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Presidents commission releases deficit-reduction draft plan (11/11/2010)

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WASHINGTON (11/12/10)--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."

Inside Washington (11/11/2010)

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* WASHINGTON (11/12/10)--Large banks are likely to feel the greatest impact from proposed assessment changes announced this week by the Federal Deposit Insurance Corp (FDIC). Instead of calculating premiums based on domestic deposits, the FDIC is seeking to base premiums on assets minus capital to reflect total liabilities and meet mandates created by the Dodd-Frank law. Large banks benefit from the existing deposit-based formula because they can engage in foreign deposits or other alternative funding options without paying a premium to the FDIC, although the FDIC still carries the risk. Observers said large banks could react to the change by increasing competition for domestic deposits, focusing on noninterest income or switching to funding sources that fall outside reporting requirements (American Banker Nov. 9/10). The change in the premium base prompted the FDIC to propose new assessment rates, with banks asked to pay rates ranging from 5 to 35 basis points per average total assets minus Tier 1 capital, which compares to the existing range of 12 to 45 basis points per domestic deposits. Small banks are likely to gain the greatest benefit from the new assessment system. The FDIC also adjusted its risk-based rating system for all banks to reflect the premium shift and said it would adjust its earlier proposal to revise the risk formula for banks with assets above $10 billion to reflect Dodd-Frank requirements … * WASHINGTON (11/12/10)--Elizabeth Warren has put credit cards at the top of the list of issues that will be tackled by the Consumer Financial Protection Bureau. Warren is charged with launching the new agency in her role as assistant to the president and special advisor to the U.S. Treasury secretary. In an interview earlier this week, Warren said the fine print in credit card disclosures should be eliminated (American Banker Nov. 10). Instead, credit card companies should provide information about up-front fees, interest rates, penalties and reward programs in a format that allows consumers to easily compare credit card products. During two months’ of meetings with financial institution representatives, Warren said leaders of community financial institutions focused on compliance issues, while large bank representatives were concerned about a fair marketplace for competing on offerings such as consumer credit …

Healthy eating gets CDFI boost

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WASHINGTON (11/12/10)--The Community Development Financial Institutions (CDFI) Fund has selected the Opportunity Finance Network (OFN) to aid in its Healthy Food Financing Imitative. The food initiative will “provide critical training to CDFIs to utilize federal grants, below-market rate loans, loan guarantees and tax credits that can attract private sector capital for an even greater investment in projects that increase access to fresh produce and other healthy foods” in so-called “food deserts,” the CDFI Fund said in a release. The release defines “food deserts” as “urban neighborhoods and rural towns with limited access to affordable and nutritious food.” The CDFI Fund cited a United States Department of Agriculture estimate which stated that over 23 million Americans live in these “deserts.” “Well-targeted financing, technical assistance, and community partnerships can help to improve access to healthy foods, develop and equip grocery stores, create new markets for small businesses and farmers, strengthen the producer-to-consumer relationship, and support broader economic development efforts to revitalize distressed rural and urban communities,” the release added. CDFI Fund Director Donna Gambrell said that “the training enabled by the CDFI Fund's Capacity-Building Initiative will help to lay a strong foundation so that all CDFIs are prepared for the unique opportunities presented by funding that the Administration has requested in 2011 under the Healthy Food Financing Initiative.” The National Federation of Community Development Credit Unions is one of many related organizations that are providing technical support to OFN. The OFN is a “network of private financial intermediaries identifying and investing in opportunities to benefit low-income and low-wealth people in the U.S.,” the release said, adding that the OFN has frequently worked with CDFIs in the past. For the full release, use the resource link.

Fed unveils online credit report info for consumers

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WASHINGTON (11/12/10)—The Federal Reserve has announced the release of an online resource for consumers struggling to understand credit reports, credit scores, and the importance of protecting personal credit histories. The Fed’s new “Consumer’s Guide to Credit Reports and Credit Scores” describes the content of a credit report, explains how a credit score is used by companies that request them, and discusses the role of credit bureaus in collecting and disseminating this information. Mortgage lenders, financial institutions, insurers, utilities, employers, and other businesses may obtain credit reports from credit bureaus to assess how an individual manages financial responsibilities. n announcing the new online resource, the Fed noted that consumers “need to know what's in their credit report and understand how negative information, such as late payments or a bankruptcy filing, might affect a lender's decision to grant credit.” The agency said the guide answers questions ranging from "What is a credit score?" to "How can I get a free copy of my credit report?" to "How long does negative information stay on my credit report?" It also provides tips to consumers interested in improving their credit scores, as well as step-by-step instructions for correcting an error in a credit report.

New NGN release on the way

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ALEXANDRIA, Va. (11/12/10)--The National Credit Union Administration (NCUA) has set pricing guidance for an additional $5.5 billion of its NCUA Guaranteed Notes, Bloomberg News has reported. Citing an anonymous source, Bloomberg reported that “the largest, $2.86 billion-portion of the debt with a projected average life of 5.77 years may yield about 45 basis points more than the one-month London interbank offered rate.” The NCUA late last month settled the initial offering of its Senior Series I-A NGNs, which were comprised of $3.28 billion of assets and were mainly backed by senior floating rate securities. Those notes also paid a floating-rate coupon of one-month LIBOR plus .45% per annum, subject to a maximum note interest rate cap equal to 7.00% annually. The NCUA also settled its Senior Series II-A NGNs last month. Those notes are comprised of $566.5 million in assets, are mainly backed by fixed-rate pass-through securities, and will pay a fixed-rate coupon of 1.84% annually, according to the NCUA. Credit unions received nearly 10% of the total allocation for both the I-A and II-A notes, the NCUA said. The NCUA is offering $35 billion of the NGNs, which are fully backed by the federal government, on the open market. The NGNs are backed by portions of private label, residential mortgage-backed securities that were held by several now-conserved corporate credit unions.

Caution needed if automating small loans NCUA

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ALEXANDRIA, Va. (11/12/10)--While fully-automated loan application, underwriting, and funding systems are “legally permissible under the Federal Credit Union Act,” the National Credit Union Administration has urged that credit unions “be cautious and ensure an automated system meets various regulatory compliance requirements and addresses safety and soundness concerns.” In a recently released NCUA legal opinion, Associate General Counsel Hattie Ulan responded to a credit union’s question related to its establishment of a loan processing system for small personal loans. The credit unions system “would permit a member to apply online for a loan, would run a credit report and compare the member’s credit report score to the FCU’s lending criteria, and, on the sole basis of the credit report score, fund the loan,” according to the NCUA release. The NCUA recommended that credit unions take some precautions, though, such as preventing employees from acting as both approving loan officers and loan fund disbursers. The NCUA in a separate legal opinion recommended that credit unions “have loan officers make discretionary lending decisions” on loan applications that their automated loan system lending criteria may deny. The NCUA letter also warns that “relying on credit report information to deny membership may trigger, among other legal issues, potential problems and regulatory compliance requirements under the Fair Credit Reporting Act.” The NCUA also noted that automated loan application systems “may raise safety and soundness concerns because a human audit of the application and loans the system approves occurs only after funds have been disbursed.” For the full letter, use the resource link.

Corp. CU rule refinements on NCUA agenda

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ALEXANDRIA, Va. (11/12/10)—Technical corrections to the National Credit Union Administration’s (NCUA) corporate credit union rules will lead the agenda at the November open board meeting, which will take place next Thursday. NCUA General Counsel Bob Fenner in late September said that the NCUA would release additional refinements to its corporate rule, adding that the agency would address corporate membership fees, internal reporting, risk management, and other issues through these corrections. The nature of the NCUA’s planned corrections is not known at this time. The NCUA’s new corporate credit union rule, which was introduced in late September, adjusts corporate capital requirements, prohibits the purchase of private-label mortgage-backed securities or subordinated securities, limits the ability to award so-called "golden parachute" executive compensation packages to corporate credit union executives, and imposes new standards for corporate credit union board membership. The NCUA's 2011/2012 operating budget will also be discussed during the meeting. The agency approved a fiscal 2010 budget of just over $200 million last year, a 13% increase over the prior year’s budget. The majority of that budget increase went to NCUA program and staff additions. The agency’s overhead transfer rate and operating fee scale are also on the agenda, and the NCUA will also discuss the status of its insurance funds during the meeting. A closed NCUA session will take place on Wednesday morning. Pilot programs, insurance appeals, personnel issues, and supervisory activities are on the agenda for that meeting. For the full NCUA meeting schedules, use the resource links.

NCUA part of federal fin. ed underbanked effort

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WASHINGTON (11/12/10)--The National Credit Union Administration (NCUA) on Wednesday announced that it will join the Federal Deposit Insurance Corporation (FDIC) and the U.S. Department of Education in a joint effort to “promote financial education, financial access, and asset building among students and families.” NCUA Chairman Debbie Matz will join U.S. Secretary of Education Arne Duncan and FDIC Chairwoman Sheila Bair as they meet with students at Alexandria, Va.’s T.C. Williams High School on Monday. The agencies in a release said that “the goal of the partnership is to help more students learn the basics of handling their finances appropriately and develop habits that lead to strong financial futures, including saving.” “The partnership encourages financial institutions, schools, and other stakeholders to work together to support youth financial education and to provide students and families with access to safe, affordable, and appropriate accounts at federally-insured banks and credit unions,” the release added. For the full release, use the resource link.