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October 21, 2014

Crapo: Bold reg. reforms could help small FIs survive

Washington
WASHINGTON (10/21/14)--Small financial institutions are disappearing from America's financial landscape due to "an ever-increasing regulatory burden," says Sen. Mike Crapo (R-Idaho). In a letter published in American Banker , Crapo, the ranking member of the Senate Banking Committee, lamented that small financial institutions are not failing, but voluntarily closing due to increased compliance costs.

"We have lost more than 3,000 small banks and more than one-half of credit unions since 1990," he wrote.

In a September Senate Banking Committee hearing, legislators expressed concern with the effects of over-regulation. Dennis Pierce, chair of the Credit Union National Association board, testified on behalf of CUNA, saying credit unions were under "regulatory assault."

"Congress and regulators ask a lot of small, not-for-profit, financial institutions when they tell them to comply with the same rules as JPMorgan, Bank of America and Citibank, because the cost of compliance is proportionately higher for smaller-sized credit unions than these behemoth institutions," Pierce said.

In his letter, Crapo called for "a frank discussion about what regulatory burdens mean for financial institutions and the communities they serve."

CUNA has expressed support for numerous regulatory relief bills in both houses of Congress in the past few months. These bills would do everything from simplifying privacy notifications to removing a limit on automated transfers from savings accounts.

From a regulatory perspective, CUNA has written to the National Credit Union Administration, the Consumer Financial Protection Bureau and the Federal Housing Finance Agency to urge proposed rules take into account the burdens that might be placed on small financial institutions.

"In light of the imperative need to reduce credit unions' regulatory obligations, we urge NCUA to add new or expand existing rules only if required to do so by law, or doing so is clearly warranted based on a compelling safety and soundness reason that can be satisfactorily addressed in no other manner," wrote CUNA Senior Vice President and Deputy General Counsel Mary Dunn in a letter to the NCUA in August.

Compliance burdens and costs are a growing concern for financial institutions. Last week one survey indicated that compliance costs were up 30% in the past year, and since January 2013, more U.S. financial institutions are reporting compliance concerns ( News Now Oct. 16).

These concerns include transferring staff from revenue-generating roles to managing increased risk and compliance requirements.

Use the resource links for more information. ReadMore

FIs can post privacy notices online under new CFPB rule

Washington
WASHINGTON (10/21/14)--A rule allowing financial institutions that meet certain requirements to post annual privacy notices online has been finalized by the Consumer Financial Protection Bureau (CFPB).

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to send annual privacy notices to customers, describing whether and how it shares consumers' nonpublic personal information. If the institution does share this information, it must notify consumers of their right to opt out and inform them how to do so.

Under the CFPB's new rule, requirements that allow financial institutions to post privacy notice online include:
  • The financial institution does not share data in ways that would trigger consumers' opt-out rights;
     
  • Consumers are informed annually about the availability of the disclosures; and
     
  • A notice is included on a regular consumer communication, such as a monthly billing statement for a credit card, letting consumers know that the annual privacy notice is available online and in paper by request at a provided telephone number.
If an institution chooses not to use the new disclosure method, it will need to continue to deliver annual privacy notices to its customers using other delivery methods.

The new rule applies to all financial institutions within the CFPB's jurisdiction under the GLBA. Institutions that choose to rely on this new method of delivering privacy notices will be required to use the model disclosure form developed by federal regulatory agencies in 2009.

Use the resource link below to access the final rule. The rule is effective upon publication in the Federal Register. ReadMore

CUNA Attorneys Conference: Where CUs stand on data breaches, RBC, legal cases

Washington
DANA POINT, Calif. (10/21/14)--Speaking to a packed house, Credit Union National Association Executive Vice President and General Counsel Eric Richard opened CUNA's Attorneys Conference with a update on some of the most pressing regulatory issues facing credit unions.

Of primary legal concern to financial regulators is a case the Supreme Court will hear in December. It involves the issuing of guidance versus regulations, which requires a public notice and comment period. The Washington, D.C., Federal Court of Appeals ruled that an agency cannot change its interpretation of a rule without engaging in notice-and-comment.

Richard called the case "one of the most important ones to watch for regulated industries such as credit unions." The decision could articulate a standard as to when a regulated entity is expected to follow guidance, which could have implications on the examination and supervision process.
Click to view larger image Credit Union National Association Executive Vice President and General Counsel Eric Richard (at podium) speaks to the audience at the CUNA Attorneys Conference Monday about the latest regulatory and legal issues facing credit unions. (CUNA Photo)

"If the Supreme Court upholds the D.C. court's decision, credit unions could have more opportunity to participate in the process, on the other hand, agencies might decide not to use guidance, for fear of locking themselves into a position," Richard said. "However, if the Supreme Court rejects the D.C. court, agencies will more confidently issue interpretations."

In his update on the National Credit Union Administration's risk-based capital proposal, Richard outlined CUNA's efforts over the past six months, which included meeting with stakeholders around the country, preparing a library of material to help credit unions see how they might be affected, speaking to members of Congress and helping to generate a record 2,056 comment letters on the proposal.

He also said the process has likely been a learning process for the NCUA and credit unions. Since the proposal deals with wide-ranging topics such as interest-rate risk, concentration risk, examiner power, capitalization requirements and more, Richard said the agency might be better served breaking those down into individual proposals.

"In the future, we encourage the agency to tackle areas of concern one at a time, rather than putting out a single huge proposal," he said. "It causes less heartburn to the industry and ultimately it is in the agency's interest to take things in small bites."

Other lessons learned during the risk-based capital proposal process include:
  • The 2,056 letters have been distilled to about 50 individual issues the agency is considering;

  • The unprecedented credit union reaction to the rule "must have made a huge impression on NCUA board members," and that it is just as important that those efforts be continued during the second comment period; and

  • A negotiated rulemaking or Advance Notice of Proposed Rulemaking could have involved stakeholders at an earlier stage, making sure credit union voices were heard.
Data breaches are another topic that has filled the headlines recently, with a significant cost coming to credit unions and other financial institutions. According to CUNA's survey on the Target data breach, it cost credit unions roughly $30 million to re-issue credit and debit cards, as well as other costs.

Richard said a layered approach to payment security is needed, with an ultimate goal of bringing merchants to the table to discuss ways to implement appropriate security standards.

"We feel like a national standard is appropriate here, rather than a patchwork of differing state laws and regulations, but we don't want Congress to set the standard, the technology develops too quickly," he said. "We'd also like merchants to be required to reimburse credit unions for the costs they incur as a result of data breaches."

Other points he made include:
  • While litigation is not a "silver bullet," it is an important tool for credit unions. Some credit unions must serve as named plaintiffs if they want to sue. CUNA is working with plaintiffs firms and connecting credit unions and lawyers. A number of credit unions must serve as named plaintiffs if the industry wants to pursue class action;
     
  • For the Target breach, there are at least 30 cases directly related to financial institutions under way, with at least 10 credit unions serving as named plaintiffs. Target is trying to have the case dismissed, saying it does not owe a duty of care to financial institutions;
     
  • For the Home Depot breach, cases are just starting, including at least three involving credit unions; and
     
  • Visa and MasterCard also have procedures used to negotiate to create compensation funds for those affected.
Also during the Monday sessions at the conference was a presentation from NCUA Senior Associate General Counsel John Ianno and staff attorneys Sarah Chung and Pamela Yu. Watch News Now Wednesday for details.

Other sessions at this week's conference include "Social Media: Compliance Challenges and Opportunities for Credit Unions," presented today by CUNA Mutual Group's Ross Hansen, associate general counsel, and Jennifer Kraus, lead attorney; and "New Developments in the Bank Secrecy Act," presented by T. Wayne Hood, senior vice president/general counsel, ORNL FCU, Oak Ridge, Tenn., with $1.5 billion in assets. Wednesday features "ID Theft Response--How to Do It Right," presented by Christopher Gerety, general counsel, APCO Employees CU, Birmingham, Ala., with $2.4 billion in assets. ReadMore

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Candidates in Calif., Fla. get strong CU backing

Washington
WASHINGTON (10/21/14)--Credit union-friendly candidates in tight races in California and Florida are the latest to receive Credit Union National Association support this election season.

Click to view larger image Click for larger view
In California, CUNA and the California Credit Union League have started a partisan communication campaign in support of Rep. Ami Bera (D), who is running for re-election to represent California's 7th Ddistrict.

Bera, who is a medical doctor, served on the board of American River HealthPro CU, Rancho Cordova, Calif., which is now part of $.21 billion-asset SAFE CU, Folsom. He is a past associate dean of admissions for the University of California, Davis School of Medicine and chief medical officer for the County of Sacramento.

In October 2013, Bera was one of 11 representatives to sign a letter supporting credit unions' tax status.

"We're excited to engage on his behalf in this race, which is one of the closest in the country," said Trey Hawkins, CUNA's vice president of political affairs.

Click to view larger image Click for larger view
Bera is being challenged by Republican Doug Ose, who served as representative for California's 3rd District from 1999 to 2003. According to Roll Call , the district leans slightly Democratic, but it listed him just outside the "Top 10 Most Vulnerable House Members."

In Florida's 2nd District, incumbent Rep. Steve Southerland (R) is facing another close race against challenger Gwen Graham, a school administrator and daughter of Bob Graham, a former senator and governor.

The Credit Union Legislative Action Council has made a $176,000 independent expenditure for television advertisements between now and election day.

Southerland is another supporter of maintaining credit unions' tax status, and he signed a letter in May, along with 323 other representatives outlining concerns with the National Credit Union Administration's risk-based capital proposal. ReadMore

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