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Inside Washington (12/07/2009)

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* WASHINGTON (12/8/09)--Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said the Fed’s actions to stop the financial crisis exacerbated problems at large companies because creditors of those institutions now expect the government to protect their losses (American Banker Dec. 7). This means they will not monitor the firms’ risk-taking as closely, Plosser said during a policy forum. Plosser said Congress must create a resolution process for large financial companies. The legislation policymakers enact must place pressure on creditors. Plosser’s comments come after Fed Chairman Ben Bernanke defended the central bank’s actions during the financial crisis ... * WASHINGTON (12/8/09)--Creditors oppose a measure that would grant government regulators the ability to unwind systemically risky financial companies. They argue that the existing process is better because creditors can negotiate payments. The process also contains an independent judicial review (American Banker Dec. 7). Creditors also are concerned that the legislation would allow the Federal Deposit Insurance Corp. (FDIC) to decide how creditors of a failed bank are paid. Michael Krimminger, special adviser for policy to the chairman at FDIC, said that although the process could disadvantage creditors, it is a better way to avoid systemic collapse. No large firms have been allowed to fail because nobody has enough confidence in the bankruptcy code to handle it, he said ... * WASHINGTON (12/8/09)--The Treasury Department and the Department of Housing and Urban Development (HUD) launched a campaign to help borrowers in the trial phase of their modified mortgages under the Obama Administration’s Home Affordable Modification Program convert to permanent modifications. HUD and Treasury will implement new outreach tools and borrower resources to help convert as many modifications as possible. The administration also has extended the period for trial modifications started on or before Sept. 1; streamlined the application process; developed new metrics to hold servicers accountable for their performance; and enhanced resources on the website and the Homeowner’s HOPE Hotline. The conversion drive also will include servicer accountability, web tools for borrowers and engagement of state, local and community stakeholders ...

Business associations back MBLs in CUNA ad

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WASHINGTON (12/08/09)—Backing up its National Hike the Hill effort with an “open letter” ad supporting increased member business lending (MBL), the Credit Union National Association (CUNA) today launched a campaign in Washington, D.C. publications with Capitol Hill readerships. CUNA is advocating that Congress include greater MBL
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authority for credit unions—up to 25% of assets--in legislation that could be passed during the closing legislative days of 2009. CUNA specifically favors adding in MBL language to an anticipated Obama administration job-stimulus bill. According to CUNA, 108,000 jobs could be added to the nation’s workplace if the current 12.25% of assets MBL cap were lifted. The ad, backed by the signatures of 15 small business and policyorganizations, says in part: We urge you to allow credit unions to expand lending to their business members.
* Credit unions continue to lend even when banks have cut back; * Credit unions play a vital role in providing capital to underserved communities and small businesses; and, * Credit Unions understand the special needs of their business members and can make loans that banks will not.
The ad appears in conjunction with CUNA’s and the leagues’ Dec. 8, 9 and 10 National Hike the Hill. With House votes scheduled this week on financial regulatory reforms, more than 600 credit union representatives will visit their legislators to urge greater MBL capacity, as well as to discuss the financial regulatory reform plan, overdraft protection legislation, and credit union opposition to government interference in interchange fees. CUNA also helped feature credit union business lending on The Hill’s “CongressBlog” Monday. CUNA President/CEO Dan Mica blogged that Congress and the Obama administration this week have a ‘golden opportunity to do something for small business and jobs that will have a quick and significant impact: Support legislation that gives credit unions more capacity for making business loans to their members.” Mica noted that Reps. Paul Kanjorski (D-Pa.) and Ed Royce (R-Calif.) have introduced H.R. 3380, the “Promoting Lending for America’s Small Business Act,” which, CUNA says, if enacted would generate up to $10 billion in business loans from credit unions in the first year, and create the 108,000 jobs in the process. The Hill is a Washington-based, semi-daily newspaper that covers Congress, lobbying and the Capitol Hill community, and circulates broadly among congressional offices and lobbying organizations. Use the resource link to see the complete blog posting.

Supreme Court hears case on bankruptcy attorneys advice restriction

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WASHINGTON (12/8/09)--The Supreme Court was asked last week to declare unconstitutional a provision in 2005 federal bankruptcy amendments that forbid lawyers from advising their clients to “incur more debt…in contemplation of bankruptcy.” U.S. Courts of Appeals have split on this provision of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, which imposes restrictions on the advice which people being paid to file bankruptcy cases can give to their clients. The Credit Union National Association (CUNA) supported adding this provision to the bankruptcy law to protect creditors from having people take out loans in anticipation of bankruptcy. In 2008, the 8th Circuit Court of Appeals ruled that the BAPCPA provision that prohibits “debt relief agencies” from counseling consumer debtors to incur additional debt violates the First Amendment’s free speech clause as applied to attorneys (Milavetz, Gallop & Milavertz v. United States). The law firm plaintiff argued that the law is unconstitutional because it prohibits attorneys from relaying “truthful information about entirely lawful activity,” and there may be times when taking on more debt is the appropriate thing to do, such as buying a car to get to work or refinancing a mortgage loan to get a lower rate. The U.S. Justice Department defended the provision, saying that the intent of the law isn’t to prohibit lawful advice but to protect clients from “improper, unethical, abusive or even…criminally fraudulent advice by the attorney.” Several justices posed a number of hypotheticals including when a lawyer could advise a client to get needed medical attention or what a lawyer was supposed to do if a client talked about filing for bankruptcy and taking a trip to Tahiti. They also raised the issue of the person borrowing to pay the fee of the bankruptcy attorney. The Supreme Court will rule on this case in 2010.

Fed agencies collaborate to fight financial fraud

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WASHINGTON (12/8/09)--The federal government will seek to enhance its mortgage, corporate, and securities fraud fighting abilities through a newly established federal financial fraud task force composed of the Department of the Treasury, the Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), and the Department of Justice. The task force will also involve leadership from a bevy of other federal agencies, including the Department of Homeland Security and the Federal Deposit Insurance Corporation, among others. Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn Monday questioned why the National Credit Union Administration was excluded from the task force composition and said CUNA will follow up with the task force on this matter. The fraud task force, which replaces the existing Corporate Task Force, will, according to Attorney General Eric Holder, bring those responsible for the last financial meltdown to justice through investigations and enforcement actions and prevent future financial circumstances from arising. The task force will also, according to the release, collaborate with federal agencies, regulatory authorities, and inspectors general, and work with state and local partners to “investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, address discrimination in the lending and financial markets and recover proceeds for victims.” The task force is part of an Obama administration effort to prevent financial fraud before it becomes widespread, Treasury Secretary Tim Geithner added. The task force, which takes the place of the Corporate Task Force created in 2002, will meet within the next 30 days.

CU financial issues at the legislative forefront

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WASHINGTON (12/8/09)--The regulatory restructuring debate returns to Washington this week, beginning what Credit Union National Association (CUNA) Vice President of Legislative Affairs Ryan Donovan said “could be the most intense fortnight of legislative activity related to credit unions in several years.” H.R. 4173, the Wall Street Reform and Consumer Protection Act, which combines a total of seven financial regulatory reform and restructuring bills, is the largest item on the docket. The legislative items that have been included in this bill address Financial Stability Improvements, Over-the-Counter Derivatives Markets, the Consumer Financial Protection Agency, Capital Markets Improvements, and the Federal Office of Insurance, and have been approved by the House. A pair of remaining bills, H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, and H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act, were also previously approved by the House of Representatives. CUNA has worked with legislators to address credit union concerns, gaining legislative approval of an amendment that protects the majority of credit unions from paying into a too-big-to-fail dissolution fund. CUNA has addressed or is working to address concerns regarding the examination and enforcement of consumer protection regulation for credit unions, agency funding mechanisms, plain vanilla product requirements, regulation of the Community Reinvestment Act, credit union representation within the agency, and regulatory consolidation within the proposed Consumer Financial Protection Agency. House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) reportedly expects a minimum of ten amendments, one of which would increase the CFPA examination and enforcement threshold to $10 billion for credit unions, and a full list of the amendments will be available after the House Rules Committee meets today. While amendments addressing overdraft protection and interchange fees are not expected during debate on the regulatory restructuring bill, CUNA is on the lookout for a potential mortgage bankruptcy "cramdown" amendment, and would strongly oppose this amendment if it is introduced. The House will also consider the Tax Extenders Act of 2009 on Wednesday, and the Obama administration this week is also expected to join key members of Congress to release a jobs creation bill. Legislation addressing member business lending, as recently suggested by Rep. Paul Kanjorski (D-Penn.), also could be included in that bill. CUNA believes that this employment legislation could be brought up in the House next week. A number of hearings are scheduled to take place during the week, including:
*A House Financial Services Committee hearing entitled "The Private Sector and Government Response to the Mortgage Foreclosure Crisis;" *A Senate Judiciary Committee hearing entitled "Mortgage Fraud, Securities Fraud, and the Financial Meltdown: Prosecuting Those Responsible;" *A Senate Banking Committee hearing entitled "Weathering the Storm: Creating Jobs in the Recession;" and *A House Judiciary Committee Subcommittee on Commercial and Administrative Law hearing entitled "Home Foreclosures: Will Voluntary Mortgage Modifications Help Families Save Their Homes? Part II."

Matz seeks alt. capital PCA reform

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ALEXANDRIA, Va. (12/8/09)--In a Dec. 7 letter to Rep. Barney Frank (D-Mass.), National Credit Union Administration Chairman Debbie Matz asked for legislators to address issues with Prompt Corrective Action capital standards by allowing qualified credit unions “to issue alternative forms of capital to supplement their retained earnings.” Legislators could also modify the Federal Credit Union Act “to permit qualifying credit unions to offer uninsured alternative capital instruments subject to regulatory restrictions” and expand the Act’s “definition of ‘net worth’ to include those instruments.” While the intent of PCA is to control potentially “accelerated, unmanageable growth of credit union assets,” PCA can at times “discourage manageable asset growth by financially healthy credit unions in times of economic distress,” Matz said. In the letter, Matz states that “the risk of reputational damage from being branded less than ‘well capitalized’ and in need of ‘restoring’ net worth, and from being subjected to the mandatory and discretionary restrictions that accompany a falling net worth ratio, is reportedly having a significant chilling effect on the willingness of some “well capitalized” credit unions to accept new share deposits.” “In effect, the reward for their success in attracting new shares is the risk of a demotion to a lower net worth category if accepting those shares drives down the credit union’s net worth ratio,” she added. Declines in net worth ratio can expose a given credit union to a “range of mandatory restrictions imposed by law, as well as discretionary restrictions imposed by regulation—all designed to restore net worth,” according to the letter. Another potential legislative remedy proposed by Matz was “allowing qualifying credit unions to exclude from the ‘total assets’ denominator those assets that have a zero risk-weighting, exposing the credit union to virtually no risk of loss.”