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NCUA testifies sup. capital could be considered as part of RBC discussions

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WASHINGTON (4/9/14)--Lawmakers' expressed interest in the National Credit Union Administration's risk-based capital (RBC) proposal, as heard during a Tuesday House Financial Services Committee hearing, is a "terrific development," Credit Union National Association President/CEO Bill Cheney said.
"We have urged Congress to take a particular interest in the proposed risk-based capital rule, and clearly the issue has piqued interest," Cheney said. The questions during the hearing about the risk-based capital proposal reflect "a level of concern in Congress that the proposal is in need of significant improvements." he added.
NCUA General Counsel Mike McKenna, a witness at the regulatory burden hearing, said the agency could consider allowing credit unions greater access to supplemental capital as it finalizes proposed RBC regulations.
McKenna made his remarks in response to a question during a House Financial Services Committee hearing titled "Who's In Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom."
California Reps. Ed Royce (R) and Brad Sherman (D) each had questions about the RBC proposal for McKenna.
Royce told McKenna he is concerned that the risk weights applied to mortgages under the RBC proposal do not reflect actual risk and are more stringent then the standards imposed on community banks despite credit unions' generally better delinquency rates.
Royce also questioned whether the RBC rule could prevent some credit unions from making loans to their members.
Both Royce and Sherman asked McKenna why the risk weights in the NCUA proposal differ so much from those imposed in similar regulations placed on community banks. McKenna noted that the agency has received many comments on risk weights and is looking them over and considering the issue.
The NCUA hopes to work with all stakeholders to make the final RBC rule more effective, McKenna said.
"We appreciate that NCUA has indicated it will make changes and we will continue to encourage them to do so," CUNA's Cheney said. "Meanwhile, as credit unions file their comment letters with the agency on the proposal, we are urging them to share their comments with their lawmakers, so that Congress can keep a watchful eye on this issue going forward."  (Use the resource link to access CUNA's Risk-Based Capital Action Center.)
During the hearing, Royce also took a moment to draw attention to his Credit Union Residential Loan Parity Act, which he noted would increase the amount of capital made available to small businesses and also increase the amount of rental housing available to Americans. McKenna said the agency has reviewed Royce's legislation and has no concerns about it.

NEW: IRS yields to CU-led court decisions challenging tax payments

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WASHINGTON (4/9/14, UPDATED 2:20 p.m. ET)--Credit unions have received a much-sought-after interpretation by the Internal Revenue Service that clears nearly all credit union products from being subject to unrelated business income tax (UBIT).
Finally bowing to the results of two federal court cases brought by credit unions, the IRS recently issued a memorandum that defines nearly all credit union products at stake in the litigation as "substantially related income"--not subject to UBIT.
"This is clearly a breakthrough with the agency," said Larry Blanchard, chairman of a coalition of credit union groups that has supported the litigation. "It signals that credit union tax refunds for past UBIT payments should now be processed."
He also emphasized that the IRS action bolsters credit union arguments that future payments to the IRS of UBIT on these same products may not be due.
"Credit unions should talk this over with their tax advisers. In any event, this is a welcome development for credit unions," Blanchard observed.
He added that the IRS memo reflects the agency's appreciation for rulings of the courts: That the credit union mission to serve members extends well beyond loans and savings accounts.
The coalition, called the UBIT Steering Committee, is comprised of representatives of the Credit Union National Association, CUNA Mutual Group, the American Association of Credit Union Leagues and the National Association of State Credit Union Supervisors.
According to a three-page, March 24 "memorandum for all exempt organizations employees"--geared toward IRS examiners of exempt organizations, such as credit unions--revenue from the following income-producing activities are deemed by IRS "substantially related income" not subject to UBIT:
  • Sale of checks/fees from a check-printing company;
  • Debit card program's interchange fees;
  • Credit card program's interchange fees;
  • Interest from credit card loans;
  • Sale of collateral protection insurance;
  • Credit life and credit disability insurance (not subject to UBIT if sold to members); and
  • Guaranteed asset protection (GAP) auto insurance (not subject to UBIT if sold to members).
Royalty income from the marketing of accidental death and dismemberment (AD&D) insurance to credit union members is also exempt.
IRS has also indicated it will incorporate the memo into its Examination Manual to guide future audits of credit unions.
"After 15 years of work--and millions of dollars in litigation expenses--it is ironic that a breakthrough in the struggle of this scope comes down to a three-page memo," Blanchard said. "But the effort has been entirely worth the time and money, particularly for those credit unions who have filed their returns and made payments in the past."
In 2009, a jury in federal court ruled in favor of Community First CU, Appleton, Wis., as UBIT related to three insurance products; credit life and credit disability insurance and GAP products. The jury found that these products were substantially related to the tax-exempt purposes of credit unions.
In 2010, a federal court in Colorado ruled in favor of Bellco CU. The Greenwood Village, Colo.-based credit union challenged UBIT on income from many of the same products through its Direct Lending Program and its Indirect Lending Program for the tax year 2003 and the portion of tax year 2001 for which it had accurate income records.
As to the impact of the IRS guidance on future tax liabilities, neither the UBIT Steering Committee nor any of its members can provide tax advice to credit unions. The committee urges credit unions to consult with their tax advisers on whether the IRS pronouncement, combined with the previous court rulings, provide "substantial authority" to refrain from reporting the affected categories of income in the future. In the past, a law firm retained by the Steering Committee has provided a general opinion on the impact of the court cases on the "substantial authority" issue.  (Use the second resource link to access this opinion.)
There are, Blanchard pointed out, some remaining issues to be resolved related to the March 24 IRS memo.
"However," he noted, "this development gives us great hope that real light is at the end of the tunnel, and that credit unions will be able to offer products and services to their members in the future with a significantly diminished threat of having to pay this tax."
Use the first resource link to access the IRS memo.

McKenna argues NCUA's actions spell clarity, relief for CUs

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WASHINGTON (4/9/14)--Representatives from federal financial regulatory agencies at Tuesday's House Financial Services Committee hearing on regulatory burdens agreed with Rep. Gregory Meeks' (D-N.Y.) assertion that one-size-fits-all regulations are bad for institutions and consumers.
Meeks and committee colleagues questioned representatives from the National Credit Union Administration, Consumer Financial Protection Bureau, Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency during Tuesday's hearing, titled "Who's In Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom."
In his opening statement, NCUA General Counsel Mike McKenna asserted that 70% of new rules approved by the agency since January 2013 have "provided regulatory relief or greater clarity without imposing new compliance costs.
"Since the beginning of 2013, the NCUA board has approved 17 final rules," McKenna said. "Of those, one was required by the Dodd-Frank Act. Five provided regulatory relief. Four addressed safety and soundness matters, and the remaining seven rules were technical in nature," he added.
In response, Credit Union National Association General Counsel Eric Richard said after the hearing that credit unions see things quite differently. "Counting the number of rules and deciding how many were regulatory and how many were de-regulatory is not a viable approach. It is the impact of the rules--not their number--that is the real issue."

During the hearing, McKenna said the agency works hard to balance safety and soundness with regulatory burdens. "NCUA is working to streamline its regulatory framework," he added.
"Through this initiative, the NCUA board has approved four targeted rules to mitigate risk and six rules to cut regulatory burdens. Rather than adopting one-size-fits-all regulations, NCUA targets rules to risk and asset size and strives to ensure rulemaking is reasonable and cost-effective," he said. Examples of these streamlining efforts include the NCUA's ongoing three-year rule review process, examination process revamps and the re-allocation of agency resources to focus on potential risks, he said.
"As we learned from the recent financial crisis," he said, "the cost of inaction can sometimes be greater than the cost of action."
McKenna also commented on the agency's risk-based capital rule during the hearing. (See News Now story: NCUA testifies supplemental capital could be considered as part of RBC plan.)
Speaking on remittance transfer regulations, Rep. Shelley Moore Capito (R-W.Va.) noted that many firms are exiting that business. New Consumer Financial Protection Bureau rules are making it more difficult and more expensive to provide these services, she said. Capito also noted that she and Meeks are crafting a bill that would require regulators to examine their standards for duplicative regulations.
Other topics discussed during the lengthy hearing included:
  • How the regulators examine the impact of their rules;
  • Operation Chokepoint;
  • CFPB actions against auto lenders; and
  • Collateralized loan obligations.

Leahy delays Senate committee vote on patent reform bill

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WASHINGTON (8/9/14)--The Senate Judiciary Committee sent out notice Tuesday to postpone its scheduled 2:30 p.m. (ET) markup of a patent reform bill known as the Patent Transparency and Improvements Act (S. 1720).
The panel's chairman and bill's primary sponsor, Sen. Patrick Leahy (D-Vt.), has made it clear that he wants to move forward with a vote on the bill this spring.  The markup has been rescheduled for Thursday.  If any unexpected, further delays occur, however, it could push the committee's consideration of the bill to after a two-week Spring District Work Session that begins April 11.

The Credit Union National Association supports support the demand-letter language within S. 1720, which would aid credit unions and other businesses that have been targeted with financial threats through demand letters by bad actors who have been come to be referred to as "patent trolls."
Use the resource link to read the language of the bill.

CFPB to become fin. lit. partners with libraries

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WASHINGTON (4/8/14)--In Chicago Monday, the Consumer Financial Protection Bureau launched a financial literacy initiative that eventually will give communities' librarians "unbiased" education materials they can, in turn, share with their visitors.

According to a number of librarians who spoke at the CFPB launch event, folks sometimes seem to stream into their libraries seeking written guidance on financial challenges or planning.

While there is no dearth of available financial education materials, the librarians said their limited resources make it a daunting challenge to provide the right information (American Banker April 8). CFPB Director Richard Cordray said he hoped the pilot program would address these concerns and added he'd like to turn the neighborhood library into a "hub" for financial education.

So far, the pilot program has partnered with such federal agencies as the Institute of Museum and Library Services, the Federal Deposit Insurance Corp., the Federal Reserve Bank of Chicago, and also national organizations like the Financial Industry Regulatory Authority's Investor Education Foundation and the American Library Association.

During the live-streamed Chicago event, Cordray said the bureau will support this effort by providing both online and in-person training for library staff and managers. He added that his agency is considering creating its own financial education materials to share.

The CFPB has said a recording of the session will be available soon on its site. Use the resource link for more information.

European Network, World Council talk CU issues with EU policymakers

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BRUSSELS (4/9/14)--Representatives from the European Network of Credit Unions (ENCU) and World Council of Credit Unions met with European Union (EU) policymakers in Brussels last week to discuss the EU's implementation of the Basel III liquidity rules, a draft EU directive on the automatic exchange of tax information--modeled on the U.S. Foreign Account Tax Compliance Act (FATCA), and the EU's aid package to Ukraine.
Click to view larger image From left: Pawel Grzesik, National Association of Cooperative Savings and Credit Unions director of Warsaw office, Poland; Brian Branch, World Council president/CEO; Grzegorz Bierecki, World Council chairman; Marian Harkin, Member of the European Parliament, Ireland; and Brian McCrory, World Council director and Irish League of Credit Unions treasurer. (World Council Photo)
ENCU and World Council officials encouraged EU policymakers to include aid to Ukrainian credit unions as part of the EU's 11 billion euro Ukraine support package. There are more than 600 credit unions in Ukraine with nearly 1.1 million members.
The Brussels meeting was held prior to the 2014 European Parliamentary elections, coming this May, and ENCU and World Council advocated better legislative and regulatory outcomes for credit unions throughout the region.
"World Council's European members face complex regulatory challenges that require constant communication with regulators and policymakers to protect their countries' credit unions' interests," said Brian Branch, World Council president/CEO. "With the European Network of Credit Unions' help, World Council will continue giving credit unions a global voice to influence standards that apply at national, regional and international levels."
Although the EU's legislative schedule has slowed because of the impending elections, ENCU and World Council met with the European Commission about the European Banking Authority's report, released in December, which recommended revising Europe's Basel III liquidity rules to help credit unions maintain access to favorable yields on banks term deposits.
In addition, ENCU and World Council met with Commission and EU Council representatives regarding the EU's draft tax information reporting directive modeled on FATCA, which the EU plans to implement by 2017.
ENCU member organizations participating in the Brussels meeting included the Association of British Credit Unions Ltd.; the Estonian Union of Credit Cooperatives; FULM Savings House, Macedonia; the Irish League of Credit Unions; and the National Association of Co-operative Savings & Credit Unions, Poland.
Also participating in the discussions were Pat Jury, president/CEO, Iowa Credit Union League; Anne Cochran, president/CEO, Louisiana Credit Union League; Bruce Foulke, president/CEO, American Heritage FCU, Philadelphia; and Steve Stapp, president/CEO, San Francisco FCU.