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Inside Washington (04/15/2011)

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* WASHINGTON (4/18/11)--Lawmakers last week were critical of the risk-retention proposal made by regulators, saying it will provide fewer consumers opportunities to purchase homes (American Banker April 15). Members of the House Financial Services capital markets subcommittee said the proposal’s definition of “qualifying residential mortgages” (QRMs)--which are exempt from the risk-retention requirements but must meet strict underwriting criteria, including a 20% down payment by borrowers--could be a loss of access to credit consumers. Some said community banks would not be able to offer non-QRM mortgages, leaving the market dominated by the biggest banks. Other areas of contention were the inclusion of limited servicing standards in the risk-retention plan and an exemption for government-sponsored enterprises while they are in conservatorship. Regulators say the QRMs represent only a small slice of the market. Fannie Mae and Freddie Mac are exempt because they offer a 100% credit guarantee for any loans they purchase, and retain them when the loans are sold as mortgage-backed securities … * WASHINGTON (4/18/11)--Acting Comptroller of the Currency John Walsh Thursday defended bank regulators for moving forward with enforcement action against the 14 largest mortgage servicers even while several of those banks continue to negotiate with state attorneys general and other federal agencies (American Banker April 15). Some observers say the enforcement actions will help the services gain leverage in ongoing negotiations. But Walsh said the regulators’ actions are not in conflict with those negotiations. “My hope is that our enforcement actions will establish a framework, and the actions that state law enforcement officials and the other federal agencies may take will be complementary to, and consistent with, what we are doing,” he said. “This is a messy process, and it will take time to put things right. There may be misunderstandings and disagreements along the way” … * WASHINGTON (4/18/11)--Members of both political parties on Thursday criticized the Financial Stability Oversight Council for a lack of details on designating financial institutions as systemically important as outlined in the Dodd-Frank Act (American Banker April 15). Randy Neugebauer (R-Texas), the chairman of the House Financial Services oversight subcommittee, said the council’s guidance lacked transparency and was little more than a word-for-word restatement of Dodd-Frank’s language. The council has released two proposals outlining the process for designating nonbank financial companies as systemically important, but neither provided details of regulators’ plans …

TCF appeals interchange case ruling

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WASHINGTON (4/18/11)--TCF National Bank (TCF) last week again sought to block the Federal Reserve’s implementation of proposed interchange fee cap regulations by appealing a recent ruling in its case against the Fed. The bank’s expedited appeal request was filed in the U.S. Court of Appeals for the Eighth Circuit. The appeal relates to an April 4 ruling in which U.S. District Court for the District of South Dakota Judge Lawrence Piersol declined to dismiss TCF's suit against the Fed--but also declined to issue an injunction based on the statute. Credit Union National Association (CUNA) General Counsel Eric Richard said that CUNA would “continue to monitor this litigation closely, and will do whatever needs to be done to protect the interests of credit unions.” The TCF suit, which was filed last October, states that the government cannot write laws that would arbitrarily prevent a given business from recovering its costs sufficiently to avoid losses on its various business operations. It also alleges that portions of the Dodd-Frank Act that would require the Federal Reserve to set restrictions on debit card interchange fees are unconstitutional. In the suit, TCF also argues that the Fed's implementation plan restricts a financial institution's ability to recover costs associated with providing the debit card service. CUNA, the Clearing House Association L.L.C., American Bankers Association, Consumer Bankers Association, The Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, and the National Association of Federal Credit Unions have backed TCF in its suit. CUNA and the other groups are backing TCF in an effort to explain the detrimental effect that the Fed's interchange provisions would have on the "stability of the electronic payment structure that undergirds literally trillions of dollars of our economy, as well as the serious constitutional issues the (Fed's) action raises." The Fed's interchange fee rate cap regulations could lower interchange fees to no more than 12 cents per transaction. As indicated by Fed Chairman Ben Bernanke, the Fed is not expected to meet the April 21 statutory deadline for releasing a final regulation on the interchange fee cap provisions. However, the Chairman indicated his commitment to approve a final rule by the July 21 effective date, if not sooner.

Texans CU Vensure FCU placed into conservatorship

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ALEXANDRIA, Va. (4/18/11)--The National Credit Union Administration (NCUA) on Friday placed Mesa, Ariz.'s Vensure FCU and Texans CU of Richardson, Texas, into conservatorship. The agency said that it continues to insure the shares of members of both credit unions. Texans CU holds $1.6 billion in assets from 133,000 members. Vensure currently holds $4.7 million in assets from 144 members. Texans CU serves residents of Collin, Dallas, Rockwall, Travis, and Williamson, as well as parts of Denton County. Vensure FCU serves employees of Vensure Employer Services Inc., employees of various related companies, and their families. The NCUA in its release said that it is authorized under the Federal Credit Union Act to appoint itself as conservator “to conserve the assets of a federally insured credit union, protect members’ interests, or protect the National Credit Union Share Insurance Fund.” The pair of conservatorships were the second and third to take place this year. There have also been four credit union liquidations this year.

Obama signs 1099 extension repeal

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WASHINGTON (4/18/11)--President Barack Obama late last week signed into law legislation that repeals an extension of Internal Revenue Service Form 1099 reporting requirements that was approved last year. The extension, which was approved as a "pay-go" effort to offset the cost to taxpayers of the new healthcare reform law, would have extended existing 1099-MISC reporting provisions to cover payments for goods valued over $600. Credit unions and other businesses have long been required to report on their Form 1099-MISC certain payments of $600 or more that will be considered income by the IRS. The Credit Union National Association has backed the repeal, noting that requiring 1099-MISC forms on goods would have been extremely burdensome and had questionable value in actually increasing federal revenue. Rep. Dave Camp (R-Mich.), who sponsored an early version of the bill, estimated that the tax law change would save taxpayers $20 billion over a 10-year span and would reduce the deficit by more than $166 million over that same time period.

Tester repeats call for interchange implementation stall

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WASHINGTON (4/18/11)--Sen. Jon Tester (D-Mont.) last week again called for further consideration of an interchange fee cap proposal, saying in a Thursday floor statement that Congress needs to stop, study and “make sure [it is] doing the right thing” before moving forward. “If we do not measure twice and cut once, we’re bound to create a whole new set of problems,” he added. Tester, along with Sen. Bob Corker (R-Tenn.), has introduced legislation that would delay implementation of the interchange legislation by two years and would order federal regulators to study the impact that the interchange changes could have on consumers, financial institutions, and others. The legislation, S. 575, had 16 co-sponsors as of Friday. The interchange provisions, which could become effective in late July, could lower the amount of transaction fees charged to seven cents per card swipe. The legislation, as currently written, would exempt credit unions and other small institutions with assets of $10 billion and under from the terms of the regulations. However, there is much debate over whether this proposed exemption would work as planned. The senator noted that federal regulators, including Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair, have publicly questioned whether small issuers would benefit from this exemption. Tester in his comments also said that while backers of the interchange legislation claim that it would help small businesses, it can actually present greater problems for them by potentially limiting their access to free checking accounts. “This notion that some have raised that these proposed rules are a slam dunk for small businesses … it is simply false,” he said. The interchange changes could also limit consumer access to debit accounts, potentially pushing some individuals out of the banking system altogether. Credit Union National Association (CUNA) President/CEO Bill Cheney last week said that "the time window for action is relatively short," and urged credit unions and their members to take part in a "Call on Congress" campaign launched by CUNA and the leagues that will encourage legislators to "stop, study and start" over on interchange. Cheney has asked credit union backers nationwide to meet with their respective legislators in their home districts during the current district work period, which will run through April 29. Additional outreach and education efforts are being made through the leagues, individual credit unions, and social media outlets. To join these efforts, which include district-based letter writing campaigns, emails, and phone calls to legislators, use the resource link.