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Senate 'Too Big To Fail' Bill Released

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WASHINGTON (4/25/13)--Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) on Wednesday introduced the Terminating Bailouts for Taxpayer Fairness Act (S. 798), which, in part, would impose stronger capital requirements on banks.

The bill would require the largest banks to maintain a capital ratio of at least 15%. Smaller banks would be subject to a lower threshold of between 8% and nearly 10%.

Credit Union National Association Vice President of Legislative Affairs Ryan Donovan said that if lawmakers address community bank capital standards, that action should be paired with legislation to address credit union capital issues, particularly the ability of credit unions to accept supplemental forms of capital.

The Brown-Vitter bill, however, does contain some provisions that would apply to credit unions as well as banks. For example, the privacy notification bill--which would eliminate repetitive privacy notices by eliminating a requirement that the notices be sent annually--has been included in this bill. It also includes the part of the examination fairness bill, creating an examination ombudsman for all the federal financial institution regulators.

The Brown-Vitter bill would also provide some relief with respect to the definition of a qualified mortgage. The legislation would also exempt financial institutions under $10 billion in assets from small business data collection requirements under the Equal Credit Opportunity Act.

Proir to the bill's introduction, CUNA President/CEO Bill Cheney told The Hill newspaper in an interview that  "the people in the positions who made the decisions to bail out the big banks before would probably have to do the same thing today"  barring any changes to the law.  He added, "I think too big to fail still exists."

Cheney also told the publication that many rules out of regulatory agencies like the Consumer Financial Protection Bureau (CFPB) are unduly burdening credit unions instead of major banks and predatory lenders.

CUNA has presented a 35-point plan to Congress recommending regulatory relief measure for credit unions, which includes a proposal to permit credit unions accept supplemental forms of capital consistent with the cooperative principles.

CFPB Payday Loan Study Warns Of Harmful Debt Cycle

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WASHINGTON (4/25/13)--Some payday and deposit advance loan products can trap borrowers, putting "many consumers at risk of turning what is supposed to be a short-term, emergency loan into a long-term, expensive debt burden," Consumer Financial Protection Bureau Director Richard Cordray said Wednesday.

Cordray made his remarks as the bureau released a report on those loans. The CFPB study found many borrowers face a harmful combination of loose lending standards, high costs, and risky loan structures.

Credit Union National Association Deputy General Counsel Mary Dunn said credit unions and CUNA are committed to providing safe and affordable alternatives to predatory payday lenders, and credit unions across the country have implemented various programs in order to provide individuals in their communities an alternative to high-priced payday lenders. CUNA is collating data on these efforts, she said.

Loans from federal credit unions are generally limited to an annual percentage rate of no more than 18%, although there is some flexibility under the National Credit Union Administration's short-term, small amount loan program. That program permits federal credit unions to charge an interest rate that is a maximum of 10 percentage points above the established usury ceiling at that time. For now, this amounts to an interest rate ceiling of 28%. Most credit unions offering payday loan alternatives also limit fees, provide member financial counseling, and encourage members to open savings accounts. They also in some cases provide incentives for members that switch to longer-term and lower-cost lending products.

Many borrowers use payday loan products to pay off their existing debts, the CFPB study found. This practice, when coupled with the high cost of the payday loan or advance, may make it more difficult for borrowers to pay off those debts. "It is unclear whether consumers understand the costs, benefits, and risks of using these products," the bureau report added.

The CFPB analysis of 15 million payday loans generated by storefronts in 33 states revealed:
  • A median loan amount of $350 and a mean loan size of $392;
  • A median loan term of 14 days and a mean loan term of 18.3 days; and
  • An average borrower income of $10,000 to $40,000 per year.
The study found that 18% of payday loan applicants were paid some form of federal or state public assistance. One quarter of payday loan borrowers paid $781 or more in fees over the course of a year, not counting the principal of the loan.

Agency action to address payday and loan advance issues may be in the offing, and the CFPB said it is also looking into online payday lender practices. State and federal legislators are also acting to address payday loans. (Use the resource link to read April 18 News Now story: California Is Latest Front In Larger Payday Loan Fight.)

Bank regulators are also examining banks' short-term loan products and considering strict limits on the "deposit-advance" loans that could force dramatic changes to the bank offerings, American Banker reported Wednesday. The article said the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. will impose such limit "soon." The regulators are considering such restrictions as a "cooling off" period, which would require consumers to wait a month after paying off one such loan before taking out another.

Witness Highlights CU Fin. Lit. Efforts In Senate Hearing

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WASHINGTON (4/25/13)--Financial literacy is a key mission for credit unions, and strong financial education and literacy efforts are even more important in times of economic strife, Cathy Pace, president of the credit union division of Allegacy FCU, Winston Salem, N.C., said during a Wednesday Senate Committee on Health, Education, Labor, and Pensions subcommittee hearing.

"It is in the interest of credit unions and their memberships to have members that are financially literate; therefore, across the country, credit unions engage in a wide variety of efforts aimed at
Click to view larger image Sen. Kay Hagan (D-N.C.), who chairs the Senate Health, Education, Labor, and Pensions subcommittee on familes and children, greets Cathy Pace (right) before Pace testifies about the financial education efforts of her credit union, Allegacy FCU of Winston Salem.  (CUNA Photo)
ensuring that members of all ages have access to resources that help them make smarter financial choices," Pace said in a prepared statement. She highlighted the efforts of North Carolina credit unions that provide financial counseling and education to more than 500,000 North Carolinians every year.

One way Allegacy contributes to financial education efforts in that state is by participating in a student-run credit union program. That program, Pace said, provides a unique way to develop students financial and business skills through on-campus branches in seven district schools. Students take part in customer service, and build business plans. Withdrawals, deposits, transfers and account openings are all made at these credit unions, Pace noted. All in all, 300 students have worked in the school based credit unions since 2008, she said.

The Credit Union National Association and the National Credit Union Foundation backed up comments in a statement submitted for the hearing record: "Credit unions change lives each day through the 'People Helping People' philosophy that drives the credit union movement." The statement noted that credit unions invest millions each year in financial education and counseling efforts. "Against a fragmented landscape where each credit provider is seeking maximum gain, not-for-profit credit unions continue to be true to their mission of serving as trusted advisors to their members and communities," CUNA and NCUF said.

Garinger High School, Charlotte, N.C., social studies teacher Nicole Lipp; Academic Director for the Global Center for Financial Literacy at The George Washington University Annamaria Lusardi, PhD; National Urban League Vice President Cy Richardson; and Jump$tart Coalition for Personal Financial Literacy representative Curtis Biggs also testified during the hearing.

For more on the hearing, use the resource links.

CDFI Fund Awards $3.5B In New Market Tax Credits

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WASHINGTON (4/25/13)--The U.S. Treasury's Community Development Financial Institutions (CDFI) Fund has awarded $3.5 billion in tax credit allocation authority to 85 applicants in the 2012 round of the New Market Tax Credit (NMTC) program.

Altogether, 282 applicants requested approximately $21.9 billion in credits during the 2012 round of the NMTC. "The New Markets Tax Credit addresses one of the most significant obstacles to economic development that low-income communities face: a lack of access to patient, private investment capital," Treasury Assistant Secretary for Financial Institutions Cyrus Amir-Mokri said in a release.

Credit unions are among those eligible to participate in the NMTC, which seeks to spur the investment of new private sector capital into low-income communities. To do so, it permits individual or corporate taxpayers to receive a credit against federal income taxes for making Qualified Equity Investments. Those investments must be made in designated Community Development Entities. The CDFI Fund allocates the tax credits annually through a competitive application process.

For the CDFI Fund release, use the resource link.

Big Banks Targeted By Smaller Banks, Lawmakers

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WASHINGTON (4/25/13)--Big banks are getting it from all sides in recent days, as Capitol Hill lawmakers and community banks both call attention to the need to end the nation's vulnerability to "too big to fail"--or TBTF--banks.

Click to view larger image Click for larger view
Community banks have turned the heat on their "bigger brothers" in an ad in publications targeting a Capitol Hill readership. "STOP TBTF NOW," urges one add illustrated by two maps of the United States--one showing the devastating effects of allowing a "too big to fail banking market" to wipe out a "free banking market." 

And from Senate lawmakers Wednesday came the introduction of legislation that would impose stronger capital requirements on banks. That bill, known as the Terminating Bailouts for Taxpayer Fairness Act (S. 798), would require banks with more than $500 billion in assets to maintain a capital ratio of at least 15%. (See related story: Senate 'Too Big To Fail' Bill Released.)

"Requiring the largest banks to finance themselves with more equity and with less debt will provide them with a simple choice: they can either ensure they can weather the next crisis without a bailout, or they can become smaller...adequate capital levels lower the likelihood that an institution will fail and lower the costs to the rest of the financial system and the economy if one does," Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), the TBTF bill's sponsors, said in a Wednesday joint New York Times op-ed.