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News Now: August 20, 2014

Circuit court reinstates opinion allowing NCUA MBS cases to proceed

WASHINGTON (8/20/14)--In a decision immediately called "good news for credit unions" by the National Credit Union Administration Tuesday, the U.S. Court of Appeals for the 10th Circuit reinstated its ruling that allowed the NCUA to sue several banks for alleged deceptive practices when selling mortgage-backed securities.
The NCUA has brought suit against certain banks while serving as the liquidating agent of several failed corporate credit unions, alleging that deceptive information was used to form, market and sell the mortgage-backed securities.
Banks have claimed in the case that the NCUA missed a three-year window to file suit. The Denver-based 10th Circuit Court of Appeals, however, sided with the federal credit union regulator, citing a past provision that extends the deadline for a government regulatory agency to sue on behalf of a failed financial institution.
But on June 16 the U.S. Supreme Court vacated and remanded for further consideration that 10th Circuit ruling.
The directive from the Supreme Court to the circuit court did not necessarily indicate a need for the 10th Circuit to change its opinion. Rather it instructed the lower court to look at its decision in light of a new Supreme Court ruling, established in an environmental case, which defined the difference between statutes of limitation and statutes of repose, and whether various forms of "pausing" the period of time set forth by statute apply to statutes of repose.
The Tuesday decision affects a total of six cases, allowing the NCUA to move forward.  There are a total of 13 related cases that are pending. One case is awaiting an appeal at the Ninth Circuit Court of Appeals on this same issue. Most of the others are in the discovery phase.

The bank defendants in the 10th Circuit case now will have to evaluate their next move, which could involve further appellate review, settlement, or discovery and further litigation and ultimately trial in the district court.
The NCUA has settled similar suits with J.P. Morgan, Bank of America, Citigroup, Deutsche Bank Securities and HSBC, resulting in more than $1.75 billion in settlements lost by the corporate credit union investments ( News Now June 17). According to the NCUA, the recovered funds are being set against any future corporate stabilization assessments on credit unions.

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Youth align with CUs, building 100M memberships: Fox report

CU System
TAMPA, Fla. (8/20/14)--Stressed by economic doldrums and callous bank policies, young adults may be finding safe harbor in credit union membership, according to an Aug. 18 report by WOFL-TV , in Tampa Bay, Fla.
Chris Chmura, FOX 13 consumer reporter, recently interviewed Suncoast CU's Gary Vien, who Chmura called a "foot soldier" in the financial revolution.
"I think millennials choose credit unions because they connect to it, because they connect with the mission," said Vien, who is chief administrative officer at the $5.7 billion-asset Tampa, Fla., credit union. "We save people money."
As the credit union movement celebrates the milestone of 100 million memberships, its not-for-profit cooperative structure and better rates are attracting members like Larissa Dias-Lizarraga.
"Immediately, I felt the difference," said Dias-Lizarraga, a teacher who spent 10 years with a traditional bank paying fees for account maintenance and statements. "They were just trying to take my money, and that's not OK," she told Chmura.
"Our generation and credit unions share a lot of values," the 33-year-old added.
Though the movement has reached that membership milestone, it still is far behind the banking industry, with only 6% of U.S. deposits found in credit unions and one location for every 14 bank branches.
Chmura noted that this generation of financially and philosophically savvy adults will ask more of their financial institutions, which means, Vien said, banks will have to pick up their game.
In New York, the member-friendly missions of First Source FCU, New Hartford, N.Y., with $388 million in assets, and AmeriCU CU, Rome, with $1.2 billion in assets, also appear to have bolstered membership growth to the 100 million mark.
As a 28-year-old, Joe Leonard ditched his bank and joined First Source FCU. Now, at 43, he boasts of the "great personal service and one-on-one time" he gets from his credit union, his exclusive financial institution ( Utica Observer-Dispatch Aug. 16). "I tell people all the time how much better it is."
New York credit unions have notched a 5 million membership milestone as well this year ( News Now Aug. 13).
Judith Cowden, vice president of member relations and marketing, $1.2 billion-asset AmeriCU, Rome, credited recent success to the dissatisfaction with bank mergers and fees combined with the credit union's low loan rates and lack of fees.
"The bigger commercial banks have pulled out of this area and don't seem to be interested in us," Cowden told the Observer-Dispatch . "And the practices that have been put in place by those that remain have really alienated the average consumer. No one wants to have to pay so much to access their own money."

FSR: Unverified complaint narratives could work against consumers

WASHINGTON (8/20/14)--The Consumer Financial Protection Bureau's (CFPB) plan to allow consumer narratives in its complaint portal could likely work against consumers, as well as financial institutions, by spreading inaccurate information, according to the Financial Services Roundtable (FSR).

The FSR, which represents large integrated financial services companies, launched a campaign featuring social media and multimedia advertisements highlighting problems with the bureau's proposal.

The CFPB has accepted consumer complaints since it opened in 2011 and, to date, has handled more than 400,000 complaints. It announced the proposal to expand its consumer complaint database to include the consumer's narrative account of their experience and the problem they would like to see resolved.

The bureau said this would give context to complaints, spotlight specific trends and help consumers make more informed decisions. Those against the proposal worry it would spotlight inaccurate information without giving a named financial institution the chance to respond.

"The CFPB's plan will feature only one side of the story, and such one-sided accounts will not advance the CFPB's mission of better informing and helping consumers," said FSR President/CEO Tim Pawlenty.

The FSR cites the CFPB's own Consumer Response Report from 2013 that found, among other things, that almost 70% of all complaints filed were closed with a simple comment or clarification to the consumer.

According to the FSR, there are many unanswered questions in the CFPB's proposal, including how the CFPB plans to protect the identities of contributing consumers from the Freedom of Information Act and other public record requests and how the bureau will verify that a consumer is posting under a correct identity with an accurate account of what transpired.

On Aug. 6, the CFPB blog posted an item about universities in the Big Ten Conference that did not disclose partner contracts with financial partners for products. The report named four credit unions as failing to disclose details of the school and the financial institution it partnered with, but had to remove two credit unions from the article after it was found there was no such agreement in place.

The Credit Union National Association's Deputy General Counsel Mary Dunn took to the blog's comments to express concern that the blog entry, particularly the headline, made the impression that nondisclosure of a partnership meant these institutions were hiding information from consumers, when in fact many such disclosures are public, in accordance with state law or practices.

CUNA maintains that the other two credit unions should not have been named because there is no legal or regulatory requirement for such disclosures.

"There is no current regulatory requirement to publicly disclose a financial institution's contract with a college or university. Even so, some credit unions voluntarily choose to disclose these agreements, including two credit unions that were listed in your blog," Dunn wrote.

CUNA is currently pursuing issues related to consumer narratives being added to the CFPB complaint database with its consumer protection subcommittee.

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CU, college relationships mean higher fin. ed.

CU System
MADISON, Wis. (8/20/14)--There may be a university logo on their debit cards, but collegiate credit unions also are integral to financial literacy efforts at their namesake institutions.
This week, the board of trustees for Seminole State College of Florida in Sanford approved a partnership with CFE FCU, Lake Mary, that will support financial education and scholarships.
The $1.4 billion-asset credit union will develop an on-campus financial literacy program, contribute to programs at the college's Career Development Center and host money management workshops. The sponsorship will provide up to $250,000 in annual support for Seminole State College over the next 10 years.
In 2015, CFE FCU will launch a special branded debit card with the college's logo. For each debit card purchase, the credit union will make a donation to the Foundation for Seminole State College. The foundation will use the proceeds of the donations to provide scholarships and support other programs.
Student members also benefit from belonging to their university credit union. Many offer free checking, access to surcharge-free ATM networks, shared branching and on-campus ATMs or branches. Universities with high populations of international students focus on free incoming wire or interbank transfers to help students get money from home.
Debit rewards programs are popular as well. Purdue FCU, West Lafayette, Ind., with $823 million in assets, offers a free student checking account that includes cash back for debit card usage. In a reward of a different kind, Harvard University Employees CU, Cambridge, Mass., with $452 million in assets, treats good students with good eats. Students who show their GPA of 3.5 or above will receive a $10 restaurant gift certificate from the credit union.
St. John's University, Collegeville, Minn., will have a student-run branch on its campus this fall, thanks to a grant from the Minnesota Credit Union Foundation. The branch of $11 million-asset Collegeville Community CU will be one of the first credit unions on a university campus in Minnesota.
The branch will be managed by a 2014 St. John's graduate and employ up to six students part time. The credit union also hopes to work with the school departments to offer real-life experiences, ranging from accounting to finance and marketing.

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Guidance on mortgage servicing transfers includes do's, don'ts

WASHINGTON (8/20/14)--New guidance issued by the Consumer Financial Protection Bureau (CFPB) illustrates things the bureau's examiners will look for loan servicing responsibilities are transferred. The CFPB's new mortgage servicing rules took effect Jan. 10 and are intended to protect borrowers from runarounds by loan servicers.

The guidance, issued by the bureau Tuesday, comes with several months of examinations under the new rules and highlights policies that are likely to get a financial institution flagged, as well as policies that meet the rule's requirements.

The new rule requires servicers to maintain accurate records, promptly credit payments, correct errors on request and maintain policies and procedures to facilitate handing over information when a servicer transfers a loan to a new company.

The CFPB currently has examination authority for financial institutions with more than $10 billion in assets. While that currently means only a few credit unions fall under the bureau's examination supervision, the new guidance is important for credit unions of all sizes, said Colleen Kelly, senior assistant general counsel for regulatory affairs for the Credit Union National Association.

"This guidance provides helpful compliance information for all credit unions that transfer mortgage servicing," she said.

The guidance lays out several specific scenarios in which CFPB examiners concluded that the servicers had engaged in unfair practices, including:
  • Failing to properly identify loans that were trial or permanent modifications with the prior servicer at time of transfer;

  • Failing to honor trial or permanent modification offers unless the servicer could independently confirm that the prior servicer properly offered a modification or that the offered modification met investor criteria; and

  • Borrowers subsequently receiving a new modification with inferior terms, and in one case, the servicer conducted a foreclosure sale.
According to the CFPB, the servicers in the scenarios above were directed "to adopt policies and procedures to prevent continued unfair practices in this area and to remediate harmed consumers."

CFPB examiners consider transferors flagging all loans with pending loss mitigation applications, as well as approved loss mitigation plans (including trial modification plans) as having met the new rule's requirements.

Transferees requiring the transferor servicer to supply a detailed list of loans with pending loss mitigation applications, as well as approved loss mitigation plans will also be considered at having met the new requirements.

Use the resource link below to access the full bulletin.

What NCUA examiners look for on cybersecurity efforts: NCUA Report

ALEXANDRIA, Va. (8/20/14)--With National Credit Union Administration examiners trying to identify and assess cybersecurity risks, the agency has released a list of cybersecurity areas examiners look at. The information is featured in this month's The NCUA Report .

The assessment includes the following questions:
  • Does the credit union have a board-approved information security policy commensurate with its size and complexity that meets the NCUA requirements?

  • Has management recently performed and documented an information security risk assessment to identity threats, assess potential effects and are risk-remediation plans in place?

  • Is the network and critical components such as servers and computers running updated virus and malware protection software?

  • Does the credit union have a password policy that meets or exceeds industry standards? According to the NCUA, this means passwords with at least eight alphanumeric and special characters; and

  • Is there a vendor management program, information security awareness training program, incident response and crisis management plan, and do they comply with NCUA regulations?
The article also recommends credit union management consider the possibility of cybersecurity insurance, which should cover costs associated with business interruptions, legal fees, public relations initiatives and hiring of additional staff or vendors.

A recent Ponemon Institute study cited by the agency estimates the average cost of a data breach is $3.5 million, which includes costs for investigations, notifications to members and reissuing credit and debit cards.

The NCUA Report also featured monthly commentary from Chair Debbie Matz. Her column listed several aspects of the agency's risk-based capital proposal that would likely be changed in response to feedback received through comment letters and the three Listening Sessions held during the summer.

She acknowledged that all risk weights in the proposal should be reviewed, and that the agency is considering lowering risk weights for investments, mortgages, member business loans, credit union service organizations and corporate credit unions.

"Examiners would have to undergo a rigorous process to convince their supervisory examiner, regional director and ultimately the NCUA board, if they believe a credit union needs to hold more capital than required by regulation," she wrote.

She also said the rule's implementation period will go "well beyond" the originally proposed 18 months, and that it would be enough time to give the NCUA time to update the call report system, train examiners on the revised rule and allow affected credit unions time to adjust their balance sheets.

This month's NCUA Report also contains:
  • A summary of the agency's fixed-assets proposal;
  • An update on the Office of Small Credit Union Initiatives FAQ+ search engine;
  • A summary of the $1.1 million in mid-year operating budget reductions;
  • A report on economic growth and rising interest rates;
  • The basics of media relations for credit union management; and
  • Information about the NCUA's video series on preventing fraud.
Use the resource link below to access the full issue.

NCUA audio from Chicago Listening Session available online

ALEXANDRIA, Va. (8/20/14)--The National Credit Union Administration has posted an audio recording of its July 10 Listening Session in Chicago to the agency's YouTube page.

The two-hour, 54-minute recording carries the entirety of the agency's second of three sessions held this summer.

More than 160 people attended the Chicago discussion, where the primary topic was the agency's proposed risk-based capital (RBC) rule. NCUA Chair Debbie Matz and board member Michael Fryzel, a Chicago native, were in attendance.

The NCUA also held Listening Sessions on June 26 in Los Angeles and on July 17 in Alexandria, Va.

Matz noted in this month's The NCUA Report that the agency received more than 2,500 comments on its RBC proposal, from comment letters and attendees at the Listening Sessions, which she called "an unprecedented volume of input."

The Credit Union National Association previously posted a recording of the Chicago session to its website ( News Now Aug. 8). The recording was provided by the Illinois Credit Union League.

CUNA also has made available a full audio recording of the NCUA's first Listening Session held in Los Angeles, as well as key audio clips of that session.

Use the resource links below to access the recordings.

CU House in Mo. welcomes summer Democratic caucus

CU System
JEFFERSON CITY, Mo. (8/20/14)--The Missouri Credit Union House in Jefferson City served as the host site for the Missouri House Democrats' summer caucus and reception last week.
Click to view larger image Rick Nichols, president/CEO, and Dana Alderman, vice president of member development, River Region CU, Jefferson City, left, talk with State Rep. Judy Morgan (D-Kansas City) and State Rep. Charlie Norr (D-Springfield) during the Missouri House Democrats' summer caucus, held in Missouri's own Credit Union House. (Missouri Credit Union Association Photo)
Credit union leaders had the opportunity to talk with a number of Democratic House members and candidates ahead of the September veto session and November general elections. House Minority Leader Jacob Hummel (D-St. Louis) and members of the House Financial Institutions Committee also attended ( Missouri Difference Aug. 15).
"Building relationships with lawmakers, sharing credit union concerns and telling our story is crucial for the future of the credit union industry," said Rick Nichols, president/CEO, River Region CU, Jefferson City, $99 million in assets. "This brought a large group of candidates and potential candidates together, which enables us to share key points about credit unions with them before the legislative session kicks in."
Also representing credit unions were Dana Alderman, vice president of member development, River Region CU; Greg Newsom, branch manager, United CU, Fulton, with $143 million in assets; and David Kent, director of state legislative affairs, Missouri Credit Union Association (MCUA).

Hummel also thanked MCUA for allowing the caucus to use the Jefferson City location. "Our members enjoyed interacting with leaders in the credit union industry and were grateful for the hospitality," he said.

More than a dozen groups and individuals have used Missouri Credit Union House for meetings this year. Upcoming events during the veto session include receptions by Paul Fitzwater (R-Potosi), who is a member of the House Financial Institutions Committee, Craig Redmon (R-Canton) and Lyndall Fraker (R-Marshfield).

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