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Bachus Hensarling Could 10B exemption harm CUs

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WASHINGTON (12/23/10)—While well intentioned, the Federal Reserve’s proposed $10 billion in assets threshold for interchange rule exemptions could create “an unlevel playing field” for credit unions and other small issuers “by making their cards more expensive for merchants to accept,” Reps. Spencer Bachus (R-Ala.) and Jeb Hensarling (R-Texas) said in a recent letter to the Federal Reserve. The letter also questioned the speed with which the interchange legislation was moved through Congress, and recommended that the Fed extend the deadline for final rules beyond the current April 21 deadline. “Given the broad scope of this required rulemaking and the enormity of its potential impact on consumers and merchants alike, we doubt that such an extremely short timeframe will be sufficient to produce thorough and thoughtful final rules that consider the myriad perspectives of all affected parties,” the letter said. Bachus and Hensarling also noted that the House Financial Services Committee only held one hearing before the legislation was enacted earlier this year. The Fed, before moving forward with its rulemaking, should use “the full amount of time under its disposal” to review all available comments on the interchange proposal. Reviewing the comments, and allowing Congress to proceed with its own review of the intent and impact of the interchange proposal, would help the Fed to produce rules “without unduly causing harm to consumers or competition in the marketplace,” the letter added. The Fed proposal, which was released last Thursday, would cap debit card interchange fees that are paid by merchants to card issuers at 12 cents per transaction. Issuers with under $10 billion in assets would be exempt from the interchange changes. Bachus will begin his tenure as Chairman of the House Financial Services Committee when the 112th Congress begins in January. Hensarling will serve as vice-chair. Outgoing Financial Services Chair Rep. Barney Frank (D-Mass.) in his own letter to the Fed said that the implementation of still-pending interchange regulations, if not properly crafted, "may have unintended consequences" for credit unions and consumers. Credit Union National Association (CUNA) President/CEO Bill Cheney recently criticized the proposal, saying that the loss of interchange fee income for small issuers and the costs of having to belong to more payment networks will have a "horrendous impact" on credit unions that offer debit cards, as well as their ability to build net worth. Cheney also expressed skepticism at the effectiveness of the $10 billion exemption cap, noting that there is nothing in the Fed's proposal that creates an enforcement mechanism to protect small issuers. The Fed has left its proposal open for public comment until Feb. 22, and CUNA continues to develop comprehensive comments for the Fed.

NCUA tech amendments bill passed by House

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WASHINGTON (12/23/10)—The House on Wednesday approved a technical corrections bill that would provide the National Credit Union Administration (NCUA) with new tools to address both troubled individual credit unions and the larger corporate credit union crisis. The legislation, S. 4036, will alter the Federal Credit Union Act by permitting the NCUA to make payments to the Temporary Corporate Credit Union Stabilization Fund without borrowing from the U.S. Treasury. The National Credit Union Share Insurance Fund (NCUSIF) will also be addressed, as the legislation clarifies that the equity ratio of the NCUSIF is based solely on the unconsolidated financial statements of the NCUSIF. Credit Union National Association President/CEO Bill Cheney said that Congress, in passing the legislation, took important action that will help credit unions better serve their members through the current economic crisis. “Credit unions will be stronger, will be able to keep their workers employed, and will remain ready to help their members effectively deal with the financial turmoil of the day,” Cheney added. NCUA Chairman Matz said that the technical amendments will “significantly enhance the ability of NCUA to manage the NCUSIF and the Stabilization Fund in the most efficient way possible.” The legislation will also give credit unions the ability to count section 208 assistance as net worth for the purposes of prompt corrective action (PCA). A Comptroller General-led study of the NCUA is also required by the legislation. That study will seek to determine the reasons for the failures of any corporate credit union since 2008 and evaluate the adequacy of the NCUA's response to the failures of the corporates, including how taxpayers were protected, how moral hazards were avoided, whether potential costs were minimized in the resolution process, and "the ability of insured credit union to bear any assessments levied to cover such costs." The study will also evaluate the effectiveness of the NCUA’s PCA implementation and examine whether the agency has been effective in implementing recommendations made by its Inspector General and contained in Material Loss Review Reports. The Comptroller General will report to the Senate Banking Committee and House Financial Services Committee within six months after the legislation is enacted.

Fed proposes ARM-related amendments

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WASHINGTON (12/23/10)--The Federal Reserve (Fed) on Wednesday released an interim final rule that corrects requirements for interest-only loans to clarify that related disclosures should reflect the date of the interest rate change, rather than the date the first payment is due under the new rate. The interim final rule also clarifies the requirements for 5/1 adjustable rate mortgages (ARM). Specifically, it clarifies that for adjustable- or step-rate loans, the requirement to disclose the maximum interest rate and payment during the first five years must be based on the first five years after the first regular payment due date, rather than the first five years after consummation. For interest-only loans, the Fed’s new interim rule corrects requirements to clarify that related disclosures should reflect the date of the interest rate change, rather than the date the first payment under the new rate is due. It also revises the definition of “negative amortization loans” to clarify which transactions are covered by the special disclosure requirements for such loans, the Fed said. The interim rule also revises the definition of “negative amortization loans” to clarify which transactions are covered by the special disclosure requirements for such loans, the Fed said. The revised definition excludes loans that do not have a minimum required payment that results in negative amortization. The Fed release updates previous changes that the Fed made to Regulation Z in September of this year. Those changes required credit unions to disclose--in tabular format--the interest rate and corresponding monthly payment, including an estimated amount for escrow payments for taxes and property insurance and any mortgage insurance. Those changes also require special disclosures for adjustable-rate or step-rate mortgage loans, including the interest rate and payment at consummation, the maximum interest rate and payment at any time during the first five years after consummation, and the maximum interest rate and payment possible during the life of the loan. The interim final rule is effective on Jan. 30, 2011. However, the Fed added, compliance with its provisions is optional for transactions where an application for credit is received by the creditor before Oct. 1, 2011. The Credit Union National Association (CUNA) last month requested that the Fed withdraw an interim final rule that revises several Regulation Z mortgage loan disclosure requirements "as soon as possible" and "impose a general moratorium on the overall Regulation Z rulemaking process that is currently in progress." For the full Fed release, use the resource link.

Inside Washington (12/22/2010)

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* WASHINGTON (12/23/10)--The Federal Deposit Insurance Corp.’s (FDIC) acting general counsel said in an interview that federal regulators should create national servicing standards as part of soon-to-be-released risk retention guidelines--rather than waiting for Congress to legislate them (American Banker Dec. 22). Michael Krimminger, FDIC acting general counsel, said the Dodd-Frank Act instructs regulators to create risk retention rules that ensure high quality risk management practices, and service standards are a critical part of meeting that goal. The Federal Reserve Board and the Office of the Comptroller of Currency agree that there is a need for new servicing standards, but they argue that risk retention policies are not the place for them. Sources said the Treasury Department and the Securities and Exchange Commission agree with the FDIC’s approach … * WASHINGTON (12/23/10)--The Federal Trade Commission (FTC) has submitted a proposal to the Federal Reserve Board to strengthen the rules under the Home Mortgage Disclosure Act (HMDA). The HMDA requires some mortgage lenders to collect and report loan data that the government uses to analyze whether they are complying with fair lending laws. In response to a request for comments by the Federal Reserve Board, the FTC staff outlined the commission’s enforcement of fair lending laws and recommended changes to the HMDA’s Regulation C. Credit unions that engage in residential mortgage lending must comply with Regulation C. The FTC staff recommended that the board expand the number of mortgage lenders required to report loan data by modifying the criteria for determining who must report. These changes would not be overly burdensome to lenders and would provide regulators with better data to enforce fair lending laws, FTC staff said. Staff also suggested that the board require lenders to report on additional types of loans, such as reverse mortgages and home equity lines of credit, and to report additional data for reported loans. Also, the FTC staff recommended that the board make the mortgage data available to the public and useful to researchers while still protecting mortgage applicants’ privacy …

FACTA rules to apply to state CUs on Dec. 31

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WASHINGTON (12/23/10)—State-chartered credit unions will officially become subject to Federal Trade Commission enforcement of the Fair and Accurate Credit Transactions Act (FACTA) red flag rules on Dec. 31. The FACTA red flag rules require entities with “covered accounts” to establish and implement identify theft prevention measures. Federal credit unions and banks have been subject to similar red flag rules since late 2008, but the FTC repeatedly postponed the enforcement of its red flag rules to allow Congress to reconsider whether FACTA required too many businesses to adopt red flag identity protection programs. Among many opponents of the broad language of the 2003 law, the American Bar Association had sued the FTC for its interpretation of who is a “creditor” subject to its FACTA rules. President Barack Obama signed “The Red Flag Program Clarification Act” on Dec. 18 which eliminated a number of businesses that otherwise had to comply. The Credit Union National Association’s (CUNA) Senior Vice President for Compliance Kathy Thompson noted that state chartered credit unions remain subject to the FTC’s rules, and that the FTC will begin enforcement on January 1, 2011. “Many state credit union regulators for some time have been reviewing their state chartered credit unions’ identity theft programs in light of the FACTA requirements, and the FTC announced last May that it was postponing enforcement only through the end of 2010 to give Congress an opportunity to act,” she added. “I don’t think that any credit union will be scrambling to have a compliant red-flag ID theft program in place,” said Thompson. The red-flag rule aims to avert instances of identity theft by requiring financial institutions and entities not excluded by the new law to implement programs that identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. Consumer accounts or other accounts that financial institutions find to have a risk of identity theft are covered by the rule.