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Financial legislation as Congress heads to crunch time

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WASHINGTON (4/15/08)---Legislation dealing with a variety of financial issues, ranging from mortgage lending to financial literacy, are on the agenda as Congress heads into what many believe is the crucial part of the session. Caught amid distractions by the Presidential campaigns and rising concerns about the national economy, Congress is in the middle of an eight-week period that is expected to be its best chance this year of working toward agreements on difficult issues. The timeline is tight and pressures increase as recess breaks and the summer political conventions near, limiting the time for further deliberations. Credit unions have an important stake in this week’s agenda, which will include floor votes on legislation dealing with student loans and health savings accounts. Meantime, committee hearings are set for legislation relating to the credit markets, financial literacy, emergency mortgage loans, impact of the credit squeeze on small business, and foreclosure prevention and other mortgage servicing issues. Among the concerns for credit unions is the Taxpayer Assistance and Simplification Act of 2008 scheduled for House consideration. It would require financial institutions offering health savings accounts to substantiate the amounts paid or dispersed out of these accounts, similar to the process required in flex spending accounts. The Credit Union National Association (CUNA) objects to this requirement and will continue its efforts to oppose it as the bill makes its way to the House floor for a vote. There currently is no similar bill introduced in the Senate. Among the hearings is one on Financial Literacy scheduled today by the House Financial Services Committee, at which National Credit Union Administration Chairman Joann Johnson will testify. Purpose of the discussion is to consider the effectiveness of public and private efforts to improve understanding of financial decisions and options. CUNA submitted a statement for the hearing record. (See related story: CU fin lit efforts spotlighted in CUNA statement)

Inside Washington (04/14/2008)

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* WASHINGTON (4/15/08)--The Basel Committee on Banking Supervision plans to focus on capital requirements and managing liquidity risk in its proposals this year, according to a report released Friday by the Financial Stability Forum. The committee plans to issue proposals this year that will raise Basel II capital requirements for certain complex structured credit products, introduce additional capital charges for default and event risk in the trading books of banks and securities firms, and strengthen the capital treatment of liquidity facilities to off-balance sheet conduits. The committee also plans to issue supervisory guidance by July for managing liquidity risks. Basel II went into effect April 1 but none of the 12 Federal Home Loan Banks are required to adopt the rule yet (News Now Feb. 5) ... * WASHINGTON (4/15/08)-- Disclosure practices can be improved, but not through disclosure requirement changes, said a report released Friday by U.S. and foreign bank regulators (American Banker April 14). Rather, individual firms can make changes at their discretion. The regulators analyzed disclosures of 20 international financial firms, including Citigroup, Bear Stearns Co., Wachovia Corp., Bank of America and JPMorgan Chase and Co. The report was conducted by the Federal Bank of New York, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Federal Reserve Board and regulators from the United Kingdom, France, Switzerland and Germany ... * WASHINGTON (4/15/08)--Credit cards used by government agencies are being abused, according to a Government Accountability Office (GAO) report released last month. From July 1, 2005 to June 30, 2006, the GAO estimated, 41% of the transactions failed to meet basic internal control standards. Breakdowns such as authorization and independent receipt and acceptance resulted in fraudulent, improper and abusive purchases, the agency said. Cardholders had used the cards to purchase Internet dating services, video iPods for personal use and “lavish dinners.” The GAO also was unable to locate 458 items of the 1,058 pilferable items totaling more than $2.7 million that it selected for testing ... * WASHINGTON (4/15/08)--A rule change in the Farm Credit System could re-ignite a banker battle after regulators Thursday approved giving more flexibility to a rule that has prevented lenders “from retaining processors as customers” (American Banker April 14). Banking industry representatives argue that the rule deviates from the system’s mission of farm lending and could remove banks from lending to rural ethanol plants. The rule could take effect next month, and banks are asking their trade groups to study whether it abandons the lenders’ mission. The rule applies to agricultural marketing firms and was proposed in October 2006 by the Farm Credit Administration ...

Stimulus law could broaden MBL opportunities

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WASHINGTON (4/15/08)--New tax breaks for small business included in the recently enacted economic stimulus package could provide opportunities for credit unions interested in promoting member business lending, according to the Credit Union National Association (CUNA). The law raises the amount small businesses can deduct for new equipment to encourage such expenditures. It also liberalizes depreciation rules. The purpose of the legislation is to give a boost to the nation’s ailing economy. The statute is known formally as the Economic Stimulus Act of 2008 (H.R. 5140), and was signed into law on February 13 (P.L 110-185). The sections of the new law dealing with small business tax concessions are described in “Section 179 expensing,” and in a second provision, entitled “bonus depreciation.” The first section is an enhancement of current tax rules dealing with the deductibility of purchased equipment by small business firms. It rose to $250,000 from $128,000, the value of equipment that can be “expensed.” The phase-out window for the expensing tax break begins at equipment costing $800,000--up from $510,000. Equipment priced at $1,050,000 and over is ineligible. The second tax concession for small business is a liberalized “bonus depreciation,” where 50% of an investment, with an expected lifespan of less than 20 years, can be deducted in 2008--provided it is placed in service this year. Congress included the small business investment incentives in this much debated economic rescue package because of belief this sector has been crucial in rejuvenating the nation’s economy during past crises. The Credit Union National Association (CUNA) urges credit unions to check out the new law for new lending opportunities, but stresses that credit unions should consult first with tax advisors.

CU fin lit efforts spotlighted in CUNA statement

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WASHINGTON (4/15/08)--The Credit Union National Association (CUNA) Tuesday will urge approval of a House resolution endorsing the goals of Financial Literacy Month, during a House hearing on the proposal. “Credit unions have traditionally made financial education a part of their mission, providing financial information and training to members on a one-to-one basis,” the CUNA statement points out. It also notes that many credit unions actively sponsor community- and school-based educational programs. The statement, submitted for a House Financial Serivices Committee hearing record, says these programs include school-based courses and seminars that provide resources on such issues as how to maintain a checking account. CUNA’s statement highlights CUNA's Financial Literacy Summits, events that that bring together representatives from credit unions and partner organizations to discuss financial literacy challenges and set an educational agenda for the credit union movement. In January 2007, CUNA notes, it released its National Financial Literacy Summit report which highlighted recommendations for the financial services system, including:
* Committing to educating the undeserved; * Making a long-term commitment to financial education as part of the educational curricula in your community; * Supporting making personal financial education a high school graduation requirement; and * Measuring the effectiveness of these efforts.
CUNA also points out that the credit union system sponsors and participates in financial literacy programs such as:
* National Credit Union Youth Week; * The National Endowment for Financial Education’s (NEFE) High School Financial Planning Program, which has distributed materials to more than 1,200 schools and 500,000 students nationwide since 2000; * BizKid$ television series; * The “Thrive by Five” program, to teach preschoolers about spending and saving; * Desjardins Youth Financial Education Awards; * National Youth Involvement Board; * In-School credit union branches, which extends financial literacy to youth through in-school and youth center branches across the nation; * Personal Finance Camps: and * Credit union staff training programs.
The CUNA statement also says the congressional resolution to designate April as Financial Literacy Month will make an important contribution by bringing national attention to this issue. “For credit unions, financial literacy is not just something we do in April – financial education is a service we provide our members each day of the year,” CUNA concludes in its statement. National Credit Union Administration Chairman JoAnn Johnson, along with other financial services regulators and private sector representatives, is slated to testify at today's hearing on financial literacy initiatives.

Third-party info distributed to CUs

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ALEXANDRIA, Va. (4/15/08)—A new questionnaire that National Credit Union Administration (NCUA) field staff will use to complete the evaluation of credit union third-party relationships has been distributed by the agency to federally insured credit unions. Examiners will evaluate third-party relationships based on the risk of each relationship and will use the questionnaire to document the review. The questionnaire names the following three elements of an effective program, as discussed earlier by the NCUA in an enclosure to a December 2007 letter (07-CU-13.) The three elements are:
* Risk Assessment and Planning; * Effective Due Diligence; and * Risk Measurement, Monitoring, and Control.
The NCUA communication added that questions or concerns should be directed to a credit union’s NCUA Regional Office or state supervisory authority. The Credit Union National Association’s Due Diligence Task Force currently is assembling resources for guidance to credit unions to address their concerns about the due diligence examination process. The resources include such things as sample vendor management policies and procedures. The Due Diligence Task Force's key objectives are to develop a core due diligence model that credit unions can use to evaluate third-party vendors, as well as develop a due diligence best practices guide that goes beyond the core due diligence model. Use the resource link below to access the NCUA questionnaires.

CUNA and Treasury meet on CU issues

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WASHINGTON (4/15/08)—Credit Union National Association (CUNA) representatives met Monday with U.S. Treasury Assistant Secretary for Financial Institutions David Nason and other Treasury official to further discuss CUNA’s opposition to certain provisions of the agency’s regulatory reform ideas. The CUNA team also discussed prompt corrective action reform proposals, the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537), which contains a PCA reform provision, and the Credit Union Regulatory Relief Act (CURRA, H.R. 5519) with Nason, his deputy assistant secretary, Jeremiah Norton and other Treasury representatives. The CUNA contingent included President/CEO Dan Mica, Senior VP of Legislative Affairs John Magill, General Counsel Eric Richard, and Deputy General Counsel Mary Dunn.