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FDIC executes assessment changes

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WASHINGTON (11/10/10)—The Federal Deposit Insurance Corporation (FDIC) on Tuesday released proposals that would base bank assessments on assets and “re-propose (some) changes for the deposit insurance assessment system.” Specifically, the FDIC proposed changing the assessment base for banks “from adjusted domestic deposits to average consolidated total assets minus average tangible equity.” This move would increase the size of the assessment base, according to the FDIC. The FDIC has also proposed lowering its existing assessment rates, since the assessment base is increasing. FDIC Chairman Sheila Bair in a release said that "while the change in the assessment base affects the amounts paid by individual institutions, this proposed rule is designed to keep the total amount collected from the industry very close to unchanged. This proposal will align with the restoration plan recently approved by the Board to reflect the higher reserve ratio required under Dodd-Frank." The FDIC has also proposed eliminating “risk categories and debt ratings from the assessment calculation for large banks,” replacing those categories and ratings with scorecards. “The scorecards would include financial measures that are predictive of long-term performance,” the FDIC said. The risk-based rate is based on multiple financial and supervisory factors, which vary based on the size of the institution. The FDIC should reveal additional changes in risk factors used for large financial institutions in a separate, to be issued proposal. The proposals, which will be available for comment for 45 days after their release in the Federal Register, could become effective in April of 2011. For the full release, use the resource link.

Judge dismisses Kappa Alpha Psi suit v. liquidation

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WASHINGTON (11/10/10)—Kappa Alpha Psi FCU’s attempt to reverse the National Credit Union Administration’s (NCUA) August liquidation order was rejected in U.S. Federal Court on Tuesday. NCUA director of public and congressional affairs John McKechnie told News Now that “the judge's ruling in the Kappa Alpha Psi case speaks for itself. Beyond that, NCUA has no further comment except to say that we are pleased that the judge reaffirmed the validity of our actions in the matter." Kappa Alpha Psi was a community development credit union and was affiliated with the African-American fraternity of the same name. The credit union, which operated online and served fraternity members and affiliated organizations, was established on Nov. 4, 2004. The NCUA in early August ordered the liquidation of the $750,000 asset credit union due to the credit union's inability to generate consistent operational profits, build its net worth position, grant quality loans and adequately collect on delinquent loans. The credit union reported a net worth ratio of 0.58% as of Dec. 31, 2009. The NCUA requires newer credit unions to be "adequately capitalized" with a 6% net ratio within 10 years of its charter. Kappa Alpha Psi challenged the liquidation, claiming that its net worth ratio was affected by "full accrual accounting" and NCUA's assessments related to its Temporary Corporate Credit Union Stabilization Fund. The credit union said it saw a "significant drop" in its net worth ratio between 2007 and 2009 that "was attributable to 'full accrual' accounting and NCUA assessments related to its ongoing corporate credit union system resolution plan. The NCUA formally carried out the liquidation orders on Aug. 13, while Kappa Alpha Psi was also bringing an injunction request to court. The credit union dropped the injunction after the NCUA redistributed its assets to the former credit union’s members.

Kids savings underserved on FDIC panel agenda

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WASHINGTON (11/10/10)—Children’s savings and underserved consumers are the top issues of an upcoming Federal Deposit Insurance Corp. (FDIC) Advisory Committee on Economic Inclusion (ComE-IN) meeting. ComE-In was formed in 2007 by the agency to explore ways of bringing unbanked consumers into the mainstream of financial services. At its inaugural meeting November of that year, Norb Kaczmarek, president/CEO of Erie (Pa.) FCU and chairman of the Pennsylvania Credit Union Association, presented information on the Credit Union Better Choice Program, a payday lending alternative designed in conjunction with state officials. At the Nov. 16 meeting, The advisory panel specifically will be looking at recent studies of underserved consumers, as well as government-sponsored children's savings programs that are offered in several countries, Canada, Singapore, and South Korea included. In announcing the meeting in a release, FDIC Chairman Sheila Bair said, "I am especially interested in hearing the Committee members' views about how the FDIC can advance the children's savings account concept for (low- to moderate-income) and underserved families in the United States." "International programs and pilot programs in the U.S. have shown that children's savings accounts can be a great way to instill a habit of saving and can help young people build a savings cushion for the future," said. Bair. "I am especially interested in hearing the committee members' views about how the FDIC can advance the children's savings account concept for LMI and underserved families in the United States." When asked if a credit union representative would be invited to the upcoming session to discuss extensive credit union involvement in the areas to be discussed an FDIC spokesman said he believed the discussion would be centered on FDIC-insured banks. One way that credit unions encourage children to save is by providing access to their savings accounts from the "workplace"--school. As of Aug. 25, the Credit Union National Association had received reports from 244 credit unions that operate strudent-run branches in 908 elementary, middle, and high schools in 42 states and the District of Columbia. The FDIC advisory meeting is open to the public at the FDIC headquarters building at 550 17th Street, N.W., Washington, D.C.

IRS announces 11 million in 2011 VITA grants

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WASHINGTON (11/10/10)—At least four credit unions were among 177 organizations awarded $11 million in total matching grants by the Internal Revenue Service (IRS) to support their Volunteer Income Tax Assistance (VITA) programs, which offer free tax preparation services to low- and moderate income consumers. Many credit unions offer VITA programs, in part, to steer tax filers away from the costly refund anticipation loans (RALs). RALs are short-term, high-interest loans that are heavily marketed by some paid tax-preparation firms during tax time. They can deplete hundreds of dollars from a typical tax refund. The IRS said the grant funds may be used to:
* Enable VITA programs to extend services to underserved populations and hardest to reach areas, both urban and non-urban; * Increase the capacity to file returns electronically; * Heighten quality control and improve accuracy of returns prepared by the VITA sites; and * Enhance training of volunteers.
The IRS said there was a strong response to the 2011 VITA grant program with 374 organizations submitting applications requesting more than $33 million in matching funds. The agency reported that, for tax year 2010, individuals and families with an adjusted gross income of $49,000 or lower are eligible for VITA assistance. The National Credit Union Foundation's REAL Solutions program estimated in 2009 that credit uions’ free tax preparation, electronic filing, and refund deposits provided by the VITA program to low-income tax filers has saved those tax filers a combined $20 million. A total of 541 credit unions participated in the VITA program in 2009, according to the National Credit Union Admnistration. Use the resource link below to see grant recipients.

Presidents commission releases deficit-reduction draft plan

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WASHINGTON (11/10/10)--While the National Commission on Fiscal Responsibility and Reform’s just-released draft report on deficit reduction options does not mention credit unions by name, tax expenditures are on the panel’s target list. The commission is President Obama's bipartisan advisory group charged with coming up with ways to cut the country’s debt. Under the very broad brush strokes of the commission’s proposals, the panel could eliminate the credit union tax exemption without taking into consideration whether such a change in policy could have dire consequences. As Credit Union National Association President/CEO Bill Cheney noted Wednesday, underscoring CUNA’s adamant and unwavering support of credit unions’ tax status, “If taxed, could credit unions as cooperative, not-for-profit financial institutions continue to effectively serve their members? Our answer: Absolutely not!” However, Cheney noted, the commission draft has an uphill battle to see daylight. It requires a super majority of 14 if the commission’s 18 members to be officially "recommended," and some observers say that will be tough to get. Even if that battle is won, the proposals would still face a full vetting by the Congress and would require congressional passage and the President's signature. As Cheney added, “This is really the beginning of what could be a long process and these recommendations by their own wide scope face a tough road ahead. CUNA will continue to work with the entire debt reduction commission, the Obama administration and the U.S. Congress to help all comprehend the importance of the tax exemption on the long-term well-being of the nation’s credit unions and, by extension, the 92 million consumers they serve.” The commission draft report outlines three tax options:
* “The Zero Plan," which mentions an option to "eliminate all $1.1 trillion of tax expenditures." It continues, "Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero-expenditure low." * "Wyden-Gregg Style Reform" lists the option to "eliminate and modify several business tax expenditures…" Four tax expenditures are listed, but not credit unions. * "Tax Reform Trigger" calls on Capitol Hill's tax-writing committees to "develop and enact comprehensive tax reform by end of 2012" and "put in place an across-the-board ‘haircut’ for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted."