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CUNA seeks comment on Reg Z changes

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WASHINGTON (5/4/09)--The Credit Union National Association (CUNA) is seeking comments on the Federal Reserve Board’s proposed amendments regarding open-end credit rules under Regulation Z. The proposed changes--effective July 1, 2010--would affect disclosures for credit cards and other credit plans. In December, the Fed issued a final rule that changes the open-end credit rules under Reg Z. The proposed changes are intended to resolve uncertainties and make other technical changes to the rule, although they are not intended to change the level of protection. Comments are due to CUNA by May 22. Among the changes, the proposal would:
* Clarify that an issuer offering a deferred or waived interest plan may not disclose this with an annual percentage rate (APR) of 0% due to the possibility that the consumer may not need to pay the interest if the balance is paid before a certain date; * Provide an exception to listing a specific APR in account-opening disclosures when the rate varies on a consumer’s creditworthiness; * Continue deferred and waived interest programs as long as they comply with the other requirements under Reg Z and the unfair and deceptive acts of practices final rule. However, the programs would have added disclosure requirements--including the amount of the deferred or waived interest balance and interest charges and fees for the statement period and the calendar year-to-date; * Provide an exception for the rule issued last year that requires creditors to provide a 45-day notice of a change in a term disclosed in the account-opening summary table. Under the proposal, the requirement would not apply when the change is applicable only to checks that access a credit card account; * Clarify an exception to a 45-day notice requirement when an interest rate is increased due to a consumer’s delinquency or default. The exception would apply when there are temporary hardship arrangements where the rate is lowered; * Underscore that during an investigation of unauthorized transactions, a creditor may require a consumer to sign a statement supporting the claim; * Implement and clarify advertising requirements for deferred or waived interest programs in which interest does not need to be paid if the balance is paid by a certain date. Model language is also included in the proposal for creating the disclosures.
For more information, use the link.

Inside Washington (05/01/2009)

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* WASHINGTON (5/4/09)--Mark-to-market accounting did not have a big impact on banks’ first-quarter financial results, according to several large financial institutions (American Banker May 1). James Dimon, JPMorgan Chase and Co. chairman and CEO, said the rules ended up being “a big hullabaloo about nothing.” Wells Fargo and Co. said the rule change shrank its securities losses by $4.4 billion without affecting earnings. But despite the initial comments from banks, some financial observers say that because the adjustments impacted the balance sheet instead of the income statement, investors still do not know how the change impacted banks that adopted the rule in the first quarter. Some investors say the accounting change helped banks minimize losses. But Scott Marcello, U.S. deputy leader of financial services at KPMG, says the results indicate that fair value accounting will have staying power. The change, known as FAS 157-4, provided new guidance for financial institutions on how to determine if a market is still active. FAS 157-4 also changed how companies can value illiquid assets ... * WASHINGTON (5/4/09)--Many programs created to prevent the nation’s financial system from collapsing last year were put together quickly, with a short-term focus, according to three designers of the Troubled Asset Relief Program (TARP). David Nason, former Treasury assistant secretary for financial institutions; Kevin Fromer, former assistant secretary for legislative affairs; and Phillip Swagel, former assistant secretary for economic policy, spoke at a conference Wednesday about TARP (American Banker May 4). Many Treasury officials, in designing the programs to help the economy, didn’t have time to second-guess, according to Nason. Even when officials tried to anticipate market reactions, they were often wrong, Swagel added. The officials noted their disappointment with some institutions’ failure to take the Treasury’s offers to buy their illiquid assets--which were then liquidated for less ... * WASHINGTON (5/4/09)--Starting in June, commercial mortgage-backed securities and securities backed by insurance premium finance loans will be eligible collateral under the Term Asset Backed Securities Loan Facility (TALF), according to a policy statement released Friday by the Federal Reserve Board. The Fed also said it would continue to evaluate the $100 billion limit that TALF loans with five-year maturities carry. Some of the interest on collateral financed with a five-year loan could be diverted toward an accelerated repayment plan. The policy statement indicates that the Fed could be backing off because few investors have participated in the program, according to Chris Low, chief economist, First Horizon National Corp. (American Banker May 1). Oliver Ireland, former Fed lawyer, said the statement shows that the Fed is thinking more realistically and is looking for other ways to fund retail credit and foster lending ...

SBA expands eligibility for 7a loans

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WASHINGTON (5/4/09)--The Small Business Administration (SBA) has expanded the eligibility for 7(a) loans, effective this week through Sept. 30, 2010. As a result of the change, SBA expects that more than 70,000 additional small businesses could be eligible for the loans. The temporary 7(a) loan size standard will parallel the standard for the agency’s 504 Certified Development Company loan, and will allow businesses to qualify based on net worth and average income. The net worth for the company and its affiliates cannot exceed $8.5 million and average net income after federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years cannot exceed $3 million. “This is just one more step we are taking to make sure small businesses have access to capital to keep their doors open and employees working during these tough economic times,” SBA Administrator Karen Mills said. “We have seen signs that small businesses that are just outside the traditional 7(a) size standard are being shut out of the conventional lending market. This temporary change will help those businesses weather these tough times and help move our nation closer to economic recovery.” With the change, more small businesses also can receive benefits made possible through the Recovery Act. On March 16, the SBA implemented two key provisions of the Recovery Act that raised the guarantee on 7(a) loans to 90 percent and reduced fees for borrowers. Since then, average weekly 7(a) loan volume has increased by more than 25% and new SBA loans made by nearly 450 lenders who had not made loans since October 2008. Credit unions are ready to help the nation’s small businesses jumpstart the economy, Credit Union National Association President/CEO Dan Mica has said. CUNA has been in regular contact in recent years with the SBA urging the agency to remove structural roadblocks to programs like its 7 (a) guaranteed lending program to enable more credit unions to participate. As of December, 204 credit unions had SBA loans outstanding. Credit unions have 7,096 loans with a balance of $519,308,696. The average loan size is $73,183, according to CUNA research.

Power Breakfast puts CUs close to political action

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WASHINGTON (5/04/09)—Once again, credit unions gained broad exposure before a vital audience in the nation's capital during a popular "Power Breakfast," organized by National Journal. The Credit Union National Association (CUNA) co-sponsors the series, and a couple hundred Capitol Hill staffers, lobbyists and reporters attended the event Friday featuring Senate Majority Leader Harry Reid of Nevada.
Click for slide show Senate Majority Leader Harry Reid (second from left) spoke with CUNA Senior Vice President of Political Affairs Richard Gose (right) at the CUNA-co-sponsored Power Breakfast. (National Journal photo)
Reid, addressing financial services regulation in response to a question, said regulatory reform is certainly on the Senate agenda this year. He cautioned, however, that the U.S. Congress should not overact to current problems and “overdo” its response. A danger there, he said, is killing off innovations. Reid’s wide-ranging remarks addressed not only financial services regulations, but also health care reform, the budget, and Iraq, among other things. The Senate leader also assessed other politicians. A former boxer, Reid said most politicians are either a “boxer” or a “slugger.” A boxer is one who shows finesse and is cool in times of stress. A “slugger” takes a confrontations al approach. When asked to assess President Barack Obama’s style, Reid said the 44th president is “definitely a boxer.”

NCUA releases results of MBS reviews

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WASHINGTON (5/4/09)--On Friday, the National Credit Union Administration (NCUA), in its weekly media release on the corporates, released the results of the analyses of all private label mortgage-backed securities at WesCorp and U.S. Central. According to the analyses--by Clayton Fixed Income Services, Inc.-- the range of estimated credit losses for U.S. Central under optimistic, base and pessimistic scenarios are $0.6 billion, $2.2 billion, and $6.5 billion, respectively. WesCorp has an optimistic loss level of $3.0 billion, a base of $5.6 billion and a pessimistic loss level of $7.9 billion. The Other-Than-Temporary-Impairment (OTTI) charges to be reflected on the March 31 statements for U.S. Central and WesCorp are $2.3 billion and $5.8 billion, respectively. This will result in an extinguishment of all Paid-in-Capital (PIC) and Membership Capital Accounts (MCA) at WesCorp. For U.S. Central, all PIC and 63% of MCAs will be exhausted. The March 31 financial statements are expected to be released by each corporate this week, NCUA said. The agency also noted that renewed liquidity pressures are mounting from normal seasonal outflows. Both credit unions have worked to establish contingent market funding sources, which remain limited due to the broader problems in the credit markets. NCUA continues to make contingency plans for potential liquidity needs, according to NCUA Chairman Michael Fryzel. At its May meeting, the NCUA board plans to consider changes to the Temporary Corporate Credit Union Liquidity Guarantee Program to provide longer term funding options. “I encourage all credit unions to continue to support liquidity needs by keeping all surplus funds within the credit union system,” Fryzel said. CUNA continues to make every effort to urge NCUA to consider alternative approaches to extinguishment.

FTC red flags rule for state-chartereds delayed again

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WASHINGTON (5/4/09)--State-chartered credit unions will have more time to comply with the Federal Trade Commission (FTC)’s identity theft “red flags” rule after the FTC announced that it will extend the date to August 1 from May 1. This is the second delay the FTC has issued for enforcement of the rules. Federal credit unions were required to comply with NCUA's red flag regulations on Nov. 1, 2008. Some state regulators expected state-chartered credit unions to comply at the same time as the federal credit unions--Nov. 1--regardless of the FTC's enforcement delay. Credit unions can check with their state examiners to confirm compliance dates. The FTC said it delayed enforcement to give institutions subject to the FTC’s oversight more time to develop and implement written identity theft prevention programs. The delay, like the one issued by the FTC in October, is limited to the ID theft red flags rule. It does not extend to the regulation regarding address discrepancies applicable to users of consumer reports, or to the rule regarding changes of address applicable to card issuers. The mandatory compliance date for these requirements was Nov. 1, 2008 for both federal and state chartered credit unions. The red flags rule was developed to implement parts of the Fair and Accurate Credit Transactions (FACT) Act of 2003. FACTA directed financial regulatory agencies, including the FTC, to promulgate rules requiring those under its supervision that have covered accounts to implement programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. A covered account generally is a consumer account or any other account the institution determines carries a foreseeable risk of identity theft. Last month, the FTC launched a website to help entities covered by the red flags rule develop and implement identity theft prevention programs. The site features a publication, “Fighting Fraud with the Red Flags Rule: A How-To Guide for Business.” In addition, the FTC's extended enforcement policy indicates that FTC staff plan to publish a "red flag" template to enable smaller, low-risk entities to prepare their programs without undue burden. For more information, use the links.

Senate vote on housing bill moves to this week

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WASHINGTON (5/4/09)—Senate leadership has pushed back consideration until early this week of S. 896—a housing bill that may be a vehicle for an important credit union provision to address the cost of the corporate credit union stabilization plan. The bill's delay, in part, was meant to give the legislation's sponsors a chance to get a handle on the number of amendments that are being proffered for consideration. A vote on S. 896, the Helping Families Save Their Homes Act, had been expected Friday. The bill is primarily intended to help more homeowners stave off foreclosure, but it has been drawing broad attention from lawmakers wanting to add other provisions. Sen. Christopher Dodd, a Democrat from Connecticut and chairman of the Senate Banking Committee, declared on the Senate floor earlier Friday that there would be no votes in the Senate that day. Important to credit unions, Dodd also underscored the importance of the proposed amendment that would allow credit unions to spread out over eight years the cost of a premium assessment that has resulted from losses at wholesale corporate credit unions. Dodd said Senate votes would resume Monday, and the housing bill may be voted Tuesday. The bill is also expected to carry an extension of the federal share and deposit insurance increased ceiling to $250,000, which was approved on a temporary basis in 2008 and due to expire at year-end.