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Inside Washington (04/25/2012)

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  • WASHINGTON (4/26/12)--The Small Business Lending Fund (SBLF) helped several healthy banks exit the Troubled Asset Relief Program (TARP), but the most troubled banks have remained in TARP, according to a report released Wednesday. Of the 351 banks remaining in TARP as of March 31, 46% were behind on their dividend payments, and about one-third had missed five or more dividends payments to Treasury, according to report released by the TARP special inspector general. The report provides the first analysis of the 137 banks that used SBLF to refinance out of Tarp's Capital Purchase Program. In an interview with American Banker (April 25) on Tuesday,  Christy Romero, the special inspector general for TARP called for the Treasury Department and the banking regulators to implement an exit plan for the mostly small community banks left in the government program. The SBLF program was implemented in 2010 as part of the Small Business Jobs Act. It provided $30 billion to banks with less than $10 billion of assets, including banks that wished repay TARP funds. In exchange, the institutions are required to increase their small business lending or pay higher dividends …
  • WASHINGTON (4/26/12)--The Consumer Financial Protection Bureau (CFPB) Tuesday launched a public inquiry into how consumers and financial services companies are affected by arbitration and arbitration clauses. "Arbitration clauses are found in many contracts for consumer financial products," said CFPB Director Richard Cordray. "We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers' issues. This inquiry will help the Bureau assess whether rules are needed to protect consumers." Through the Dodd-Frank Act, Congress requires the CFPB to study the use of pre-dispute arbitration clauses in consumer financial markets and gives the bureau the power to issue regulations for the protection of consumers consistent with the study. For purposes of conducting the study, the CFPB is asking the public about the prevalence of arbitration clauses in consumer financial products and services; what claims consumers bring in arbitration against financial services companies; if claims are brought by financial services companies against consumers in arbitration; how consumers and companies are affected by actual arbitrations; and how consumers and companies are affected by arbitration clauses outside of actual arbitrations …
  • WASHINGTON (4/26/12)--Democratic members of the House Financial Services Committee today issued dissenting views to the budget reconciliation legislative recommendations which passed the committee last week on a straight party line vote. Republican members of the committee claim that the legislation will cut the deficit by roughly $35 billion during a 10-year period.  One section of the budget reconciliation language would repeal a key title of the Dodd-Frank Act.  Committee Democrats wrote that "the Republicans have used the reconciliation vehicle as a means of achieving what they have been unable to do through the regular legislative process, namely repeal the section of the Financial Reform bill … that provides for a way to deal with large financial institutions that have become too indebted to exist."  The Republican language would eliminate Orderly Liquidation Authority (OLA), the provision in the Financial Reform law which makes it possible to wind down failing firms while minimizing damage to the greater economy.  Democrats argue that that Dodd-Frank's liquidation authority will not increase the deficit over the long term …
  • WASHINGTON (4/26/12)--Citizens Financial Corp. has agreed to pay $137.5 million settle a class action lawsuit over its of manipulating the posting order of debits to customer accounts. By reordering the charges from high to low, Citizens and other banks peers maximized additional overdraft fees on debit-card customers (American Banker April 25). More than a dozen banks involved in the case have previously settled. Cases involved PNC Financial Services , Toronto-Dominion Bank , Capital One Financial and Comerica are still in litigation. Plaintiffs' attorneys, Robert Gilbert, said the $137 million settlement is a "a very significant percentage" of the alleged harm done to Citizens' customers. Previous settlements in the case have ranged from roughly 10% to 63% of alleged damages …

CUNA other trades jointly back cyber-security reforms

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WASHINGTON (4/26/12)--The financial services industry is committed to ensuring national cyber-security standards remain strong, and the Credit Union National Association (CUNA) has joined with the Electronic Funds Transfer Association (EFTA) and other groups to urge members of the U.S. Congress to support legislation that is designed to further protect national security in cyberspace.

The letter, which was sent to Speaker of the House John Boehner (R-Ohio), Minority Leader Nancy Pelosi (D-Calif.,) and all other members of the House of Representatives, noted that the financial services industry has been a leader in defending against cyber attacks, and continuously adopts new technologies and techniques to protect against existing and emerging cyber threats. However, the ever-growing scope, organization and sophistication of those engaging in cyber attacks requires the  government and the private sector to work even harder and more effectively cooperate and share cyber threat information, the letter adds.

A group of cyber-security bills that aim to address cyber attacks and other online security issues are scheduled to be brought to the U.S. House floor this week.

The Cyber Intelligence Sharing and Protection Act (H.R. 3523) is among those bills. H.R. 3523 would task the Office of the Director of National Intelligence with developing cyberthreat information sharing guidelines between public- and private-sector organizations. The bill would also provide privacy protections for consumers by limiting the inclusion of consumer data in shared threat information.

The other bills are:

  • The Advancing America's Networking and Information Technology Research and Development Act (H.R. 3834), which would provide funding for government research and development of next generation security controls;
  • The Cybersecurity Enhancement Act of 2011 (H.R. 2096), which would increase public awareness of online security issues and establish programs to increase the federal cyber work force; and
  • The Federal Information Security Amendments Act (H.R. 4257), which would update the federal framework for protecting their information technology systems.
The Financial Services Roundtable, NACHA – The Electronic Payments Association, the Financial Services Information Sharing and Analysis Center, The Clearing House, the American Financial Services Association, the National Association of Federal Credit Unions, the Consumer Bankers Association, The Independent Community Bankers of America, and the American Bankers Association joined CUNA and the EFTA in signing the letter.

For the full letter, use the resource link.

Mortgage rule relief needed CU rep tells CFPB

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WASHINGTON (4/26/12)--The Consumer Financial Protection Bureau (CFPB) should consider meaningful exemptions for credit unions and other small financial institutions as it develops new mortgage servicing rules, American Southwest CU CEO Brian Barkdull said at a CFPB Small Business Regulatory Enforcement Fairness Act (SBREFA) panel discussion held this week in Washington.

The CFPB earlier this month began working on a series of new mortgage rules that aim to increase transparency and accountability in the market. The SBREFA panels, which are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, are intended to bring credit unions and other small financial service providers into discussions on any proposed rules that may have a significant economic impact on a substantial number of small providers.

The Credit Union National Association suggested that Barkdull take part in the panel. Tiffany Michel, vice president of lending at Omaha Police FCU, Omaha, Neb., and Victor Petroni, senior vice president of lending at First New England FCU, East Hartford, Conn., also joined representatives from the CFPB, the U.S. Small Business Administration (SBA), and the Office of Management and Budget at the panel discussion. Representatives from Services Center FCU, Yankton, S.D., Rocky Mountain Law Enforcement FCU, Denver, Colo., and community banks also took part in the discussion.

During the panel discussions, Barkdull noted that regulatory changes in mortgage servicing do affect and increase his credit union's costs in other areas, such as business loans.

He also said that he includes regulations alsongside other financial institutions when he thinks of the "competition" his credit union faces, because his Tuscon, Arizona credit union must address both concerns.

Panel participants also reviewed the CFPB mortgage servicer proposals under consideration, discussed the direct and indirect impact on businesses and consumers, responded to CFPB staff questions, and provided detailed examples from their experiences.

The panelists urged the agency to minimize duplicative regulations, consider the costs on small financial institutions, consider meaningful exemptions or multi-tiered approaches, and focus on targeting specific problem areas instead of developing overly broad rules.

The CFPB also plans to conduct additional outreach on the mortgage servicing project to gather feedback from consumer groups, industry, and other agencies.

Some of the rules under consideration would require mortgage servicers to provide regular mortgage statements covering the mortgage loan's principal, interest, fees, and escrow, the amount of and due date of the next payment, and, in some cases, information on financial and foreclosure avoidance counseling. Servicers would also be required to warn mortgage holders before interest rate changes are made to their adjustable-rate mortgages, to post mortgage payments promptly after they have been received, to increase mortgageholder ease of access to their own account information, and to quickly correct account errors.

Some of the rules would also address force-placed insurance, which can be purchased by mortgage servicers when mortgage borrowers do not maintain hazard insurance on their properties. Force-placed insurance can often be far more expensive than privately purchased insurance. Under one of the proposals, alternatives to force-placed insurance could be offered to consumers, and warnings and disclosures would need to be provided before force-placed insurance is purchased.

An advanced notice of proposed rulemaking on the mortgage servicing rules is scheduled to be released this summer, and the rules are scheduled to be finalized in January of 2013. The agency said it could provide an implementation period of up to one year, but has not decided how long of a transition period is necessary yet.

The CFPB also continues to work on revised mortgage applications and mortgage loan closing documents, and proposed forms of these disclosures are scheduled to be released in July.

CUNA will be following up with the CFPB on the mortgage servicer rules and other rulemaking efforts, and we will continue to work with the Leagues and credit unions on any further developments.

MBL increase brings choice credit access ACI blog

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WASHINGTON (4/26/12)--Increasing the credit union member business lending cap "means more competition, greater choice, and increased access to capital," American Consumer Institute (ACI) Center for Citizen Research President Steve Pociask said in a recent blog post.

Separate pieces of House and Senate MBL legislation would increase the MBL cap to 27.5% of a credit union's assets, up from 12.25%. Within the first year of enactment, the increased MBL authority would help to inject $13 billion in loans into the economy and create as many as 140,000 new jobs, with no cost to taxpayers, CUNA estimates show.

The Senate version of MBL legislation, the Small Business Lending Enhancement Act of 2012 (S.2231), is on the Senate schedule, but a voting date has not been determined.

Passing MBL legislation "will mean new investment," and "there is plenty of pent up demand for capital as a result of very restrictive lending by banks," Pociask said. "During the last recession, bank loans fell by the double digits, while credit union lending increased toward its cap. In 2011, banks denied 60% of small business bank loan applications. So the legislation would increase small business access to capital and increase market investment," he added.

Pociask said the only reason banks oppose the legislation is because it increases market competition. "Because credit unions are pretty good in managing risks and providing affordable loans, banks do not want the market competition – they want market protection. The reality is that heightened market competition would benefit the economy." The increased competition that an MBL cap increase would bring would be good for the economy in general, Pociask said.

"The [American Bankers Association] doesn't like the bill, and that is precisely why the bill is a step in the right direction. It is as simple as that. It's time to let the market work," he added.

The nonprofit ACI says its focus is "to support concepts which spur competition, encourage innovation, create jobs and benefit consumers overall, while maintaining reasonable and necessary consumer safeguards."

For the full blog post, use the resource link.

Senate bill would extend NFIP through Dec. 31

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WASHINGTON (4/26/12)--Some good news--temporary though it may be--for credit unions and other mortgage lenders who have been watching the National Flood Insurance Program escape demise through a series of temporary extensions: a new short-term reprieve has been introduced in the U.S. Senate.

The NFIP is currently set to expire on May 31; somewhat ironically that is the day before the nominal start of the Atlantic hurricane season. Credit unions, as well as other lenders, cannot write certain mortgages without NFIP coverage, and in the past the program has lapsed for brief periods--three times in 2010.

Sen. David Vitter, a Republican from Louisiana, introduced S. 2344 Tuesday night to extend the NFIP through the end of this year. The bill was placed directly on the Senate's legislative calendar, thereby circumventing the banking committee, which has been working on controversial on NFIP reform issues for years.

The Credit Union National Association (CUNA) strongly supports the NFIP program and backs short-term extensions, but also advocates for longer-term approval.

The reforms proposed in the Senate, and which appear to be holding up any long-term reauthorization, are problematic for credit unions, CUNA has noted.  In fact, CUNA has warned lawmakers, they could have the unintended effect of driving some small mortgage lenders, including credit unions, out of the mortgage business.

Particularly at issue is a section of the Senate Banking Committee's NFIP reform discussion draft, which would require all mortgage lenders to escrow for NFIP premiums.

Current law only requires lenders that escrow for taxes and insurance to also escrow for NFIP premiums. CUNA has alerted key Senate lawmakers that there is a significant cost involved with establishing escrow accounts, particularly for credit unions, community banks, and community-based lenders that have small lending volumes.