League (WCUL) facilitated, the league will form a subcommittee devoted to small credit unions.

The Small CU Regulatory Relief Subcommittee will meet twice a year, bringing small credit unions, subject matter experts, and regulators together to identify areas of operational efficiency and regulatory relief. Mark Neumann, president of $50 million asset Columbia Basin FCU, will chair the subcommittee. It's first meeting will be in November.

Regulators and officials participating included:

• Mary Martha Fortney, president/CEO of the National Association of State CU Supervisors;
• Harold Feeney, commissioner, Texas CU Department;
• Ginger Larson, director, Wisconsin Office of CUs;
• Linda Jekel, director, Washington Division of CUs; and
• Melinda Love, Region V director, NCUA.

"Survival is the biggest issue we face," Demaris Krummel, CEO and manager of Inland Empire Trades CU, a $3.8 million asset credit union in Spokane. The USA PATRIOT Act was a major regulatory burden highlighted by WCUL Chair and Spokane FCU President Byron Edgett. "The penalties could put a small credit union out of business and the CEO in jail," he said.

Regulators identified common ground with the CEOs, committed to looking at cases individually, and agreed with the need for examiner consistency. In discussing inconsistencies between state and federal examinations and increased regulatory burdens, Feeney told the group, "Our operations are just like yours. State regulators are not the NCUA. We don't have unlimited resources. We have much responsibility, a small staff and limited resources just like you."

NCUA's Love noted that "we are in a regulatory phase where we are trying to loosen the regulatory burden. I don't know how long this phase will last."

Don Larsen, vice chair of CUNA's Government Affairs Committee and president/CEO of $10 million asset Community CU, praised the beneficial regulatory operating climate for small credit unions in Washington State, noting that small size can be an advantage. Washington has one of the most beneficial credit union rules in the nation, the regulators said.

"One of our board initiatives this year is regulatory relief for small credit unions," said WCUL President John Annaloro. "This meeting truly produced insights beneficial to the survival of small credit unions snot just in Washington, but across the U.S."

CUs on Pennsylvania's working-families task force

HARRISBURG, Pa. (5/3/04)--Pennsylvania credit unions are represented on the new Governor's Task Force for Working Families. Gov. Edward Rendell Thursday signed an executive order establishing the task force and creating the Office of Financial Education.

Credit union representatives appointed to the task force are Barb Fortney, CEO of LANCO FCU, Lancaster, and Mike Wishnow, senior vice president, communications and marketing at the Pennsylvania CU Association (PCUA) (Life is a Highway April 30). They will join more than 60 other members representing the General Assembly, Commonwealth agencies, businesses, institutions, and community-based organizations.

The task force and new Office of Financial Education will focus on improving financial education and literacy skills and helping working families in tight budget times, says PCUA.

State Rep. Dwight Evans (D-Philadelphia) and state Secretary of Banking William Schenck are co-chairmen of the task force. Hilary Hunt has been named director of the Office of Financial Education.

Task force members are charged with identifying strategies and programs to build incomes and assets for working families, promoting financial education and literacy, and protecting working families from abusive financial services.

Vermont elects officers, OKs bylaw change

SOUTH BURLINGTON, Vt. (5/3/04)--The Vermont CU League announced its 2004 board officers and passed a bylaw amendment at its recent annual meeting in Fairlee.

Officers include:

• Chair--John Benoit, CEO of NorthCountry FCU, South Burlington;
• Vice-chair--Kevin Loso, board member of Heritage Family CU, Rutland;
• Treasurer--Susan Poczobut, CEO of Granite Hills CU, Barre; and
• Secretary--Jennie Dion, board chair of ORLEX Government Employees CU, Newport.

An amendment, unanimously passed by 22 of the league's member credit unions, changed the yearly league dues calculation date from June 30 to Sept. 30. The change will ease the burden on educator-based credit unions that must calculate league dues based on the artificially high asset size caused by summer payrolls.

West Virginia league officers elected

PARKERSBURG, W.Va. (5/3/04)--New board officers were announced during the West Virginia CU League's 68th Annual Meeting, which met April 23-24 in Charleston.

The league's new board officers are:

Treasurer--Doris Cunningham, treasurer/manager of Members Choice WV FCU, Charleston.

In addition, the league presented its highest annual award for volunteerism, the William Bryan Hawkins Award, to Frank R. Ellis of Steel Crete Employees FCU, Beech Bottom. The Pacesetter Award, recognizing excellence in paid credit union staff, went to Stephanie Rippetoe of Members Choice WV FCU, Charleston.

Roth IRAs, 2004 election new stuffer topics

MADISON, Wis. (5/3/04)--To educate members about Roth IRAs and the 2004 election, CUNA's center for personal finance has published two new statement stuffers.

"What a Roth IRA Can Do for You" covers the differences between a regular IRA and a Roth IRA; what a Roth IRA may be used for; catch-up contributions; saver's credits for young people; and the types of consumers who receive the greatest benefit from a Roth IRA.

In light of the onslaught of banker attacks against credit unions, the "Election 2004" statement stuffer reminds credit union members about the importance of their vote and provides information about easy, online voter registration.

Four additional stuffers received facelifts, including:

1. "Mortgage Refinancing: You Could Save a Bundle" was reconfigured because interest rates on mortgages remain at record lows. The stuffer uses lower interest rate examples, which more accurately reflect the national average, and then recalculates payment totals and other figures to numbers more in line with what consumers are currently paying;
2. With availability of 0% financing options becoming common in areas other than just auto loans, "Autos and More: The Truth About 0% Financing" contains a new section covering 0% options available for items such as furniture and computers;
3. A miscellaneous section was added to the charts of "What to Keep and What to Throw Away" detailing how long to keep certain financial papers and other documents. The revised version also recommends shredding rather than tossing old documents to remind members of an important measure to take that reduces chances of identity theft; and
4. The updated version of "Why You Should Belong to a CU" added a link to CUNA's consumer website, which contains free information about credit unions, how to find one to join, consumer finance and financial calculators.

CUNA offers more than 50 statement stuffers, including four in Spanish. For more information, use the resource links.

Resource Links

CUNA Statement Stuffers

CUNA Consumer Website

Northwest Corporate marks 26th anniversary

PORTLAND (5/3/04)--Northwest Corporate CU recently celebrated its 26th anniversary and elected board members and officers at its annual meeting April 22.

Five members were re-elected to serve three-year terms on the board. They are Bill Anderson, president/CEO, Mid Oregon FCU, Bend, Ore.; Howard Benson, president/CEO, Malheur FCU, Ontario, Ore.; Gordon Hoerauf, president/CEO, Oregon Community CU, Eugene, Ore.; Ed Seidenberg, executive vice president/chief financial officer, Harborstone CU, Tacoma, Wash.; and Dan Webber, president/CEO, State Highway Employees District No. 6 CU, Spokane, Wash.

The following four board members were elected to officer positions:

• Chair: Mike Osborne, executive vice president/chief financial officer, First Tech CU, Beaverton, Ore.;
• Vice chair: Linda Wheeler, president/CEO, Cascade View Community CU, Portland;
• Treasurer: Ed Seidenberg; and
• Secretary: Linda Kleppe-Olson, president/CEO, White River CU, Enumclaw, Wash.

The annual meeting was held in conjunction with the 2004 Education and Economic Conference April 22 in Eugene. More than 300 credit union members attended the two-day conference.

Market News

MADISON, Wis. (5/3/04)

• The Federal Reserve's concerns about price deflation may have been overstated last year when it decided to cut interest rates to four-year lows and hold them there, according to a study by the Federal Reserve Bank of Atlanta (The Wall Street Journal Online April 30). The study concludes that much of the decline in inflation between 2001 and 2003 was prompted by the unusual behavior of residential rents and used-auto prices. According to the Fed study, two-thirds of the drop in the core rate of inflation during the two-year period reflected a slowdown in rent increases and rapid declines in used-auto prices. Auto manufacturers' 0% financing boosted demand for new autos and in turn drove down demand and prices for used cars. And the Fed's low-rate policy drove mortgage rates down--prompting many renters to purchase homes. Rising apartment-vacancy rates in turn curbed rent increases. The study concludes that these developments "reflect not a fundamental weakening in housing and vehicle demand, but, instead, the dynamic effects of interest rates on consumer demand for substitutes." Core inflation would be 2.7% instead of 1.6% if price trends for used autos, rent and housing had remained the same after November 2001. The study suggests measured inflation rates may begin to rise when the Fed starts to tighten monetary policy, said Jonathan Basile, a Credit Suisse First Boston economist who has studied the issue. ...

• The average 30-year, fixed-rate mortgage topped 6% last week for the first time since early December, according to Freddie Mac (CBS.MarketWatch.com April 29). The 30-year rose to 6.01% from 5.94% the previous week. Since hitting a low of 5.38% March 18, the 30-year has increased for the past six consecutive weeks. "With financial markets more optimistic that the economy is expanding nicely, mortgage rates had no where to go but up...," said Amy Crews Cutts, deputy chief economist at Freddie Mac. The 15-year, fixed-rate mortgage rose to 5.35% last week from 5.25%, while the one-year, adjustable-rate mortgage (ARM) increased to 3.75% from 3.69%. Rising long-term rates have stimulated demand for ARMs, according to the Mortgage Bankers Association. ARMs made up 32.7% of total applications during the week ending April 23--up from 31.7% the previous week and just 14.3% a year ago ...

• While the Bush administration hailed Thursday's strong economic-growth report as a sign that tax cuts are working, neither the Republican Party nor John Kerry, the presumptive Democratic presidential nominee, addressed the unexpected contribution of military spending to economic growth last quarter (The New York Times April 30). Kerry noted that the economy continues to generate few jobs despite strong economic growth. The Commerce Department reported Thursday that the nation's gross domestic product expanded at a robust 4.2% rate during the first three months of the year. Military spending accounted for $17.4 billion of the $108.5 billion rise in the GDP, adjusted for inflation. Military spending hasn't been so important to economic growth since the second quarter of 2003, when the war with Iraq began. Without military spending, the GDP would have expanded at a more modest 3.5% last quarter. The Commerce Department said most of the spending increase went to the Air Force for "base support equipment." While little of the gain went to weaponry, that could change if the fighting in Iraq continues to escalate. "Clearly military spending is more elevated because of Iraq than people had expected," noted William C. Dudley, director of domestic economic research at investment bank Goldman Sachs ...

• Personal spending rose by 0.4% in March as tax refunds and mortgage refinancings gave consumers extra cash (Bloomberg.com April 30). Personal income rose by 0.4% last month and at a 5.6% annual rate during the first quarter--the fastest pace since the third quarter of 2000, according to the Commerce Department. Wages and salaries rose at a 4.8% pace--also the fastest rate since the third quarter of 2000. While the contributions from tax refunds and refinancings to consumer spending power will probably diminish in coming months, job creation should help buoy income and spending growth. The Labor Department reported earlier this month that the economy added 308,000 jobs in March--the strongest gain since April 2000. Analysts are hoping next week's report on April employment shows further strong gains ...

• Supermarket operator Winn-Dixie Stores said it plans to cut as many as 10,000 workers by closing 45 supermarkets and selling 111 more amid stiff competition from Wal-Mart Stores supercenters (Bloomberg.com April 30). The Jacksonville, Fla.-based firm said it plans to shed one in seven of its 1,078 stores during the next year. Winn-Dixie has slashed its prices to compete with larger rivals such as Wal-Mart and Publix Super Markets. Wal-Mart supercenters, which have expanded to sell groceries as well as clothing, home furnishings and other goods, has 101 supercenters in Florida, where Winn-Dixie has 40% of its stores. Wal-Mart plans to open as many as 240 supercenters this year. Wal-Mart is now the largest U.S. grocer and the world's biggest retailer ...

News of the Competition

MADISON, Wis. (5/3/04)

• Riggs National Corp. said it is exiting or selling most of the international banking business that triggered a federal investigation about possible violations of money-laundering laws. Washington-based Riggs also said Joe L. Albritton, its major stockholder and former chairman, Albritton's wife Barbara, and Riggs president Timothy Coughlin are stepping down from the board. Sir Christopher Meyer, the former British ambassador to the U.S., has already stepped down. Coughlin will remain president. The company is also taking on a banking-industry veteran as an independent director. Anthony P. Perracciano will advise management as it navigates though the regulatory quagmire. The Federal Reserve plans to join the Office of the Comptroller of the Currency in imposing stringent controls on the operations of Riggs, which is under investigation for alleged failures to report suspicious transactions involving the embassies of Saudi Arabia and Equatorial Guinea. Riggs said it is seeking a buyer for its "wealth management" operations in London and the Channel Islands, and it plans to shut down its Miami office, which catered to Latin American clients. The shift in Riggs' status, which called itself "the bank of presidents," illustrates how the banking business has changed after Sept. 11, 2001 (Bloomberg.com and The Wall Street Journal Online April 30) ...

• In an effort to avoid a showdown with large shareholders, MBNA Corp. has chosen two new directors who have no financial or family ties to the firm, according to Louis J. Freech, general counsel for MBNA and a former director of the FBI (The New York Times April 30). Before its annual shareholder meeting today, MBNA was expected to announce that it had appointed antitrust attorney Mary M. Boies and Laura S. Unger, former acting chairwoman of the Securities and Exchange Commission, to its board. The two would replace Michael Rosenthal, a humanities professor at Columbia University, and Norma Lerner, widow of the firm's former chairman, Alfred Lerner, and mother of Randolph Lerner, who succeeded his father as chairman in late 2002. MBNA, the second-largest U.S. issuer of credit cards behind Citigroup, has been criticized by managers of large pension funds--including the California Public Employees Retirement System and the California State Teachers Retirement System--for being unresponsive to shareholders and for having too few directors who are independent of the firm or the Lerner family. MBNA has also agreed to begin treating stock options as an expense in 2005, said Freech ...

• The bank start-up draught in Massachusetts may be over (American Banker Online April 30). Only eight banks and thrifts have opened in the state since 1993, and four of those have been acquired. Since May 2002, no bank has opened in the state. The disappearance of many community banks present an opportunity to open banks on Cape Cod and in the northeast section of the state along the border with New Hampshire, said David Sidon, a consultant in Gloucester who unsuccessfully tried to open a bank there in 2002 and 2003. Sidon said he is assisting three groups that want to open banks. Kenneth F. Ehrlich, a banking attorney at Boston-based Nutter, McLennen & Fish LLP, said his firm has been contacted by another three groups seeking to start banks. While still not a large number, the six groups in Massachusetts represent a big change after the concentration that has occurred during the past 10 years. In 2003 alone, 11 banking companies in Massachusetts--including FleetBoston Financial--have announced deals to sell themselves. The loss of those banks prompted the rebound in start-up activity, say Ehrlich, Sidon, and other observers. As of April 22, there were 207 banks headquartered in the state--down from 292 at year-end 1992, a 29% drop, said Ehrlich. Unemployment prompted by consolidation is a driving force for start-up activity. "Some very talented bankers lose their jobs, and they choose to help new banks get chartered," said Mark Thompson, CEO of Boston Private Bank and Trust Co. ...

• A number of unusual items on bank balance sheets, which typically occur at year-end, extended into the first quarter (American Banker Online April 30). Such items include gains on the sale of securities, impairment of mortgage servicing rights, gains or losses on the sale of investments or business units, and merger-related items. Some analysts complain that the items disguise real earnings strength. Others say the items are inevitable during a period of a sustained economic downturn and unusually low interest rates. But some bankers say it was simply a good time to clear off some debris. "It didn't matter whether you reported good earnings or bad--the stocks still went down," said Mark Fitzgibbon director of research at Sandler O'Neill & Partners. "So why not do a little housecleaning?" And even excluding such special items many of the top U.S. banking companies beat analysts' expectations ...

• Assets in section 529 college savings plans will jump to $300 billion by the end of 2010 from $35 billion at year-end 2003, according to a report by Financial Research Corp. (FRC) (American Banker Online April 30). The study said the industry will see "radical" growth as investment firms realign their business strategies to satisfy the interests of college savers. More multimanager platforms will be launched, said Whitney Dow, director of education saving research at Boston-based FRC ...

Keep fuel costs in check

YONKERS, N.Y. (5/3/04)--With gasoline prices approaching $2 a gallon in most parts of the country, drivers can benefit from many different strategies to increase fuel efficiency (Consumer Reports April 2004).

Here are some tips:

• Reduce idle time. After starting the car in the morning, begin driving immediately. There's no need to let it sit for several minutes. An engine warms up faster while driving.

• Keep a steady pedal. Driving smoothly and steadily makes the best use of your fuel. Avoid hard acceleration or braking. Varying your speed a lot wastes fuel. Remember that a car's gas mileage decreases rapidly at speeds of more than 60 miles an hour.

• Reduce drag. At highway speeds, more than 50% of engine power goes to overcoming aerodynamic drag. Avoid carrying things on top of your vehicle; a loaded roof rack can decrease fuel efficiency by 5%. Even driving with empty ski racks wastes gas. Also, running the air conditioner robs power from the engine and uses additional fuel.

• Buy the right gas. If your car manual specifies regular fuel, don't buy premium thinking your engine will benefit. Most cars are designed to run just fine on regular gasoline. Check your owner's manual to see if your engine is designed to handle either grade.

• Keep tires properly inflated. Underinflated tires require more energy, wear down the tires faster, and waste fuel. The Environmental Protection Agency estimates that a tire underinflated by only two pounds per square inch can cause a 1% increase in fuel consumption. Check tire pressure at least once a month, when the tires are cold. The recommended pressure is found on a label inside the car--usually in a doorjamb or inside the glove-box lid.

• Service the engine. A poorly maintained engine can cut gas mileage by 10% to 20%. A clogged air filter alone can cause up to 10% increase in fuel consumption.

For more information, read "Different Engines, Higher Mileage: Gas-Electric Hybrids and Diesel Engines Go the Distance" in the Home & Family Finance Resource Center autos section.

Products and Services briefs

• NEWTON, Mass. (5/3/04)--More than 500 credit unions are using Politzer and Haney's Web Cash Manager to offer web-based banking products and services to their members. President Ralph Dangelmaier said the corporate credit unions that use Web Cash Manager are able to offer the most flexible solutions to their members, and in turn, their members (Business Wire April 27) ...

• AUSTIN, Texas (5/3/04)--Cooperativa de Ahorra y Credito Dr. Manual Zeno Gandia has launched fxLending, an automated lending solution from FundsXpress. The Puerto Rico-based credit union reports fxLending has helped with automation of back-office processes and will be expanded to include online loan applications next month ...

• WASHINGTON (5/3/04)--Certegy Inc., a payment processor based in Alpharetta, Ga., reported its first-quarter earnings rose to $20.7 million--a 69.7% increase from a year earlier. Certegy attributed part of the increase to the March purchase of Game Financial Corp., a Minneapolis casino cash and ATM vendor (American Banker April 22) ...

• RESTON, Va. (5/3/04)--John R. Polchin has resigned as chief financial officer of InteliData Technologies Cor, a provider of electronic bill payment and presenting technologies. CEO Alfred Dominick Jr. will assume the responsibilities of acting chief financial officer (Business Wire April 27) ...

WOCCU educates Caribbean regulators

MADISON, Wis. (5/3/04)--Thirty-five regulators from 18 countries were in Barbados last month for a seminar on credit union supervision organized by the World Council of CUs Inc. (WOCCU). The seminar was conducted at the request of the Caribbean Regional Technical Assistance Center (CARTEC).

Among CARTEC's sponsors are the International Monetary Fund; U.S. Agency for International Development; CIDA, Canada; DFID, the United Kingdom; International Development Bank and the World Bank.

Assisting WOCCU in presenting best practices of supervision of U.S. credit unions was the National Association of State CU Supervisors (NASCUS). NASCUS presenters included Barbara Pogue, NASCUS director of membership and accreditation; Ella Robinson, retired Kentucky commissioner; and Roger Little, deputy commissioner from Michigan.

Presenters from WOCCU included President/CEO Arthur Arnold; Brian Branch, vice president and chief operating officer; Mark Cifuentes, senior manager-development; and Jesus Chavez, technical development manager.

Glen Francis, general manager of the Jamaica Cooperative CU League. noted that when WOCCU began the PEARLS standard and monitoring system in Jamaica as a credit union strengthening project in 1997, Jamaican credit unions' capital was a negative 1% of total assets. After the project was completed in 2000, the combined capital was 4%. Today, it is 8%.

Martin Guevara, CEO of the Caribbean Confederation of CUs, WOCCU's member organization, also presented information on supervision, accountingsystems and audit practices.

Resource Links

World Council of CUs Inc.