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CUNA warns Congress of 'dangerous moral hazard' amid breach responses

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WASHINGTON (1/28/14)--"The idea that retailers have no responsibility for protecting consumer data presents a dangerous moral hazard," Credit Union National Association President/CEO Bill Cheney said in a letter sent Monday to all members of the U.S. Congress.

That danger, Cheney warned lawmakers, is reflected in the current effort by retail organizations to try to shift both the cost and liability during breaches away from the retailers involved and on to financial institutions, their customers and members, and taxpayers. 

The CUNA letter comes as many in Congress and across the country debate how best to respond to recent data breaches at Target and Neiman Marcus that have compromised the financial and personal information of tens of millions of Americans. Arts and crafts store Michaels has also launched its own investigation into a potential data breach at its stores, and the Federal Bureau of Investigation in recent weeks has warned retailers these breaches will become more common. (See Jan. 27 News Now: FBI warns hacking attacks are on the rise.)

CUNA was the first trade group to communicate with members of Congress following the breach, seeking hearings on the issue, and House and Senate members in at least three committees are considering holding hearings on the topic, perhaps as early as next week. (See related story: Senate Banking to conduct Feb. 3 data security hearing.)

"The recent data breach at Target and other retailers has launched an important conversation about what happens during data breaches, why they happen, who is impacted, who is liable and who should be held responsible," Cheney wrote.

Immediately following the Target breach, credit unions responded and did not wait to determine how the breach occurred or who was at fault, he said. "Rather, credit unions took action immediately to ensure the safety and security of their members. These efforts often represent substantial and sometimes crippling costs for credit unions, but these protections are a few of the reasons why consumers, including credit union members, value electronic payments," Cheney emphasized.

"Our primary interest is to protect consumers and work with our partners across industry to develop solutions and prevent future breaches," Cheney told legislators.

The CUNA CEO warned that retailers are using the data breaches to push policies that they claim would "solve" the problem, like the "chip and PIN" technology.  "I would urge caution when evaluating solutions that appear too good to be true. In reality, cyber security is a complicated issue that has no silver bullets," Cheney said.

Retailers have pushed many times and made great strides over the past decade to try and slash their financial responsibility for funding the electronic payments system that protects customers and benefits retailers, in part by attacking the debt interchange fee system.

"I have to question some retailers' motives when they claim to be concerned about consumers, while actively trying to eliminate a key revenue stream that is used to protect consumers and strengthen the electronic payments system," Cheney wrote.

For the full CUNA letter, use the resource link.

Senate Banking to conduct Feb. 3 data security hearing

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WASINGTON (1/28/14)--The Senate Banking Committee will be first up with a 2014 hearing to investigate better ways to safeguard consumers' personal financial data.

Sen. Tim Johnson (D-S.D.), the committee's leader, announced Monday that his panel has scheduled six witnesses to testify on data security issues Monday, Feb. 3, from 3 p.m. to 5 p.m. (ET).

The hearing will be held in room 538 of the Dirksen Senate Office Building and will be webcast live via the committee's website (see resource link).

Soon after the recent data breach at Target, the Credit Union National Association was the first trade group to communicate with members of Congress, seeking hearings on the issue.  (See related story: CUNA warns Congress of 'dangerous moral hazard' amid breach responses.)

Use the second resource link to read the hearing witness list.

Student loans, GSE reforms could be SOTU topics tonight

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WASHINGTON (1/28/14)--Student loan issues and housing finance reforms could be on the agenda when President Barack Obama delivers his State of the Union address tonight, and the Credit Union National Association will be watching to gauge what Obama's policy objectives could mean for credit unions going forward.

Opportunity, action, and optimism will be the three pillars of the speech, White House Senior Advisor Dan Pfeiffer said in an email to supporters. The speech "will lay out a set of real, concrete, practical proposals to grow the economy, strengthen the middle class, and empower all who hope to join it," he added.

And, Pfeiffer wrote, while Obama plans to work with the U.S. Congress to achieve these goals, he does not plan to always wait for the U.S. Congress to act.

The president plans to take his message on the road in the days following his speech. According to a Jan. 27 Politico report, student debt refinancing, manufacturing, college affordability and women's issues will by Obama administration priorities in the near future.

NFIP delay bill one of CUs' interest items this week

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WASHINGTON (1/28/14)--A vote on legislation that would delay National Flood Insurance Program (NFIP) fee increases by four years is one of many Capitol Hill happenings credit unions will want to watch out for this week.

The new U.S. Senate NFIP bill (S. 1926) would also correct some issues in the 2012 Biggert-Waters Flood Insurance Reform Act, which extends the NFIP until Sept. 30, 2017.

Senators were scheduled to vote on a motion to proceed with debate on S. 1926 last night. A vote on the full bill could happen this week.

The Credit Union National Association is closely watching the progress of an amendment that may be offered by Sen. Jeff Merkley (D-Ore.) related to force-placed insurance. The amendment, in its current form, would prohibit lenders from receiving any kind of fee or reimbursement in connection with insurance they purchase on behalf of a borrower who lets the insurance lapse.

"We have significant concerns with this amendment, and we have expressed these concerns to the sponsor and other members of the Senate Banking Committee," CUNA Vice President of Legislative Affairs Ryan Donovan said.

Other items of interest this week include:
  • A Tuesday House Financial Services Committee hearing on the Consumer Financial Protection Bureau's semi-annual report, during which CFPB Director Cordray will testify;
  • A Wednesday Senate Banking economic policy subcommittee hearing on the annual report and oversight of the Office of Financial Research; and
  • A Thursday Senate Finance Committee hearing on the nomination of Karen Dynan to be assistant U.S. Treasury secretary.
CUNA will also monitor a Tuesday Senate Foreign Relations Committee hearing on the nomination of Sen. Max Baucus (D-Mont.) to be ambassador to China. Baucus is chairman of the tax-writing Senate Finance Committee and has been central to recent tax reform efforts, and his nomination adds an element of uncertainty to the future of tax reform efforts. However, Donovan notes, "tax reform isn't about one person.

"The circumstances which have made tax reform necessary continue to exist, and we expect Congress to continue to try to make progress on tax reform this year," Donovan said.

House Financial Services seeks public comments on CFPB rule impact

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WASHINGTON (1/28/14)--How are Consumer Financial Protection Bureau actions impacting credit unions, individuals, businesses and customers? The House Financial Services Committee is asking all interested parties to tell their own story on the agency's impact through a new page on its website.

Commenters can suggest that the committee use their story in a public forum. However, the committee web page stressed that it will not share any story or personal information without permission. 

The committee has also provided a phone number to let the public tell their stories. That number is (240) 490-CFPB (2372).

For the full committee release, use the resource link.

aSmarterChoice changes detailed on 'Inside Exchange'

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WASHINGTON (1/27/14)--aSmarterChoice.org is now even smarter, and Amaia Kirtland, Credit Union National Association social and digital media manager, outlines the changes to CUNA's consumer website in a new edition of  "Inside Exchange."

CUNA has also improved the site with a blog and more articles on financial literacy.

The aSmarterChoice site will also undergo a structural redesign to build a more responsive application on mobile phones and tablets.

The website was launched in 2011 by CUNA and state credit union associations to provide information on credit unions to potential members and to press professionals.

Tailored approach better to address any home-based CU issues, CUNA says

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WASHINGTON (1/27/14)--A proposal that would modify the operations of home-based federal credit unions is not justified on safety and soundness grounds, the Credit Union national Association said in a comment letter to the National Credit Union Administration. Equally troubling, CUNA said, is that this proposal reflects an increasing trend where the agency is developing regulations to address issues that should more appropriately, more effectively, and more efficiently be dealt with on an individual credit union-problem basis.

The CUNA letter follows the December release of a proposed rule that would prohibit federal credit unions from operating out of homes. All federal credit unions would have to maintain a business office not located in a home within two years of the final rule's effective date. Storage of credit union records at residential locations would also be prohibited.

Small home-based federal credit unions would also need to have either a dedicated phone number or email address for contact with the NCUA and members.

The NCUA proposed the changes to address concerns about member privacy, public access and the safety and working conditions of NCUA's examination staff. Operating credit unions out of private residences raises regulatory and supervisory concerns, including operational risks, privacy risks and potential conflicts of interest, the NCUA said.

"While CUNA does strongly support appropriate member and examiner access as well as safety and soundness for credit unions of all asset sizes, CUNA disagrees with the agency's assumption that problems among home-based credit unions are characteristic of all members of that group. We also disagree that problems among home-based credit unions are so threatening to the National Credit Union Share Insurance Fund that they can only be satisfactorily handled through the issuance of a new rule," CUNA Deputy General Counsel Mary Dunn wrote.

"Small, home based credit unions feel that the proposal, particularly the requirement that all federal credit unions maintain an office that is not within a personal residence beginning two years after the rule is implemented, is unjustified and punitive," Dunn added.

Issues with home-based credit unions would better be addressed on an individual basis, not through a broad rule, the CUNA letter said.

The CUNA letter suggested some changes in case the NCUA does move forward with a final rule. Suggested changes include:
  • Grandfathering existing home-based credit unions;
  • Allowing for exceptions to the rule's requirements to be granted under a fair and expeditious process;
  • Allowing member access to be through U.S. mail as well as the telephone or email; and
  • Allowing affected credit unions the option to correct legitimate problems identified by the examiner on a timely basis or move to retail space.
For the full CUNA comment letter, use the resource link.

Republican forum formalizes FATCA opposition

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WASHINGTON (1/27/14)--The Foreign Account Tax Compliance Act (FATCA) could become a high-priority issue in this year's elections after Republican National Committee members added FATCA opposition to the party's policy platform last Friday.

A draft version of an anti-FATCA resolution stated that the act has "inadvertently ensnared every United States citizen living overseas due to its overzealous invasion of privacy and punitive taxation and enforcement."
FATCA is designed to create a tax information reporting and withholding system for certain payments that are made to foreign financial institutions (FFIs) and other entities. Some provisions would apply to U.S. credit unions that make international payments. U.S. credit unions would also be required to identify and withhold on so-called "pass-thru payments" to FFIs involving transfers of U.S.-sourced investment or interest income an FFI that has not yet been subject to taxation.

U.S. Internal Revenue Service regulations to implement FATCA also make it harder for U.S. taxpayers to avoid U.S. income taxation by placing funds in overseas accounts.

"IRS finalized regulations in early 2013, but the regulations don't start to apply to U.S. credit unions in most respects until Dec. 31, 2015 and the real operational impact doesn't start until Jan. 1, 2017, when some credit unions might act as FATCA 'withholding agents.' If they provide international electronic payments services, they would be required to withhold 30% on certain transactions members make with foreign financial institutions without certain agreements with the U.S. and to use customer due diligence analyses," said Kathy Thompson, senior vice president for compliance at the Credit Union National Association.

Opposition to FATCA continues to grow in the U.S., and Rep. Bill Posey (R-Fla.) last year introduced H.R. 2299, which would repeal the Internal Revenue Service's recent expansion of United States credit union and bank reporting rules with respect to interest on deposits paid to nonresident aliens.

CUNA and the World Council of Credit Unions have supported the bill, saying in a joint letter that it "would be instrumental in eliminating an unnecessary and unduly burdensome rule for credit union.

FBI warns hacking attacks are on the rise

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WASHINGTON (1/27/14)--Hacking attacks similar to the one that caused the Target data breach are on the rise, the Federal Bureau of Investigation warned in a report that was sent to retailers on Feb. 17. In the report, the FBI said as many as 20 similar attacks have been attempted within the past year, and more are surely on the way, several outlets reported.
 
The report, entitled "Recent Cyber Intrusion Events Directed Toward Retail Firms," warned that the software used in the Target attack, known as memory-parsing malware, is easily accessible and affordable to many would-be thieves. According to an August Visa document released to retailers, this software can be installed after hackers have broken into a merchant's network. The software is installed on point-of-service payment systems or a back-room server, and records account transaction data as purchases are made.

Many of the reported malware attacks cited in the FBI report occurred at small- and mid-sized businesses that lack robust security infrastructure. These cases reportedly resulted in losses ranging from thousands to millions of dollars.
 
The Target breach resulted in the theft of 40 million debit and credit cards, and encrypted PIN data, and the names, mail and email addresses, and phone numbers of up to 70 million individuals. Credit unions have already incurred costs estimated to be in the range of $25 million to $30 million as a result, according to the results of a Credit Union National Association survey. This projected total could be exceeded in the coming weeks if greater fraud losses are incurred or those that have responded to the CUNA survey already add additional costs to their reported totals.

CUNA continues to ask credit unions affected by the Target data breach to outline the costs and burdens they have seen as a result. The data will help inform CUNA conversations with lawmakers, regulators, the media and others. There is no deadline for credit unions to respond to the survey, and credit unions that have not yet responded are encouraged to do so. Credit unions that have responded can also update their totals if new costs are incurred.
 
For the survey, use the resource link.

NCUA Reg Alerts remind of APR, CFPB compliance

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WASHINGTON (1/27/14)--Compliance tips to help credit unions cope with new Consumer Financial Protection Bureau regulations are provided in a trio of recent National Credit Union Administration regulatory alerts.

The agency also confirmed the 18% interest rate cap for federal credit unions would be in effect for another year in a separate letter to federal credit unions (14-FCU-02).

The first alert, 14-RA-04, reminds credit unions that service mortgage loans that as of Jan. 10, they are required to comply with CFPB's new Real Estate Settlement Procedures Act (REPSA) Mortgage Servicing rule for certain mortgage loans.

The RESPA Mortgage Servicing rule addresses:
  • Force-placed insurance;
  • Error resolution and information requests;
  • General servicing policies, procedures, and requirements;
  • Early intervention with delinquent members;
  • Continuity of contact with delinquent members; and
  • Loss mitigation.
The NCUA alert also discusses exemptions from portions of the rule.

Regulatory alert 14-RA-05 addresses rules governing mortgage loan originator compensation. CFPB rules that became effective earlier this month regulate how compensation is paid to a loan originator in most closed-end mortgage transactions. The rules also address mandatory arbitration, the waiving of certain federal claims, and financing credit insurance premiums in closed-end mortgage transactions and open-end credit, including home equity lines of credit secured by a member's principal dwelling.

The most recently released regulatory alert, 14-RA-06, outlines which credit unions will need to collect and submit Home Mortgage Disclosure Act data associated with mortgage loan applications processed during 2014.

Credit unions that are required to submit HMDA data must:
  • Have held total assets in excess of $43 million as of Dec. 31, 2013;
  • Have had a home or branch office in a Metropolitan Statistical Area on Dec. 31, 2013; and
  • Have originated at least one home purchase loan or refinanced a home purchase loan secured by a first lien on a one-to-four-family dwelling in 2013.
Credit unions that meet these three criteria must collect HMDA data during calendar year 2014 and submit the data to the Federal Reserve Board no later than March 2, 2015, the NCUA said.

For all three NCUA alerts and the letter to federal credit unions, use the resource links.

Parsons Pittsburg CU, Kansas, conserved

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ALEXANDRIA, Va. (1/27/14)--The Kansas Department of Credit Unions said it recently uncovered "unsafe and unsound" practices at Parsons Pittsburg CU that have moved the state regulator Friday to place the $13.5 million-asset credit union into conservatorship and name the National Credit Union Administration as agent to handle its daily operations. 
 
Parsons Pittsburg CU is a Kansas-chartered, federally insured credit union headquartered in Parsons, Kan. It is a community-chartered credit union serving those who reside or are employed within a 45-mile radius of Labette, Bourbon, Cherokee or Crawford counties . The credit union also operates a branch in Pittsburg, Kan.
 
While continuing normal member services, the department and NCUA will work to resolve issues affecting the credit union's safety and soundness. Members can continue to conduct normal financial transactions, deposit and access funds, make loan payments and use shares.
 
The credit union's Sept. 30, 2013, call report shows it has 1,470 members.
 
The regulators have prepared a Frequently-Asked-Questions document for members with questions about the conservatorship. Top among the items addresses is that the National Credit Union Share Insurance Fund continues to insure individual accounts at Parsons Pittsburg  up to $250,000 and that the NCUSIF has the backing of the full faith and credit of the U.S. government.
 
Use the resource link to access the FAQ.