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NEW: CUNA files amicus brief in Florida interchange case

ATLANTA (3/5/15 Updated 3:50 p.m.)--CUNA today filed an amicus brief in the U.S. Court of Appeals for the Eleventh Circuit, in a case raising many of the policy issues surrounding credit card interchange fees. The case, Dana's Railroad Supply v. Bondi , involves a First Amendment challenge to Florida's ban on merchants surcharging users of credit cards.

The retailers bringing the lawsuits argue that price determination is a form of free speech, and that in banning surcharges, merchants are unable to protest interchange fees, which they deem to be too high.

Interchange fees occur when a credit card transaction takes place, and are how credit unions are compensated for making cards available to merchants. As the CUNA brief notes, merchants receive a number of benefits from participating in the credit card system, including being able to keep staff levels low, allow for transactions at unattended locations like gas pumps or online, as well as protecting merchants from fraud and insufficient fund losses.

"Nothing about the Florida Statute prohibits merchants from doing anything at the point-of-sale (or anywhere else) in an attempt to persuade consumers to use cash instead of a credit card," CUNA Senior Director of Advocacy and Counsel for Special Projects Robin Cook argued in the brief. "The Florida Statute also does not preclude merchants from asking Congress or the Florida Legislature to cap the fees merchants pay for credit card acceptance. In fact, merchants have repeatedly done exactly that in recent years, and have now developed this colorful theory in an effort to accomplish part of what they could not achieve in Washington and Tallahassee."

CUNA argues that allowing merchants to add additional surcharges to credit card transactions would allow merchants to shift the cost of these payments to consumers, while still allowing merchants to receive the substantial value of participating in the credit card system.

"Credit cards provide the consumer a safe, efficient, convenient, seamless transaction that redounds to the benefit of merchants," CUNA argued. "Meanwhile, card issuers like credit unions assume all of the risk and guarantee the merchant will receive payment immediately. The interchange component of the merchant discount fee is how issuers are appropriately compensated for providing this service."

Credit unions, which are generally smaller financial institutions, face numerous costs by offering and processing credit cards.  Interchange fees help ensure that card programs are economic for credit unions. A surcharge on credit card transactions, CUNA argues, could lead to consumers using credit cards less frequently, instead opting for other forms of payments.

This could force credit unions to exit the credit card market, making it more difficult for them to compete with larger financial institutions to attract and retain members.

The brief also notes that consumer issues are at play with eliminating Florida's surcharge ban. Funds generated through credit card programs are used to subsidize other consumer-friendly products at credit unions, such as free checking accounts. These programs help bring more consumers into the financial system.

Surcharging could mean fewer consumers would have access to basic financial services, the brief argues. CUNA presents evidence showing this is exactly what happened after the Durbin Amendment.

Surcharging was prohibited under federal law until the statue expired in 1984. After that, Visa and MasterCard banned surcharging as part of their network agreements. A 2013 antitrust case caused the bans to be removed from those agreements, making the state bans more relevant.

Three other cases across the country are pending, in New York, California, and Texas, all involving similar arguments as the Florida case. The New York Credit Union Association has filed an amicus brief for the case in that state, which is under appeal. The Texas district court has ruled surcharges to be unconstitutional, and the California case is still pending.

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CUNA-backed bill would allow CU input into 'rural' definition

WASHINGTON (3/5/15)--Reps. Andy Barr (R-Ky.) and Ruben Hinojosa (D-Texas) have reintroduced the Helping Expand Lending Practices in Rural Communities Act, a CUNA-supported bill that would grant credit unions and other lenders greater input into rural-area designations.

"Having an area designated as 'rural' can affect  the types of products credit unions can offer members in that area, and CUNA supports any opportunity for credit unions to provide input to the process," said CUNA Chief Advocacy Officer Ryan Donovan.

For instance, credit unions operating in "rural" areas may be exempt for some regulatory burdens, such as an escrow requirements under the Truth in Lending Act that requires certain lenders to create an escrow account for at least five years for higher-priced mortgage loans. They may also be exempt from standards under the Ability-to-Repay/Qualified Mortgage (QM) rules that disqualify mortgage loans with balloon payments from meeting the QM standard.

Being exempt from such requirements, CUNA maintains, can beneficially affect the types of products a credit union can offer their members in what can be underserved areas.

The "rural " designations are made by the Consumer Financial Protection Bureau (CFPB), and the bill would provide individuals in rural areas the right to petition for the area to be reclassified as "rural." It would also direct the bureau to establish an application process determining whether an area should be designated as rural.

Currently, the bureau uses the U.S. Department of Agriculture codes to define a rural area.

The bill also requires the CFPB to grant or deny the application within 90 days and to publish the decision in the Federal Register. The decision must include an explanation of factors the bureau used in making its decision.

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Bill introduced to change CFPB leadership structure

WASHINGTON (3/5/15)--A bill that would broaden the leadership structure of the Consumer Financial Protection Bureau (CFPB) was introduced Wednesday by Rep. Randy Neugebauer (R-Texas).

The Financial Product Safety Commission Act (H.R. 1266) would change the CPFB leadership from a single director to a five-person board.

CUNA testified before the Senate Banking Committee last month in support of installing a five-person board to run the CFPB.

"We believe that a five-member commission, as Congress originally intended, will better balance consumer access to financial products with the need to ensure a fair marketplace," reads a joint letter signed by CUNA and other financial services trade organizations. "A commission would serve as a source of balance and stability for consumers and the financial services industry by encouraging internal debate and deliberation, ultimately leading to increased transparency."

Under H.R. 1266, the members would be appointed by the president and confirmed by the Senate. The commission would be split 3-2 along political parties, with members serving five-year staggered terms.

According to the bill's text, the commission members must "have strong competencies and experiences related to consumer financial products and services."

Wally Murray, president/CEO of Greater Nevada CU, Carson City, Nev., testified last month on behalf of CUNA during a Senate Banking Committee hearing.

"Expanding the bureau's executive leadership to a five-person board will ensure that more voices contribute to the bureau's rulemaking and it could help produce regulations that better balance the important mission of the bureau and the impact the regulations have on the way products and services are provided to consumers," Murray said.

Neugebauer is the current chair of the House Financial Services financial institutions and consumer credit subcommittee, and he will be addressing CUNA's 2015 Governmental Affairs Conference Monday. The bill, which has 20 co-sponsors, would also rename the CFPB the Financial Product Safety Commission. 

Along with CUNA, the joint support letter was signed by the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, Independent Community Bankers of America, National Association of Federal Credit Unions and the U.S. Chamber of Commerce.

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Luetkemeyer introduces 'good first step' toward reg. relief, Nussle says

WASHINGTON (3/5/15)--CUNA expressed its appreciation Wednesday for a bill introduced by Rep. Blaine Luetkemeyer (R-Mo.) that contains several regulatory relief provisions. The Community Lending and Regulatory Relief Act of 2015 (CLEARR Act) contains a number of items that were part of regulatory relief bills in the previous Congress.

"We believe your legislation is a good first step toward meaningful regulatory relief for credit unions and other community based financial institutions," Nussle wrote to the chief sponsor of the bill. "We look forward to working with you on ways to further regulatory relief for community based financial institutions."

Most importantly, the bill contains a much-sought-after provision that directs federal banking agencies to conduct a study of appropriate capital requirements for mortgage servicing assets for nonsystemic banking institutions.

Luetkemeyer introduced a bill last Congress calling for the study, and CUNA advocated for a manager's amendment that would have included the National Credit Union Administration in the study and postponed the agency's risk-based capital proposal. The amendment eventually was not offered.

Other items in the bill that CUNA appreciates include:
  • A provision that would treat mortgages held in portfolio at credit unions and other mortgage lenders as Qualified Mortgages;
  • Language that amends the exemption of small servicers of mortgage loans from the Real Estate Settlement Procedures Act, exempting credit unions and other community financial institutions that service 20,000 or fewer mortgage loans;
  • Language from a previous Luetkemeyer bill that would amend the Truth in Lending Act to exempt higher risk mortgages from property appraisal requirements; and
  • A provision eliminating the privacy notice requirement that the notices be sent annually, and requiring them only to be sent when the privacy policy of the financial institution has changed.

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Webinar highlights CU benefits in SBA programs

ALEXANDRIA, Va. (3/5/15)--Member business lending at credit unions has increased steadily for the past 20 years, even through the financial crisis, according to the National Credit Union Administration. The NCUA and Small Business Administration (SBA) hosted a joint webinar Wednesday to explore some of the benefits credit unions and their members can receive through government programs.

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According to a poll taken at the webinar, 28.1% of attendees have a member business loan program and use SBA programs; 29.7% offer business loans, but do not use SBA programs; and another 20.1% do not offer business loans but are "thinking about it."

Credit unions are limited in their member business lending to no more than 12.25% of their assets. However, the SBA guarantees a significant portion of loans through its programs, and that amount does not count against the cap.

Currently, the SBA guarantees up to 85% of loans up to $150,000, and up to 75% on all other loans up to $5 million. The agency guaranteed $19.2 billion in loans in 2014, a record amount, and requested an authorization level of $21 billion for this year.

According to SBA staff who presented at the webinar, a member business lending department at a credit union should consist of: risk-focused staff; a risk assessment, rating process and monitoring; and independent loan reviews.

The webinar comes on the heels of a memorandum of understanding between the NCUA and SBA, as well as CUNA's efforts to connect credit unions interested in a small business program with SBA resources. In addition, the NCUA has launched a vendor research portal, and a new webpage with small business lending resources.

The NCUA will post an archived version of the webinar within the next three weeks.

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Comments on NCUA, CFPB proposals due in March

WASHINGTON (3/5/15)--Comments on regulatory proposals from the National Credit Union Administration and the Consumer Financial Protection Bureau (CFPB) are due to the agencies in March. CUNA is also collecting comments from stakeholders on a number of the proposals, in order to inform its own advocacy positions.
Comment deadlines in March include:
  • March 16 (comments due to CUNA March 9): CFPB amendments to 2013 mortgage rules under the Real Estate Settlement Procedures Act and Truth in Lending Act. The proposal covers nine major topics: successors in interest, definition of delinquency, requests for information, force-placed insurance, early intervention, loss mitigation, prompt payment crediting, periodic statements and small servicer definition;
  • March 19: NCUA Economic Growth and Regulatory Paperwork Reduction Act regulatory review. Comments on unnecessary, outdated or burdensome regulatory requirements imposed on federal credit unions on one-third of the agency's rules and regulations;
  • March 23 (comments due to CUNA by March 9): CFPB proposed rule on prepaid accounts. The bureau's proposal would extend consumer protections to prepaid accounts, including those that offer credit options;
  • March 27 (comments due to CUNA by March 20): NCUA capital planning and stress-testing schedule shift. The agency has proposed to change the timing of certain requirements in the capital planning and stress-testing cycle, as well as change the definition of "covered credit union" and the addition of a definition for "capital planning process;"
  • March 30 (comments due to CUNA by March 9): CFPB Safe Student Account Scorecard. The bureau has proposed a draft scorecard that offers information to colleges and universities when soliciting agreements from financial institutions and is seeking input on material schools can choose to include; and
  • March 30 (comments due to CUNA by March 16): CFPB proposal regarding "rural" and "underserved" areas. The bureau is proposing changes regarding small creditors and rural and underserved areas under Truth in Lending requirements relating to escrow requirements for higher-priced mortgage loans.

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Cordray speaks on future of QM rule, debt collection, in HFSC testimony

WASHINGTON (3/5/15)--Consumer Financial Protection Bureau (CFPB) Director Richard Cordray said the bureau could modify its qualified mortgage (QM) rule if housing finance reform does not proceed.

Testifying before the U.S. House Financial Services Committee Tuesday, Cordray provided an update on a number of bureau initiatives.

QMs are generally considered the "safest" of all mortgages, and the CFPB's rule has several rules for defining a QM. Mortgages backed by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are covered by the QM rule for the next six years, or until Congress creates a new housing finance system.

The rule, which went into effect Jan. 10, 2014, is scheduled for a five-year review, which will come before the end of the six-year timetable for the GSEs.

By the time the six years runs out, Cordray said "we will have completed the five-year review of these rules, and as needed we will adjust the rules" to prevent a large number of mortgages from losing QM status, and to keep mortgage credit available.

When asked about interaction between the bureau and financial institutions it regulates, Cordray commended the work done by the Credit Union Advisory Council, the Community Bank Advisory council and meetings with stakeholders around the country.

"Those meetings led to things like small creditor provision and potentially expanding that provision, and our rural treatment, which this is key to supporting communities by supporting their community banks and credit unions," he said.

Cordray also said that debt collection is the most complained about activity "at every level of government," and that the CFPB is planning regulate debt collection soon.

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