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CUNA Two-year delay needed for interchange study

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WASHINGTON (2/23/11)—The U.S. Congress intended that small debit card issuers be protected from the rate regulations in the interchange law yet the Federal Reserve Board’s implementation proposal fails to accomplish that goal, the Credit Union National Association (CUNA) said in its comment letter to the Fed filed yesterday. CUNA was commenting on the board’s proposal to implement the interchange provisions of the Dodd-Frank Act. CUNA also said that given the number and nature of the issues unresolved by the proposal, the Fed should work with Congress to delay interchange regulation implementation by up to 24 months to allow more time for discussion and consideration of how the interchange regulations would impact credit unions. CUNA noted that interchange fee regulation is the most significant regulatory issue facing credit unions that offer debit cards, and said that credit unions are concerned about the impact that the interchange proposal could have on their members, debit card programs, and day-to-day operations. The Fed's interchange provisions, which were released for public comment late last year, would cap debit card interchange fees that are paid by merchants to large debit card issuers at no more than twelve cents per transaction. By law, issuers with under $10 billion in assets are entitled to be exempted from the interchange fee rate setting provisions. The deadline for public comment on the interchange changes passed yesterday, and the Fed received comments from more than 4,000 stakeholders, including credit unions. Dodd-Frank directs the Fed to issue a final rule by April 21. If approved, the rule would become effective in July, without the delay that has been urged by CUNA and others. Although CUNA strongly backs an implementation delay, in its absence CUNA urged the board to made substantial changes in the proposal, which CUNA said would not withstand judicial review as issued for comments. Among those changes, CUNA recommended the Fed include provisions to implement the statutory small issuer exemption. CUNA also advocated that the Fed replace its proposed interchange fee rate caps, which were not required by Congress. They should be replaced with standards for assessing the “reasonableness and proportionality of interchange fees, which Congress require. CUNA also suggested amending routing provisions and ensuring that debit card issuers would not have to belong to more than two independent payment card networks. CUNA also joined its many Electronic Payments Coalition (EPC) colleagues in a joint comment letter that urged the Fed to fundamentally revise its proposed rule on debit card interchange fees. The EPC comment letter noted that the new interchange fees, which would be determined by the Fed’s rule and imposed on financial institutions, would be 80% below current interchange fees. Frank Michael, who appeared before the House Financial Services Committee last week on behalf of CUNA and his $18 million-asset credit union, Stockton, Calif.-based Allied CU, said that the interchange changes could mean increasing members' existing debit card fees or introducing new fees and lowering deposit rates. Michael added that the interchange regulations could harm low-income consumers by restricting their access to free checking accounts. Fed Chairman Ben Bernanke, during last week’s Senate Banking Committee hearing, said that the interchange fee regulation exemption included in the Dodd-Frank Act for credit unions and small institutions with under $10 billion in assets may not be effective in the marketplace, and admitted that there may be no way to ensure that small issuers are exempt from new interchange fee rules. Federal Deposit Insurance Corporation Chairman Sheila Bair speculated that the interchange changes could harm small financial institutions far more than they would help merchants. Sens. Charles Grassley (R-Iowa) and Tom Harkin (D-Iowa) in a Tuesday letter to the Fed urged the regulator to ensure that the small institution exemption works as intended. Several lawmakers also have questioned whether the Fed had taken the time needed to consider the impact that the interchange changes could have on credit unions and other small issuers. Fed Governor Sarah Bloom Raskin in House testimony last Thursday said that the Fed would delay its rulemaking process if directed to do so by Congress. For the CUNA and EPC comment letters, use the resource links.

NCUA should detail added low income info says CUNA

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WASHINGTON (2/23/11)--The National Credit Union Administration’s proposed changes to the low income credit union application process could be improved if the agency provided credit unions with a more detailed explanation of what should be covered in a credit union’s narrative and supporting materials, the Credit Union National Association (CUNA) said in a Tuesday comment letter. This explanation could be provided through a letter to credit unions, CUNA suggested. The NCUA proposal would permit federal credit unions to use "statistically valid" random samples of member income data to prove their low-income status to the agency. That member income data could be drawn from loan files or surveys. Credit unions would also include an analysis of these member data samples along with their applications. This is an alternative to the current approach, which uses the agency’s geocoding software. Current NCUA regulations require a credit union to show actual income data from a minimum of 50% of its membership, plus one additional credit union member as an alternative basis for qualifying as low-income. Under the proposal, NCUA would continue to use its geocoding software to determine a credit union’s low-income status; the software uses census data to determine the average income of a membership area. However, for credit unions that do not qualify as low-income according to the software, the proposal would provide them with the alternative option of providing sample member income data. CUNA said that it approved of the majority of the NCUA's plans, and added that including a timeframe for the NCUA to review submissions could be very useful to the review process and to the credit unions seeking NCUA’s decision. However, the timeframe should be both sufficient for NCUA to undertake a reasonable review and short enough to be responsive to the credit union, CUNA said.

Warren charts next CARD Act moves at CFPB meeting

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WASHINGTON (2/23/11)--Though the Credit Card Accountability Responsibility and Disclosure (CARD) Act has brought “major changes” to the way the credit card industry operates, Consumer Financial Protection Bureau (CFPB) architect Elizabeth Warren said that there is still substantial work to be done.
Click to view larger image Elizabeth Warren addresses attendees at the CFPB's Tuesday CARD Act conference. Warren has said the CFPB will work to reduce the regulatory burdens faced by credit unions. (U.S. Treasury photo)
Hosting a conference on the anniversary of the CARD Act, Warren noted that examining its regulatory approach and determining how to “improve markets without an overreliance on rules” would be “the next challenge” for the CFPB. CFPB staff will next begin work on “further clarifying price and risk and making it easier for consumers to make direct product comparisons,” Warren added. The Credit Union National Association’s (CUNA) Senior Assistant General Counsel Michael Edwards was one of many finance industry representatives at the CFPB conference. Edwards following the meeting said that CUNA looks forward to working with the CFPB and other stakeholders on making clear credit unions’ concerns about the impact of the CARD Act and improving government policy on this issue. Representatives from Affinity Plus FCU, Virginia Credit Union, and other credit unions were also present. The CFPB will take over a number of regulatory roles from the Federal Reserve and other agencies on July 21. The National Credit Union Administration (NCUA), however, will remain mostly independent, and credit unions holding under $10 billion in assets will not be examined by the CFPB. CUNA has outlined credit union CARD Act concerns, and the credit union point of view on other financial issues, during recent meetings with the CFPB and other Treasury officials, and Warren has recently said that the CFPB will work to reduce some regulatory burdens faced by credit unions and other financial institutions and will review the impact of its own rules on credit unions.

Inside Washington (02/22/2011)

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* WASHINGTON (2/23/11)--The Federal Reserve Board and Office of the Comptroller of the Currency (OCC) are seeking dismissal of TCF Financial Corp.’s lawsuit to block implementation of the Durbin amendment. In a motion filed Friday in U.S. District Court for South Dakota, the Fed and OCC moved for dismissal because of TCF’s failure to “state a claim upon which relief can be granted” and lack of subject matter jurisdiction (American Banker Feb. 22). In its lawsuit, filed in October, TCF seeks to stop implementation of the Dodd-Frank Act’s Durbin amendment, under which the Fed set interchange rates in proportion to issuers’ costs. In its memorandum to dismiss the lawsuit, the Federal Reserve said TCF failed to identify any statute, regulation or contract that guarantees the bank should receive the current level of debit interchange it receives … * WASHINGTON (2/23/11)--The permanent headquarters of the Consumer Financial Protection Bureau (CFPB) will be located across the street from the White House at 1700 G Street NW in Washington, D.C., the Treasury Department announced last week. The building will contain about 300,000 useable square feet. Before the CFPB moves in, major renovations are needed to use space more efficiently and to update the building to current energy and environmental standards. Although planning is still in its early stages, the building will include a first floor that is open for regular educational programs, and will include interactive kiosks and 21st century learning centers …

SARs advisory target financial abuse of elderly

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VIENNA, Va. (2/23/11)--Credit unions and other financial institutions often can play a key role in uncovering instances of financial exploitation of the elderly, and the Financial Crimes Enforcement Network (FinCEN) Tuesday released an advisory on filing Suspicious Activity Reports (SARs) on this type of elder abuse. FinCEN noted an “upward trend” of federal financial institutions filing SARs to report suspected financial exploitation of elderly members or customers, and the agency said that trend is consistent with increased attention the problem is receiving on the state level as well. The new FinCEN advisory contains examples of behavior that should send up "red flags" of concern. The “red flags” are based on activity identified by various state and federal agencies and, FinCEN said, provide a “common narrative” that will assist law enforcement in “better identifying suspected cases of financial exploitation of the elderly reported in SARs.” The warning sign can include erratic or unusual banking transactions, or changes in banking patterns, such as:
* Frequent large withdrawals, including daily maximum currency withdrawals from an ATM; * Sudden Non-Sufficient Fund activity; * Uncharacteristic nonpayment for services, which may indicate a loss of funds or access to funds; * Debit transactions that are inconsistent for the elder; * Uncharacteristic attempts to wire large sums of money; or, * Closing of certificate or other accounts without regard to penalties.
Certain interactions with members or customers, or their caregivers, can also set off alarms. These suspicious behaviors can include:
* A caregiver or other individual shows excessive interest in the elder's finances or assets, does not allow the elder to speak for himself, or is reluctant to leave the elder's side during conversations; *The elder shows an unusual degree of fear or submissiveness toward a caregiver, or expresses a fear of eviction or nursing home placement if money is not given to a caretaker; * The financial institution is unable to speak directly with the elder, despite repeated attempts to contact him or her; *A new caretaker, relative, or friend suddenly begins conducting financial transactions on behalf of the elder without proper documentation; * The customer moves away from existing relationships and toward new associations with other "friends" or strangers; * The elderly individual's financial management changes suddenly, such as through a change of power of attorney to a different family member or a new individual; or, * The elderly customer lacks knowledge about his or her financial status, or shows a sudden reluctance to discuss financial matters.
The FinCEN advisory noted that elder abuse, including financial exploitation, is generally reported and investigated at a local level, with Adult Protective Services, District Attorney's offices, sheriff's offices, and police departments taking key roles. “We emphasize that filers should continue to report all forms of elder abuse according to institutional policies and the requirements of state and local laws and regulations, where applicable,” FinCEN said. The advisory adds that financial institutions may wish to consider how their anti-money laundering programs can complement their policies on reporting elder financial exploitation at the local and state level. Financial institutions with questions or comments regarding the FinCEN elder-abuse advisory may contact FinCEN's regulatory Helpline at 800-949-2732. Use resource link for FinCEN advisory.