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CUNA tells Congress: Data security's very framework must be addressed

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WASHINGTON (2/3/14)--Congress should take a broad look at how consumer data is secured and the improvements that are necessary to prevent future breaches from taking place, the Credit Union National Association said in a letter submitted for the record of a Senate Banking Committee data security hearing scheduled this week.

The hearing, entitled "Safeguarding Consumers' Financial Data," follows last year's Target data breach. That breach resulted in the theft of 40 million debit and credit cards, and encrypted PIN data, and the names, mail and email addresses, and phone numbers of up to 70 million individuals. Credit unions have already incurred costs estimated to be in the range of $25 million to $30 million as a result of the Target stores data security breach, according to a CUNA survey.

In a letter sent today to Senate Banking national security and international trade and finance subcommittee Chairman Mark Warner (D-Va.) and Ranking Subcommittee Member Mark Kirk (R-Ill.), CUNA President/CEO Bill Cheney encouraged Congress to take a holistic approach to addressing data security issues.

"Focusing on one payment method as the absolute answer to solving data security breaches is both shortsighted and distracts from the greater need of a federal data security framework for all entities," he wrote.

"Data breaches occur, in part, because merchants are not required to adhere to the same statutory data security standards that credit unions and other financial institutions must follow, and merchants are rarely held accountable for the costs others incur as a result of the breaches. All participants in the payment process have a shared responsibility to protect consumer data, but the law and the incentive structure today allows merchants to abdicate that responsibility, making consumers vulnerable," Cheney said.

He noted the many steps credit unions have taken since the breach to protect their members, and said some credit unions also face reputational damage due to the breach.

Cheney in the letter said credit unions support three basic principles for data security fixes:
  • All participants in the payments system should be responsible and be held to comparable levels of data security requirements;
  • Those responsible for the data breach should be responsible for the costs of helping consumers; and
  • Consumers should know where their information was breached.
"Consumers need transparency and knowledge to understand where their data has been put at risk," Cheney added.

Similar points will be raised in separate letters to the House Energy and Commerce subcommittee on commerce, manufacturing, and trade and the Senate Judiciary Committee. Those groups have set their own data security hearings for this week. (See Jan. 31 News Now: House, Senate add data security hearings to next week's agenda.)

Financial improvement continues for Keys FCU

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ALEXANDRIA, Va. (2/3/14)--The financial condition of Keys FCU of Key West, Fla. continues to improve, with that credit union reporting a 37 basis point net worth ratio increase in 2013, the National Credit Union Administration said Friday.

The credit union's net worth ratio at the end of the year was 4.07%.

Keys FCU, which voluntarily entered NCUA conservatorship in 2009, also reported $307,672 in net income and $120.5 million in total assets at the end of 2013.

"Keys' restructuring efforts continued in 2013 to provide members greater access to services and products like mobile banking and credit cards," NCUA Region III Director and Agent for the Conservator Myra Toeppe said. "We are encouraged by the credit union's steady progress," she added.

The credit union was chartered in 1940 and operates in Florida's Middle and Lower Keys. Membership is open to individuals and their family members who live, work, worship or attend school in Monroe County, the municipal boundary of the Florida Keys.

Two other conserved credit unions reported financial improvements within the past week: Texans CU, Richardson, Texas, reported an increased net worth ratio, expanding loans and the shedding of distressed assets in 2013; and AEA FCU, Yuma, Ariz., reported net worth ratio and net income increases in 2013.

Senate Banking, House Ways and Means members join GAC speaker lineup

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WASHINGTON (2/3/14)--Three key committee members have signed on to the power-packed list of guests set to speak at this year's Credit Union National Association Governmental Affairs Conference in Washington, D.C.

One confirmed speaker is Sen. Jon Tester (D- Mont.). Tester is a member of the Senate Banking Committee and has worked closely with CUNA, the Montana Credit Union Network and Montana credit unions to address interchange issues and other credit union concerns. Tester in October also noted that the ability of small community-based institutions to provide consumers with competitive pricing and product offerings depends significantly on their ability to access the secondary mortgage market.

The two-term Senator also successfully defended his seat in the 2012 elections with the help of credit unions, CUNA and the league.

House Ways and Means Committee members Rep. Patrick Tiberi (R-Ohio) and Rep. Linda Sanchez (D-Calif.) will also speak at this year's GAC.

Also recently signing on to speak at the nation's biggest gathering of credit union leaders from Feb. 23 to 27 are:
  • Sen. Mark Udall (D-Colo.), a strong supporter of increased credit union business lending authority;
  • Rep. Ed Royce (R-Calif.), a longtime credit union supporter, and sponsor of credit union business lending legislation and measures to relieve the credit union regulatory burden;
  • Rep. Denny Heck (D-Wash.), a former credit union official and current member of the House Financial Services Committee; and
  • House Oversight and Government Reform Committee Chairman Rep. Darrell Issa (R-Calif.).
The CUNA GAC is being held at the Walter E. Washington Convention Center; it annually draws up to 4,000 credit union leaders and supporters. Use the resource link for more details and to register.

Cheney Report highlights CU concerns on risk-based capital

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WASHINGTON (2/3/14)--This week's edition of The Cheney Report underscores that the Credit Union National Association ontinues to analyze proposed risk-based capital regulations, and details some early issues CUNA has found in the National Credit Union Administration's proposal.

Among the areas of concern:
  • Lack of necessity: The impressive way that credit unions came through recent "great recession"--especially compared to other financial institutions--indicates that credit union capital requirements were more than sufficient;
  • Loan concentration measures: The high risk-weights on high concentrations of loans (such as those for business loans) are excessive. In our view, if a credit union has a high amount of business loans in its portfolio, why should the credit union's portfolio be deemed twice as risky as a credit union that has a small amount of business loans?;
  • Treatment of interest-rate risk: IRR cannot be based only on the assets, but has to be considered in terms of matching up to long-term deposits--which is not picked up in the system; and
  • Individual capital requirement: Even if a credit union's risk-based capital ratio is well above the industry average of 10.5 percent, an examiner could--under certain circumstances--assign a higher net worth ratio.
CUNA is working with the CUNA Examination and Supervision Subcommittee, as well as with individual Leagues and the CUNA Lending Council to gather more information and insights, Cheney notes in the Report.

Credit union comments on the proposal will be needed, Cheney adds.

For the full Cheney Report, use the resource link.

New Fed Chair Yellen sworn in today

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WASHINGTON (2/3/14)--Janet Yellen is scheduled to be sworn in as Federal Reserve Board Chair this morning.

Yellen is the first woman to hold this position and has served as Fed vice chairman since Oct. 4, 2010.

Her term in charge of the Fed is scheduled to end on Jan. 30, 2018.

Yellen in testimony before a Senate Banking Committee nomination hearing held last year gave hints as to how she would run the Fed. The Fed should continue to limit regulatory burdens for small financial institutions, taking into account their distinct role and contributions, she said.

The Fed could also work to level the playing field between large, too-big-to-fail institutions and smaller institutions, she added. Yellen in later remarks also said the Fed needs a model for supervision of smaller institutions that's different and less onerous.

She said she would also work to address the regulatory compliance burdens faced by institutions that pose no systemic risk. Overall, Yellen said she is "committed to using the Fed's supervisory and regulatory role to reduce the threat of another financial crisis." Capital and liquidity rules and strong supervision are important tools for addressing the problem of financial institutions that are regarded as too big to fail, she said.

She also pledged to make the Fed a more open and transparent institution during her tenure.

NCUA bans five from future CU work

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ALEXANDRIA, Va. (2/3/14)--Guilty pleas to larceny and fraud are just two of the reasons that the National Credit Union Administration issued prohibition orders against five former credit union employees.

The NCUA orders involve the following individuals:
  • Jade Carnahan, a former Rivergate FCU, Portland, Ore., employee who pleaded guilty to bank larceny charges. Carnahan was sentenced to 18 months in prison, three years of supervised release and ordered to pay restitution in the amount of $408,062.38;
  • Michael Ross Franco, a former My Community FCU, Midland, Texas, employee who pleaded guilty to conspiracy to commit bank fraud. Franco was sentenced to 18 months in prison, five years of supervised release and ordered to pay more than $4.1 million in restitution;
  • Yolanda Marie Gonzales, a former Westerra CU, Denver, Colo., employee who pleaded guilty to theft charges. Gonzales was sentenced to seven years in an intensive supervision program, two years of work release and ordered to pay restitution in the amount of $79,198;
  • Nichole Moore, a former North Memorial FCU, Robbinsdale, Minn., employee who pleaded guilty to theft charges. Moore was sentenced to 120 days in prison, seven years of supervised probation and ordered to pay $141,635.69; and
  • Janine Shepard, a former Greylock FCU, Pittsfield, Mass., employee who pleaded guilty to larceny charges and making false entries into corporate books. Shepard was sentenced to three years in prison.
Violation of a prohibition order is a felony offense punishable by imprisonment and a fine of up to $1 million.

Use the resource link to access all NCUA enforcement orders.