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Corporate CU rule tweaks CUNA seeking CU comment

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WASHINGTON (12/14/10)—The Credit Union National Association (CUNA) is asking credit unions to weigh in on a recent National Credit Union Administration (NCUA) plan under which natural person credit unions would be prohibited from maintaining membership in more than one corporate at any time. The proposal allows a limited exception of multiple memberships during a brief period when a credit union transitions to a new corporate. The proposed restriction would only apply prospectively, and, therefore, would not prohibit a natural person credit union from maintaining membership in multiple corporates if the relationships existed prior to the effective date of a final rule. Among other things, the proposal would:
* Prohibit a natural person credit union from making any new investment—including a share or deposit account, loan, or capital investment—in a corporate of which the natural person credit union is not a member; *Allow corporates to charge their members reasonable one-time or periodic membership fees; *Require corporate credit unions to maintain a record of all board of director votes, including how each director voted; and * Incorporate certain sound audit, reporting, and audit committee practices from existing non-credit union guidance, such as the Federal Deposit Insurance Corporation regulations.
The pending proposal was approved for comment at the NCUA November board meeting and it follows a much more extensive final corporate credit union rule adopted by the agency in September. CUNA is seeking comment on a number of specific issues, including the following:
* NCUA issued the proposed rule to address certain issues that the September corporate rule did not cover. Do you agree with the timing of the proposed rule, or would it be preferable to allow more time between the September corporate rule and any follow-up rule to allow the industry and NCUA to better understand the impact and effectiveness of the changes made by the September corporate rule? * The proposal would limit a natural person credit union to membership in only one corporate at a time to reduce “rate shopping” among the corporates. Do you support such an approach? Do you agree with NCUA that “rate shopping” by natural person credit unions is negative, in the sense that it led to excessive risk-taking by the corporates? Can you suggest an alternative approach to address the risky behavior of some corporates? * The proposal would require corporate CUSOs to provide the corporate’s auditor, board of directors, and NCUA complete access to the corporate’s books and other documents that the auditor, directors, or NCUA deem pertinent. Do you support this proposed provision? Why or why not?
The NCUA is accepting public comments until Jan. 28, 2011. However, CUNA is seeking credit union remarks by Jan. 14.

Demand is strong for final 2010 NGN

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ALEXANDRIA, Va. (12/14/10)—The final National Credit Union Administration (NCUA) Guaranteed Note (NGN) offering of the year brought in a big close by yielding $1.16 billion. The student-loan-based offering closed Friday. The agency said in an announcement that with this final offering, it has completed 60% of the securitization designed to fund deposits assumed by the bridge corporate credit unions. The latest offering will pay 35 basis points over LIBOR, an indication, the NCUA noted, of strong investor interest. The NCUA reported that total 2010 proceeds from the securitizations equal more than $17.75 billion, and the agency noted it plans to resume NGN offerings in the first quarter of 2011. NCUA Chairman Debbie Matz said of the 2010 results, “The financial success of the securitization is not only enabling NCUA to manage the disposition of troubled corporate credit unions, it is also allowing the credit union industry to pay for the losses without diminishing service to consumers. I am encouraged by the results in 2010, and by the promise that the future holds for the credit union industry as it emerges from the market dislocations.” The NCUA NGNs will receive monthly payments of principal and interest from cash flows of related underlying securities, which are passed on to investors. Timely payment of principal and interest due on the notes is guaranteed by NCUA, and that guaranty is backed by the full faith and credit of the United States.

NCUA is proper plaintiff in New London suit agency claims

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ALEXANDRIA, Va. (12/14/10)—It is the National Credit Union Administration (NCUA) as liquidator, and not former members of New London Security FCU (NLSFCU), that has the right to pursue claims on behalf of the failed Connecticut credit union, according to a motion recently filed by the agency. The NCUA shut down the New London credit union in July 2008, later alleging that its longtime financial adviser, the late Edwin F. Rachleff, had been engaged over years in a multimillion-dollar embezzlement. Five individuals who lost investments when NLSFCU was shut down filed a $4 million lawsuit this July against the credit union's board and longtime manager, auditors, legal advisers, a brokerage firm and the widow of the credit union's longtime investment adviser, Rachleff. The NCUA, as liquidating agent for the NLSFCU, filed a motion late last month seeking to be substituted for the investors as the “real party of interest” in the lawsuit. The NCUA claimed that “by operation of law, the NCUA board, as the liquidating agency, succeeded to all rights, titles, powers and privileges of the credit union and of any members, accountholders, officers or directors of the credit union with respect to its assets.” The NCUA said the NLSFCU situation must go through the normal liquidation process and claimed that the investors, by filing suit, are seeking to jump ahead of other creditors. In its motion filed with the U.S. District Court of Connecticut, the NCUA told the court, that as liquidating agent the agency has filed suit against some of the same defendants, seeking the same recovery that the five investors seek in their action. All investor’s with uninsured share certificates will be paid out “if and when” the NCUA recovers “sufficient obligations and money due.” “In short, allowing the plaintiffs’ to pursue their action independently would interfere with the liquidating agent’s ability to effectively and properly perform its functions in liquidating the credit union pursuant to federal statute, and would be in direct contravention of Congress’ intent in enacting the Federal Credit Union Act, as amended, to ‘establish a comprehensive scheme for efficiently administering all claims resulting from failed [financial institutions].'” CUNA’s Michael Edwards said the NCUA’s motion is not surprising since the credit union was liquidated. “NCUA’s involuntary liquidation regulations are codified at 12 CFR part 709 and virtually all claims involving a liquidated credit union have to go through the administrative liquidation process; general unsecured creditors are behind secured creditors and the NCUSIF in terms of priority so they usually do not get anything but some recovery is theoretically possible,” he said.

Fed issues plan to extend TILA Consumer Leasing Act

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WASHINGTON (12/14/10)--The Federal Reserve Board Monday proposed two rules that would expand the coverage of consumer protection regulations to credit transactions, as well as double the dollar amount of consumer leases that would be covered. The proposed rules would amend Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) to implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank ACT). Starting July 21, 2011, the Dodd-Frank Act requires that the protections of the Truth in Lending Act (TILA) and the Consumer Leasing Act (CLA) apply to consumer credit transactions and consumer leases up to $50,000, compared with $25,000 currently. This amount will be adjusted annually to reflect any increase in the Consumer Price Index. TILA requires creditors to disclose key terms of consumer loans and prohibits creditors from engaging in certain practices with respect to those loans. Currently, consumer loans of more than $25,000 are generally exempt from TILA. However, private education loans and loans secured by real property, such as mortgages, are subject to TILA regardless of the amount of the loan. The CLA requires lessors to provide consumers with disclosures regarding the cost and other terms of personal property leases, such as an automobile lease. The Fed said comments must be submitted by Feb. 1, 2011. Use the resource link to read the Fed proposal and for more information on the affected regulations. The notices that will be published in the Federal Register are attached. Comments on the proposals must be submitted by the later of 30 days after publication in the Federal Register or February 1, 2011.

CU belt tightening should be reflected by agency CUNA

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WASHINGTON (12/14/10)—In light of the significant “belt tightening” of many credit unions and the Obama administration’s proposal to freeze civilian federal workers’ salaries for two years, the Credit Union National Association (CUNA) continues to urge the industry’s federal regulatory agency to take similar action. In a letter to National Credit Union Administration (NCUA) Chairman Debbie Matz, CUNA President/CEO Bill Cheney underscored that although credit unions are well capitalized generally, the past three years have been “very trying” for credit unions. “With elevated loan losses and expenses related to share insurance and corporate credit unions, credit unions earned very little net income in 2008 and 2009. This year net income has recovered somewhat, but is still far below ‘normal,’ especially considering the need for many credit unions to rebuild capital,” Cheney wrote. Cheney continued, “(W)e understand members of your staff are seeking more information about the (administration’s salary-freeze) proposal to determine its implications for the (NCUA), which as an independent federal agency may not be covered by the proposal.” Regardless of the staff’s determination, Cheney urged, the NCUA should agree at this time to implement a salary freeze to the fullest extent possible. At its November open board meeting, the NCUA approved a $25 million—or 12%--increase for its 2011 budget over its 2010 funding plan. The total budget for 2011 will be just over $225 million, and part of that would go to fund pay increases that could, in extreme cases—hover between 6% and 8%. In its letter to the NCUA chairman, CUNA noted the support CUNA, credit unions and the leagues have always shown for “a strong independent agency, which has access to sufficient resources in order to ensure safety and soundness objectives under the Federal Credit Union Act are adequately met…” That support is unwavering, CUNA said, despite the unusual situation that the greatest part of those resources come directly from credit unions. “In light of the belt tightening at credit unions and the new proposal from the administration, we believe it is appropriate and reasonable for NCUA to do all it can to contain its own costs,” Cheney wrote.

Inside Washington (12/13/2010)

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* WASHINGTON (12/14/10)--In the wake of the recent mortgage crisis, support is growing for national service standards to govern the foreclosure process (American Banker Dec. 13. The greatest challenge regulators and lawmakers face is determining if or to what extent such standards would preempt state foreclosure laws. Federal Reserve Board Gov. Dan Tarullo suggested national standards were needed at a hearing on Dec. 1. Tarullo said servicers had trouble complying with numerous state regulations regulating foreclosures. Cliff Rossi, an executive in residence at the University of Maryland’s Center for Financial Policy, suggested that by standardizing loan platforms, documentation and modification procedures, lawmakers could lend more uniformity to the process and ensure a minimum level of performance by servicers … * WASHINGTON (12/14/10)--Former Fed Chairman Paul Volcker said Friday he is happy some lawmakers failed in their efforts to strip the Federal Reserve Board of its bank regulatory responsibilities. The same can’t be said about retiring Sen. Jim Bunning (R-Ky.). Volcker said he believes the Federal Reserve board doesn’t spend enough time on regulation because monetary policy should only take up a limited amount of the board’s time. Volcker’s comments were made at the American Enterprise Institute at a conference on the history of the Fed. Volcker lauded a clause in the Dodd-Frank Act that created a second vice chairman at the Fed to oversee the central bank’s regulatory work. Bunning, who served as a member of the Senate Banking Committee, said during his farewell address in the Senate last week that Dodd-Frank failed to stop the Federal Reserve’s flawed monetary policy, which he said was the largest single cause of the current financial crisis and past financial crises … * WASHINGTON (12/14/10)--The U.S. Department of Housing and Urban Development (HUD) announced Friday that it is investigating the practices of certain mortgage lenders to determine if their home loan policies illegally deny qualified African American and Latino borrowers access to credit. The investigations are in response to 22 complaints the National Community Reinvestment Coalition filed with HUD alleging that the loan activities of the mortgage originators showed that their home lending practices deny Federal Housing Administration-insured loans to African Americans and Latinos with credit scores as high as 640. FHA guidelines allow mortgages to borrowers with credit scores above 580, provided the borrowers have down payments equaling 3.5% of the loan amount, or above 500, provided the borrowers have down payments equaling 10% of the loan amount …