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Compliance Hot topics vetted in CUNA call

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WASHINGTON (2/12/10)--Pressing credit union compliance issues, including Truth in Lending (Regulation Z) changes, new overdraft rules, and revamped model privacy notices, were vetted for 90 minutes during yesterday’s Credit Union National Association (CUNA) “hot topics” audio conference. Mike McLain, CUNA’s assistant general counsel, addressed numerous issues regarding the credit card rules that go into effect on Feb. 22, including if under-aged consumers could be given shared-secured credit cards without going through a separate creditworthy analysis, and how allocations of payments must be handled. McLain also reviewed four provisions in the new Regulation Z rules that become effective Feb. 22 that apply to all open-end loans, including the new requirement for a 45-day change-in-terms notice, rather than the current 15 days. McLain indicated he is preparing a lengthy compilation of “Frequently Asked Questions” to address the tremendous number of inquiries CUNA has received about the new Regulation Z rules. The topic that produced the most questions from the audience involved the Federal Reserve Board’s overdraft restrictions that become effective July 1. Valerie Moss, CUNA’s director of compliance information, reviewed the Fed’s restrictions on charging any fees connected with honoring or declining overdrafts triggered by ATM withdrawals or one-time debits without first obtaining the member’s consent. Moss discussed how and when credit unions could send out consent forms for existing accounts, although participants questioned how many members would actually provide consent and worried about the impact on credit union revenue. McLain, on a third topic, reviewed the impact that the Fed’s decision to consolidate its checking processing operations has on complying with Regulation CC, the expedited funds availability rule. With the elimination of “nonlocal” checks, credit unions need to review their new account disclosures and determine whether they need to send a notice by March 29 advising members that check holds at the credit union have been reduced. McLain also discussed why a five-day hold is still permitted for checks deposited in nonproprietary ATMs. Nichole Seabron, CUNA’s federal compliance counsel, discussed the federal agencies’ new “model” privacy forms. Although use of the new format isn’t mandatory, Seabron pointed out that the existing sample privacy notice clauses will be removed from the privacy regulation on January 1, 2011, and therefore credit unions will lose the “safe harbor” of using their current privacy notices. She noted that while the National Credit Union Administration has not said how it will instruct its examiners about usage of the privacy form, credit unions should expect consumer groups to press for use of the new forms by all types of financial institutions to allow consumers to compare privacy policies across-the-board. The CUNA lawyers also provided quick reviews of two new rules implementing provisions of the Fair and Accurate Credit Transactions Act (FACTA) that go into effect later this year, and updates on what is happening with the Internet gambling regulation and the mortgage registration rules. The archived version of the winter 2010 “Pressing Compliance Issues” program should be available today or Monday on CUNA’s website (see “training/audio-conferences”).

Dodd tries new alliance for reg reform

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WASHINGTON (2/12/10)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) announced Thursday a new bi-partisan alliance intended to get financial regulatory reform back on track. Just about a week ago it was widely reported that Dodd’s months-long efforts on reform with the ranking minority member of the banking panel, Sen. Richard Shelby of Alabama, had fallen apart. Shelby also continues to garner much press attention right now with his “blanket hold” on dozens President Obama’s s nominees awaiting confirmation before the Senate. In a press release yesterday Dodd said, "For over a year, the Senate Banking Committee has been grappling with how best to address the many problems that led to the financial crisis. In that time Sen. Corker has proved to be a serious thinker and a valuable asset to this committee. “For that reason, I called him Tuesday night and asked him to negotiate the financial reform bill with me. We met in my office on Wednesday, and given the importance of these issues, he agreed." (American Banker, Feb. 11)

Fannie and Freddie will buy more delinquent loans

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WASHINGTON (2/12/10)—Fannie Mae and Freddie Mac have announced that they are gearing up their efforts to purchase as much as $200 billion of delinquent loans that carry their guarantees. The government-sponsored enterprises are required to buy out nonperforming mortgages, which have been packaged into mortgage-backed, when they modify the loans or when the loan has been delinquent for two years. However, now Fannie and Freddie say they will buy loans that are just 120 days past due on payments. (Wall Street Journal Feb. 11) The change in operations is the result of an accounting change that became effective Jan. 1 that makes it less costly for Fannie and Freddie to purchase delinquent loans. Previously, it was more cost effective to make principal and interest payments to bondholders on nonperforming loans because buyouts sparked steep write-downs.

Inside Washington (02/11/2010)

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* WASHINGTON (2/12/10)--A commercial real estate (CRE) crisis may be on the horizon, and there are no easy solutions to mitigate the risks CRE may pose to the financial system or the public, according to a Congressional Oversight Panel report released Thursday. The report said that CRE markets will likely suffer “substantial difficulties” over the next few years. Any approach to the problem raises the risk of moral hazard, subsidization of financial institutions or providing a floor under otherwise undercapitalized institutions. The alternative is to accept bank failures and sell the assets at a discount, the panel said. “The panel is concerned that until Treasury and bank supervisors take coordinated action to address forthrightly and transparently the state of CRE markets--and the potential impact that a breakdown in those markets could have on local communities, small businesses and individuals--the financial crisis will not end,” the paper concluded ... * WASHINGTON (2/12/10)--Federal Reserve Board Chairman Ben Bernanke’s written statement--released Wednesday--regarding the central bank’s exit strategy has garnered mixed views from economists (The New York Times Feb. 11). Though his testimony before the House Financial Services Committee--originally scheduled for Wednesday--was postponed due to snow, Bernanke released a statement that indicated, among other things, that the Fed could raise the discount rate. Bernanke didn’t specify when the exit plan would be implemented. If interest is paid on excess reserves, inflation could skyrocket, according to Laurence J. Kotlikoff, Boston University economist. Hyperinflation could happen overnight because the supply of money would be increased by a factor of three, he said. The Fed also printed new money and distributed it to banks, and is now trying to prevent the banks from releasing the bills into public stream. That’s what the interest rates on the reserves are, he added. Ricardo Reis, Columbia University economist, said that with the proposed changes, the Fed can now return to its “boring” balance sheet. The increase in reserves plus interest on the reserves are good things and should remain, he added ...