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Feb. NCUA Report features fraud avoidance tips

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WASHINGTON (2/13/12)--A watchful eye and strong internal controls are credit unions' best defense against fraudulent activity, "while weak internal controls provide a breeding ground for substantial losses or even failure," the National Credit Union Administration (NCUA) said in a Region IV Report released last week.

The Region IV Report was released as part of the February edition of the agency's NCUA Report.

Financial fraud schemes can be particularly damaging to credit unions due to their member-owner structure, the agency noted. In the report, the NCUA warned that "recordkeeping problems, out of balance conditions, overdue audits or member account verifications, and manipulated records create a situation where fraud can "take root and go undiscovered."

A weak and/or uninvolved supervisory committee, limited staff, recordkeeping issues, and manipulated records are all common threads in fraud schemes, and many of these fraud schemes are perpetrated by trusted staff members, the NCUA said.

"Accurate and up-to-date records and audit trails" are fraud deterrents, and the agency also recommended that credit unions frequently evaluate and update their own internal controls to keep up with growth or incorporate new technology. "Once the internal control environment is assessed, then weakness can be determined and policies can be put in place for improvement," the NCUA said.

For more of this month's NCUA Report, use the resource link.

NCUA sends letter about N.C. dual exams

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ALEXANDRIA, Va. (2/13/12)--Dual examinations of North Carolina's state-chartered credit unions has ended for 2012, the National Credit Union Administration (NCUA) confirmed in a letter sent to those credit unions last week.

The agency discontinued its coordinated examinations with the North Carolina Credit Union Division, opting instead to begin separate exams for state-chartered federally insured credit unions in the state, after Raleigh, N.C.-based State Employees' CU got authorization from its state regulator and disclosed its state-issued CAMEL score earlier this year.

This action "violated the trust of confidentiality of CAMEL ratings," the NCUA said. The agency defended its decision to conduct dual examinations of North Carolina credit unions, saying they were needed to protect the National Credit Union Share Insurance Fund and the credit union system.

NCUA Chairman Debbie Matz last week said the NCUA's decision to examine North Carolina state-chartered credit unions was not meant to be burdensome.

NCUA staff said the dual exams only required a minor cost outlay, and the agency would not increase its assessment to pay for the exams.

For the full NCUA letter and prior News Now coverage of the issue, use the resource links.

CUNA seeks comment on NCUA TDR proposal

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WASHINGTON (2/13/12)--The National Credit Union Administration's (NCUA) Troubled Debt Restructuring (TDR) proposal, which has been labeled as a potential "important step forward" by the Credit Union National Association (CUNA), is out for comment, and CUNA is seeking credit union comment as it develops its own comment letter.

TDR loans, which have very specific accounting and reporting requirements, include certain loan modifications where a credit union or other lender grants a concession to a borrower and modifies the terms of a loan based on the borrower's financial situation. The financial statement notes and call report data associated with TDRs are also unique.

Current TDR reporting requirements force credit unions to segregate TDRs and report TDR payments as delinquent until the member has made timely and consecutive payments for six months after the modification. Credit unions are also usually required to manually track such payments. Many credit unions are struggling to work with homeowners that cannot pay their mortgage due to financial difficulties.

The NCUA's TDR proposal, which was released at last month's open board meeting, would allow credit unions to modify TDR loans without having to immediately classify those loans as delinquent. Credit unions would no longer be forced to track each TDR loan's performance manually for six months. The proposal would also set consistent standards for the management of loan workout arrangements that assist borrowers, and eliminate confusion between TDRs and other loan modifications.

CUNA in the comment call asks whether loan workout policies created under the proposed regulations should tie aggregate program limits to net worth, rather than unimpaired capital and surplus. The comment calls questions also ask for more specific, technical comments on accrual loan status, parts of the proposal that impact the "past due" definition, TDR data elements,

Credit unions can also suggest any additions they would make to the TDR proposal, and comment on whether the proposed effective date, which would be 120 after the final rule is published in the Federal Register, and comment period should be extended.

CUNA is accepting comments until February 22. Comments to the NCUA are due by March 2.

For the full comment call, use the resource link.

Forbes blog joins pro-MBL voices

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WASHINGTON (2/13/12)--Access to capital "is essential for the health of the small business economy," and the current 12.25% of assets member business lending cap that is imposed on credit unions "is detrimental to the health of small business," the Small Business Authority (SBA) said in a blog post.

Separate pieces of House and Senate legislation would increase this cap to 27.5% of total assets, injecting $13 billion in new funds into the economy, and creating as many as 140,000 new jobs, according to Credit Union National Association (CUNA) estimates.

"Credit unions have better loan loss performance statistics than other financial institutions and have 92 million members across the United States, many of which desire business loans," the blog said, noting that credit unions have been making MBLs since the early 1900s, and did so with no cap on their ability to lend. The business lending activities of credit unions, which "are historically experienced in this field and have the capacity to lend" should not be limited, the blog post added.

The SBA blog post also highlighted CUNA's Small Business Hike the Hill, which took place last week in Washington. Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) advocated for an MBL cap increase during a Wednesday Capitol Hill press conference, and small business and credit union representatives from across the country met with their respective legislators to further spread the pro-MBL cap increase message. All in all, 75 small business and credit union representatives from 15 states are conducting their own state and district level MBL cap increase advocacy activities.

SBA also took part in the Hike the Hill activities.

The SBA is a CUNA Strategic Services provider. For the blog post, use the resource link.

MBL cap increase legislation has also been supported in a Huffington Post piece by Heartland Institute Vice President Eli Lehrer and an American Consumer Institute blog in The Hill.

The Progressive Policy Institute has also suggested allowing increased credit union member business lending authority to ease the credit squeeze on small businesses. A recent Small Business Majority, Main Street Alliance and American Sustainable Business Council survey of small business owners has shown that the vast majority of small business owners believe it is difficult to secure a business loan.

Inside Washington (02/10/2012)

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  • WASHINGTON (2/13/12)--U.S. Sen. Robert Menendez (D-N.J.), chairman of the Senate subcommittee on housing, transportation and community development, last week introduced a bill that would give financial institutions equity in homes in exchange for principal reductions on loans. The Preserving American Homeownership Act is specifically aimed at homeowners who owe more than their house is worth. Introducing his bill, Menendez said that more and more people are choosing to walk away from underwater mortgages, seeing it as their only viable option. He added that situation exacerbates the problems and his bill aims to break this cycle and give homeowners the relief they are looking for by working with lenders to find solutions acceptable to everyone. Under the program proposed by Menendez, lenders would, in effect, invest in homes so they would not carry bad debt on their books. The principal balance of the loan would be reduced to 95% of the re-assessed value of the home and over a three-year period, provided the homeowner is able to make reduced payments, the principal balance would be reduced in one-third increments per year. In exchange, the financial institution would receive a fixed share (at most 50%) of the increase in the home's value when the home is sold or later refinanced. The share depends on how much the financial institution initially reduced the principal …
  • WASHINGTON (2/13/12)--The Federal Trade Commission (FTC) last week issued a warning to marketers of six mobile applications used for background screening that they may be violating the federal Fair Credit Reporting Act (FCRA), which is intended to protect the privacy of consumer report information and ensure that the information supplied by consumer reporting agencies is accurate. According to the FTC, some apps include criminal record histories, which "bear on an individual's character and general reputation and are precisely the type of information that is typically used in employment and tenant screening." In its warning letters, the FTC reports it said, "If you have reason to believe that your background reports are being used for employment or other FCRA purposes, you and your customers who are using your reports for such purposes must comply with the FCRA." However, according to the letters, the FTC has made no determination whether the companies are violating the FCRA. The contacted companies are encouraged to review their apps, policies and procedures to be sure they comply with the FCRA …

2012 GAC adds more Hill heavyweights

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WASHINGTON (2/13/12)--Two more key Capitol Hill lawmakers have now joined the lineup of the Credit Union National Association's (CUNA) 2012 Governmental Affairs Conference (GAC), which takes place March 18-22 at the Washington Convention Center in Washington, D.C.

House Minority Whip Steny Hoyer (D-Md.) is scheduled to address CUNA's GAC during the Monday general session.

Hoyer is a long-time supporter of credit unions' tax status, fighting against congressional credit union challenges by saying taxing not-for-profit credit unions, which focus on helping low- and middle-income families and small businesses, is "bad for consumers." He served as House Majority Leader from 2007 until 2011, and has been a member of the House since 1980.

Bachus, who joined the House of Representatives in 1993 and has led the Financial Services Committee since early 2011, has called credit unions "an integral part of our financial system" and has praised credit unions for their pro-consumer work and their straightforward credit practices. He is a frequent GAC guest, and has fought against predatory lending practices, and authored legislation that lifted the federal deposit insurance level for credit unions and banks to $250,000.

House Majority Whip and House Financial Services Committee member Kevin McCarthy (R-Calif.) and Assistant House Democratic Leader James Clyburn (D-S.C.) have also joined the GAC lineup in recent weeks. Sens. Jon Tester (D-Mont.), who championed credit union concerns on debit interchange fee cap legislation, and Rand Paul (R-Ky.), who is a current co-sponsor of S. 509, which would increase the credit union member business lending cap, have also signed on as speakers.

Reps. Jeb Hensarling (R-Texas), Ed Royce (R-Calif.), Barney Frank (D-Mass.), Carolyn Maloney (D-N.Y.) and Carolyn McCarthy (D-N.Y.) and Sen. Mark Udall (D-Colo.) will also join former Secretary of State Condoleezza Rice, premier, non-partisan political analyst Charlie Cook, journalistic duo Bob Woodward and Carl Bernstein, and other notable speakers on the 2012 GAC schedule.

The annual GAC will provide more than 4,000 credit union representatives an opportunity to hear from influential leaders from Congress and the federal regulatory agencies during the meeting's sessions, as well discuss pressing credit union issues with federal lawmakers and regulators in private meetings.

Recognized as the premier conference to attend for political impact, credit union networking and industry updates, the GAC also offers a wide array of educational breakout sessions, the industry's largest exhibitor showcase, guest/family programs to tour Washington's sights, and special entertainment including an opening concert and the closing Gala Reception and Dance. And this year, the whole event will be kicked off by American Idol star Taylor Hicks, who will perform at the opening concert, sponsored by the CUNA Councils.

Additional speakers and session topics will be announced in the weeks to come.

Registration, housing information, and other information can be found using the resource link below.