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Senate fixes 21-day CARD Act problem

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WASHINGTON (10/30/09)—Just two weeks after House members approved H.R. 3606, the CARD Act Technical Corrections Act, by voice vote, their colleagues in the Senate voted by unanimous consent to ratify the bill. Next stop for the measure: The president’s desk to be signed into law. Credit Union National Association President/CEO Dan Mica hailed the House and Senate actions calling the votes “a crucial accomplishment.” The correction to section 601 of the original Credit Card Accountability, Responsibility and Disclosure (CARD) Act declares that a 21-day late-notice rule would apply only to credit cards -- and not open-end credit in general. “Our thanks to the Senate today, and particularly to Majority Leader Harry Reid (D-Nev.), for quickly bringing this vital measure to the floor for action. Credit unions have been absolutely reeling from the unintended consequences of this section of the Credit CARD Act,” Mica said after the Senate vote Thursday. CUNA has worked closely with lawmakers and their staff, Mica noted, warning that the CARD Act, as originally written, was problematic. It would prevent credit unions from granting biweekly payment plans to their members, from sending members consolidated billing statements, and would force them to change payment due dates for members that had previously chosen due dates based on their specific financial circumstance. The situation was particularly knotty for Home Equity Lines of Credit (HELOC) because the due date of a HELOC is often a contractual term. “Once this measure is signed into law credit unions may continue the practices of sending members consolidated billing statements, changing payment due dates for members who had previously chosen a due date based on their specific financial situation, and continuing bi-weekly payment plans -- all essential tools consumers use to manage their finances in the ways that best suit their needs,” Mica noted. The CUNA leader also commended Rep. Peter Welch (D-Vt.) for bringing the original measure to the House floor and thanked state leagues for their support with many key Senate and House leaders.

Regulators testify on financial services oversight

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WASHINGTON (10/30/09)--In testimony delivered before a House Financial Services hearing on Systemic Regulation, Prudential Matters, Resolution Authority and Securitization, U.S. Treasury Secretary Timothy Geithner plainly stated that “the current rules in place for our financial system are inadequate and outdated.” The draft legislation would bring the current regulatory framework “into the 21st century, granting the government carefully constrained power to contain damage to the economy while managing the failure of large, complex financial institutions,” Geithner said, adding that it “represents a comprehensive, coordinated answer to the moral hazard problem posed by our largest, most interconnected financial institutions.” In a statement, Rep. Barney Frank (D-Mass.) said that his draft legislation would seek to “establish federal ‘resolution authority’ which would make it possible to wind down very large, failing firms without using taxpayer funds.” “We are going to reform securitization with some risk retention,” Frank said, adding that the draft legislation would also restrict “irresponsible subprime loans,” would regulate derivatives, and would end the existence of unreported, unregistered large enterprises. In her own prepared testimony, Federal Deposit Insurance Corporation Chairman Sheila Bair cited the need for improved resolution authority, improved supervision and regulation, and a comprehensive financial services oversight council to help “impose greater market discipline on systemically important institutions.” Any new regulatory structure should address “the industry’s excessive leverage, inadequate capital and over-reliance on short-term funding,” Bair said, adding that the structure should also “ensure real corporate separateness” and prevent banks from participating in “risky activities” such as “proprietary and hedge fund trading.” Additionally, the costs of winding down “large, systemically important firms” should not be borne by taxpayers, according to Bair. Rather, she said, “losses should be borne by the stockholders and bondholders of the holding company, and senior management” of failing firms should be replaced. In her testimony, Bair called for the establishment of a Financial Company Resolution Fund “that is pre-funded by levies” on financial firms with at least $10 billion in assets. Federal Reserve Board Governor Daniel Tarullo emphasized the importance of moving forward with the “administrative and legislative reform agenda” discussed during Thursday’s testimony, saying that the reforms, “taken together, will enhance financial stability” and “reduce both the probability and severity of future crises.” However, Rep. Scott Garrett (R-NJ) said he was “struck” by the amount of power given to the Federal Reserve under this draft plan. Garret added that he was “uncomfortable” with the “sweeping, unchecked power” that, under the draft legislation, could be granted to “an entity that failed to effectively regulate many of the large bank holding companies already under its purview.”

CUNA to testify vs. arbitrary overdraft-protection limits

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WASHINGTON (10/30/09)—Although sympathetic with congressional intent to ban abusive practices connected with overdraft protection plans, the Credit Union National Association (CUNA) will testify today that pending bill H.R. 3904 is not the way to go. At a 9:30 a.m. (ET) House Financial Services Committee hearing today, CUNA witness Rodney Staatz will warn that The Overdraft Protection Act of 2009 could well force credit unions to drop courtesy pay programs to the detriment of consumers. Staatz is president/CEO if State Employees Credit Union (SECU) of Maryland. Staatz intends to tell the committee that while credit unions have several concerns with H.R, 3904, primary among them is its proposed limit on the number of overdrafts that can be provided by a credit union to a member. H.R. 3904 prohibits credit unions and other financial institutions from charging more than one overdraft fee per month and no more than six in a calendar year per transaction account. CUNA strongly supports the ability of credit unions to offer overdraft protection plans as a means to help their embers resolve short-term financial problems. Such programs, CUNA maintains, when used appropriately by consumers, serve as a valuable back-up to overdrawing checking accounts or relying on payday lenders or check-cashing businesses, and are fully consistent with the philosophy and principles of the credit union system. Staatz will use credit unions’members stories to illustrate to lawmakers how overdraft protection plans can make a positive difference in peoples lives. Also scheduled to testify are: Jim Blaine, president, North Carolina State Employees CU; Dennis Dollar, Dollar Associates, LLC; Mark A. Colley, president/CEO, Tulsa Postal and Community FCU, on behalf of National Association of Federal Credit Unions; Jean Ann Fox, director of financial services, Consumer Federation of America; Nessa Feddis, vice president and senior counsel, center for regulatory compliance, American Bankers Association; Eric Halperin, director, Washington office, Center for Responsible Lending; Pamela Banks, senior policy counsel, Consumer Union; Richard Hunt, president, Consumer Bankers Association; and, R. Michael S. Menzies, Sr., president/CEO, Easton Bank and Trust, on behalf of Independent Community Bankers Association.

Inside Washington (10/29/2009)

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* WASHINGTON (10/30/09)--The Federal Reserve Bank will likely benefit the most from a bill introduced by House Financial Services Committee Chairman Barney Frank (D-Mass.) that addresses systemic risk. The bill would give the Fed the ability to overrule regulators, break up firms and force undercapitalized companies into involuntary bankruptcy (American Banker Oct. 29). The committee scheduled a hearing for Thursday on the role of the Fed. Banking regulators and Treasury Secretary Timothy Geithner are slated to testify. The Credit Union National Association (CUNA) has said that Frank’s bill will likely not affect credit unions. Credit unions don’t pose a systemic threat to the overall financial system, CUNA said ... * WASHINGTON (10/30/09)--Banks have commented that they would rather pre-pay their assessments over the next few years to boost the Deposit Insurance Fund (DIF) instead of paying another special assessment. The Federal Deposit Insurance Corp. (FDIC) has proposed the prepayment plan to beef up the DIF’s reserves (American Banker Oct. 29). The FDIC’s prepay proposal was released Sept. 29 and banks could comment on the plan until Wednesday. John Lund, chief financial officer of Rockville Bank, said the plan is the “least painful” of all options. Chris Scribner, vice president, Regions Financial Corp., said the prepayment is the “right step at this time.” The plan would allow the industry to be responsible for the DIF balance while minimizing the impact on lending at banks, he wrote in his letter. The American Bankers Association supports the proposal, but warned it would come with a cost, because some banks may not have the liquidity for the request ... * WASHINGTON (10/30/09)--Federal Deposit Insurance Corp. (FDIC) Chair Sheila Bair said U.S. financial companies should prepay into a fund that the government could use to help large failed banks. Bair spoke at a House Financial Services Committee hearing Thursday ( Oct. 29). Congress should create a Financial Company Resolution Fund that would require institutions with more than $10 billion in assets to pay before a firm fails, she said. Investors in the failed companies also should absorb losses, she added. The fund is more beneficial than an ex-post funded system because it allows all large firms, instead of just the survivors, to pay the assessments. It also avoids a pro-cyclical nature of requiring payments after a systemic crisis, she said. House Financial Services Committee Chairman Barney Frank (D-Mass.) and the Treasury agreed on a compromise bill that would recover taxpayers’ costs in helping the failed companies ... * WASHINGTON (10/30/09)--The Federal Reserve Thursday was expected to complete its $300 billion Treasury purchase program while signs prevailed that the seven-month program stabilized the housing market and staved off increases in borrowing costs ( Oct. 29). The benchmark 10-note, which determines the rates on corporate bonds and mortgages, never moved above 4% after the Fed bought the debt. The rates are less than a half percentage point more than the day before the program was announced in March. The U.S. sold $1.25 trillion in bonds and notes, which is more than double of those sold last year. George Goncalves, chief fixed-income rates strategies in New York at Cantor Fitzgerald LP, said the Fed’s purchases likely kept rates from rising faster in April through June, when 10-year notes were at 4% ...

A second House committee approves CFPA legislation with changes

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WASHINGTON (10/30/09)--The House Energy and Commerce Committee on Thursday approved H.R. 3126, the Consumer Financial Protection Agency (CFPA) Act of 2009, by a recorded vote of 33 to 19. The committee also attached a managers’ amendment, introduced by Rep. Henry Waxman (D-Calif.), which would shift CFPA authority from a single executive to a five-member commission of presidential appointees. The committee also approved a separate amendment that would require the Comptroller General to examine the effects that any regulations issued by the CFPA have had on small businesses. Commenting on the managers’ amendment, House Financial Services Chairman Rep. Barney Frank (D-Mass.) said that these changes would “weaken the capacity of the agency to provide consumer protection.” “The director will have the benefit of an oversight board of bank regulators and consumer groups as well as a diverse advisory board to provide broader input. But that input should be provided without diminishing the capacity to act promptly and effectively which is best done by a single regulator,” Frank added. The CFPA legislation, which passed the House Financial Services Committee last week by a vote of 39-29, would seek to protect consumers of financial products through the creation of a powerful independent agency with extensive rulemaking, oversight, and enforcement tools. The Energy and Commerce Committee oversees the Federal Trade Commission, which, as reported in The Wall Street Journal, would be strengthened by the CFPA legislation and would "craft regulations more quickly" and have a greater ability to "impose civil penalties on companies." Although the goal of consumer protection is a worthy one, Credit Union National Association President/CEO Dan Mica said that he has "significant concerns about the impact that elements of this legislation will have on credit unions and their members." CUNA is working with Frank to modify the bill before it moves on to the full House. To see the managers' amendment in full, use the resource link.

NCUA liquidates Second Baptist Church CU in Calif.

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ALEXANDRIA, Va. (10/30/09)—Former members of Los Angeles-based Second Baptist Church CU will now be served by Rancho Dominguez, Calif.’s Prosperity FCU after the National Credit Union Administration (NCUA) on Thursday announced that it is liquidating the failed credit union, Second Baptist. The NCUA was appointed liquidating agent by the California Department of Financial Institutions earlier in the week. In a separate release, the California Department of Financial Institutions cited “insolvency and failure to obey an order” as reasons for the credit union closure. Prosperity FCU, which currently holds $14.4 million in assets from 2,900 members, will now serve the 340 former members of Second Baptist. Second Baptist is the 12th federally insured credit union to be liquidated in 2009, according to the NCUA. Nevada state regulators closed Las Vegas-based Cumorah CU late last week, and Rantoul, Ill.-based Credit Union 1 has assumed Cumorah's deposits and assets.