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Washington Archive

Washington

Kentucky Supreme Court to review FOM case

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WASHINGTON (2/17/09)—The Supreme Court of Kentucky has agreed to review a field-of-membership (FOM) case that involves the state regulators’ authority to grant FOMs based on the state’s Area Development Districts (ADD). The case was brought by Home Federal Savings and Loan Association against the Kentucky Department of Financial Institutions (DFI) in May 2006. It is known as Home Fed. Sav. & Loan v. Kentucky. The bankers in the case argued that state law does not permit community-based FOMs for state-chartered credit unions. They argued that the ADD would equal a community charter. The Supreme Court decision to review revives credit union hope in the case after a blow on the appeals court level last November. That court sided with a lower court ruling backing the plaintiff. It ruled that the DFI exceeded its statutory authority when it approved geographic fields of membership for six state-chartered credit unions between 2000 and 2005. Wendell Lyons, president of the Kentucky CU League, said Monday that his group is encouraged that the high court granted Discretionary Review. He said he believes the league’s attorney made a compelling argument. Lyons said to agree with the lower court ruling, "one would have to accept that the Kentucky General Assembly, while modernizing the state (credit union) act in 1984 – took the illogical step of gutting the field of membership provisions of the act at the same time.” “We are glad that we are getting another day in court,” he added. The Credit Union National Association (CUNA) joined the case as a “friend of the court” last April. In an amicus brief, CUNA argued, in part, that the lower court incorrectly applied federal administrative law precedent, instead of Kentucky administrative law, to deny the DFI judicial deference. And the court further erred, CUNA argued, because, if correctly applied, the federal precedent would have compelled the court to back the state regulator under judicial deference. General Counsel Eric Richard said CUNA got involved in the case because the lawsuit was part of a pattern in which bankers have been challenging community charters in state courts around the country. In addition to Kentucky, Richard noted, multiple cases have been brought in Missouri, since resolved by state legislation, and in Pennsylvania. Michael Edwards, CUNA counsel for special projects, said he believes the state high court agreed to review the case because of the technical aspects involved. He said the court most likely wants to review the power of a state regulator, as well as what kind of administrative procedures would require that a regulator’s action be given judicial deference in a case. The six credit unions named in the bankers' original lawsuit were:
* Members Choice CU, a $101.7 million asset credit union based in Ashland; * $11.5 million asset C&O United CU, Edgewood; * $77.7 million asset Service One CU, Bowling Green; * $30.7 million asset Beacon Community CU, Louisville; * $57 million asset GTKY CU, Lexington; and * $43 million asset Kentucky Employees CU, Frankfort
It was Members Choice that sought the state Supreme Court’s review.

Lending provisions in stim package could help CUs

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WASHINGTON (2/17/09)--Credit unions should note several agricultural, Small Business Administration and mortgage lending-related provisions that could encourage lending and which could be signed into law today. Credit unions could benefit from an increase in mortgage lending stimulated by a tax break provided to first-time home buyers. Under the stimulus package, first-time homeowners can receive a refundable tax credit equal to 10% of a home’s value--up to $8,000--for purchases made until Dec. 1. The credit must be repaid if the home is sold within three years of purchase. A similar provision was included in last year’s Housing and Economic Recovery Act, H.R. 3221, which allowed homebuyers to receive a tax credit (which must be repaid) equal to 10%--up to $7,500--of a home’s value. The provision applied to homes purchased between April 8, 2008, and July 1, 2009. Credit unions also should note that Federal Housing Administration (FHA) reverse mortgage Home Equity Conversion Mortgage (HECM) loan limits will be raised to $625,000 from $417,000. HECM is available only through an FHA-approved lender and is the only reverse mortgage insured by the government. FHA, Fannie Mae and Freddie Mac loan limits will equal 2008 levels of 125% of median home prices up to $729,750. Credit unions engaged in Small Business Administration (SBA) 7(a) and 504 lending will benefit a provision in the package that would raise the percentage of a loan that the SBA can guarantee to 90% from 85%. Credit unions will benefit from the increase because the guaranteed portion of such loans does not count toward the member business lending cap of 12.25%. (See related story: Stimulus could widen MBL opportunities for CUs) Other SBA provisions in the package:
* Allow small businesses to refinance existing debts under the SBA’s 504 program; * Provide $30 million for the SBA’s microloan program, which provides loans and technical assistance for low-income entrepreneurs and laid-off workers starting their own business; and * Reduce to zero fees on SBA-backed loans.
Credit unions also could benefit from a provision in the stimulus package that provides $150 million for Rural Community Facilities Program business loans and grants through the U.S. Department of Agriculture Business and Industry Guaranteed Loan Program. The added $150 million means that $3.01 billion more for loans and grants is available. Of that amount, $2.99 billion is for guaranteed business and industry loans. All credit unions are eligible to participate in the program. Loans must be collateralized. The interest rate is 2% of the guaranteed amount of the loans--0.25% annually--and does not count against credit union member business lending loan limits of 12.25%. The guarantee limits are: 80% on loans up to $5 million, 70% on loans ranging from $5 million to $10 million, and 60% on loans more than $10 million.

Inside Washington (02/16/2009)

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* WASHINGTON (2/17/09)--The Obama administration is seeking to revise part of a $787 economic stimulus package--even after it has been signed into law, which was expected Monday--to change its approach on executive compensation (The New York Times Feb. 16). The proposed restrictions on compensation are applicable to financial institutions that receive government assistance. Under the proposed restrictions, executives could receive no more than $500,000. The bill approved by the Senate and House last week that prevented institutions receiving money from the Troubled Asset Relief Program from giving bonuses to top executives until they repay their bailout money ...

Last chanceTARP Survey deadline is Wednesday

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WASHINGTON (2/17/09)--Credit unions have one last chance to weigh in on the Credit Union National Association's survey about whether or not credit unions should seek access to funds from the federal government's Troubled Asset Relief Program (TARP). Deadline for comments on the survey is at the end of the day Wednesday. Use the survey link. "We've received overwhelming response to the survey so far," said Mike Schenk, vice president of CUNA's economics and statistics, " and we're urging credit unions to make sure they fill out the survey by the end of the day Wednesday." TARP is a highly controversial issue among credit unions. The legislation that set up TARP last year included credit unions as eligible institutions, but as implemented by the U.S. Treasury Department to date, credit unions have not been included. CUNA Chief Economist Bill Hampel indicated that CUNA has heard from a number of credit unions with very strong opinions on both sides of this issue. "The recent deepening of the economic and financial crisis along with the costs of the National Credit Union Administration's Corporate Stabilization Program has added urgency to the question of credit unions and TARP," he said. "CUNA is considering a number of options, but before making any final decisions we would very much like to hear from as many member credit unions as possible on this issue. Therefore, we are conducting a quick, non-scientific survey," Hampel said. In the survey, CUNA first describes some of the arguments it has heard for and against credit unions gaining greater access to TARP. Credit unions should read the information, consider the arguments and their own views on the subject, and then complete the very brief survey, Hampel instructed. Readers can find out more about the NCUA Corporate Stabilization program and also can access the CUNA TARP survey on the CUNA web site at the links below. For questions regarding the survey, contact Paul Ledin, senior data analyst, at pledin@cuna.com or 800-356-9655, ext. 4389.

CUNA GAC Special NCUA Corporate Plan session

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WASHINGTON (2/17/09)--Responding to intense credit union interest in the National Credit Union Administration (NCUA) corporate recapitalization plan, the Credit Union National Association (CUNA) has added a special session on this topic at the front end of the Governmental Affairs Conference (GAC) next week. An update and dialogue session on the NCUA plan led by CUNA President Dan Mica is set for Monday, Feb. 23, from 8:00 a.m. to 9:15 a.m. The program will precede the conference's opening general session at 9:30 a.m. "We've added this special session so we can give the many credit union leaders coming to the GAC the absolute latest information we've got on the NCUA plan and afford an opportunity for feedback and discussion," Mica said. CUNA also has retooled its annual "Hot Exam Issues" GAC breakout session to focus specifically on the NCUA corporate stabilization plan. Moderated by Kathy Thompson, CUNA senior vice president and associate general counsel for regulatory compliance, the Feb. 24 afternoon breakout panel will consist of six key senior staff from NCUA:
* David Marquis, executive director; * Larry Fazio, deputy executive director; * Robert Fenner, general counsel; * Scott Hunt, Office of Corporate Credit Unions acting director; * John Kutchey, Office of Examination and Insurance acting director; and * Owen Cole, Office of Capital Markets and Planning director, and president of the Central Liquidity Fund.
NCUA Chairman Michael Fryzel, Vice Chairman Rodney Hood, and board member Gigi Hyland are scheduled to speak during GAC general sessions. They are expected to address the corporate assistance plan in their remarks.

Stimulus could widen MBL opportunities for CUs

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WASHINGTON (2/17/09)--Provisions contained in an economic stimulus package signed into law by the president on Monday could benefit credit unions by widening member business lending opportunities. News Now previously reported on the provisions before the stimulus package was approved by both the Senate and the House. Credit unions engaged in Small Business Administration (SBA) 7(a) and 504 lending would benefit from a provision in the package that would raise the percentage of a loan that the SBA can guarantee to 90% from 85%. Credit unions benefit from the increase because the guaranteed portion of such loans does not count toward the member business lending cap of 12.25%. Other SBA provisions in the package:
* Allow small businesses to refinance existing debts under the SBA’s 504 program; * Provide $30 million for the SBA’s microloan program, which provides loans and technical assistance for low-income entrepreneurs and laid-off workers starting their own business; and * Reduce to zero the fees for borrowers on SBA-backed loans.
Two other items in the package would extend tax provisions in last year’s housing rescue bill, H.R. 3221, through 2009. The first provision would allow small businesses to recover the costs of capital expenditures made in 2009 faster than the ordinary depreciation schedule would allow by permitting businesses to immediately write off 50% of the cost of depreciable property. The second provision would allow small businesses to write off up to $250,000 of capital expenditures subject to phase-out once capital expenditures exceed $800,000 through 2009. In H.R. 3221, Congress temporarily increased the amount that small businesses could write off for capital expenditures incurred in 2008 to $250,000 from $125,000, and increased the phase-out threshold for 2008 to $800,000 from $500,000. Current law lets small businesses lower their tax liability by writing off the cost of certain capital expenditures in the year of acquisition instead of recovering the costs over time through the tax code’s normal depreciation schedule. “The provisions contained in the stimulus package present credit unions with ways to offer more attractive small business lending opportunities to members,” said John Hildreth, Credit Union National Association senior legislative representative.