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Durbin files amicus brief in retailers suit vs. Fed

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WASHINGTON (5/11/12)--The Credit Union National Association (CUNA) will participate Monday in a call with the Clearing House Association and others to review the amicus brief filed Thursday by U.S. Sen. Richard Durbin (D-Ill.), the primary author of the debit interchange fee proposal in the Dodd-Frank Act, in support of retailers' lawsuit against the Federal Reserve's rule that implements the interchange fee cap.

The Clearing House Association and CUNA are among a coalition of associations representing thousands of small and large financial institutions that in March filed their own amicus brief in the case. Their joint brief underscored that consumers have not seen any pricing benefits for products and services merchants promised when they fought for a government-set cap on what card issuers may charge for their services (News Now March 16).

Sen. Durbin filed his brief in the U.S. District Court of the District of Columbia. An amicus brief is filed in a court case by interested parties not named in a lawsuit. The court can accept or reject the brief as part of the case record.

In the brief, Sen. Durbin said he "agrees with the position of the [retailers] plaintiff that the final rule issued by the board is not in accordance with the plain text and intent of the Durbin Amendment in a number of crucial respects and that the rule must be revised to comply with the law."

Durbin's brief made these key points:

  • The Fed's proposal in December 2010 was largely consistent with the Durbin amendment, which clearly lays out the authority of the Fed to regulate debit interchange fees. The proposal allowed a 12 cent/transaction debit interchange fee for large issuers.
  • Based on lobbying from the financial services industry, the Fed changed the proposal and issued a final rule that is inconsistent with the language and intent of the Durbin amendment in a number of ways.
  • The Fed also used the final rule to further its own policy goals of being more generous to issuing banks (the final rule allows 21 cents plus five basis points and a one-cent fraud prevention adjustment/transaction) and providing a compromise between the banks and the merchants.
  • The statute directed the Fed to develop standards to determine whether an interchange fee is "reasonable and proportional" by only considering the incremental cost to the issuer for authorization, clearing and settlement (ACS) of the transaction.  The Fed exceeded its authority by including other costs that were not specified in the statute.  Such costs included those for fixed ACS costs, transaction monitoring, fraud losses, and network processing fees.
  • The Fed is wrong that the standards in its final rule are reasonable and proportional by setting a fee for large issuers that is roughly half of the average per transaction interchange fee, 44 cents.
  • The Fed's rule does not implement correctly the Durbin amendment's network provisions, which basically prohibit an issuer and payment network from having an exclusive agreement to process the issuer's debit card transactions.
  • The Fed misused Sen. Durbin's comment letter to support the provisions of its final rule on exclusivity. Under the final rule, a card must be enabled with at least two unaffiliated networks. However, the rule falls short of the statutory requirements because it does not "guarantee" that networks and issuers will not have contracts or requirements that restrict the number of networks available to process a transaction to less than two unaffiliated networks.  (The brief indicates that if a transaction is not compatible with PIN processing, such as some hotel charges, the transaction would not be able to be processed "over at least two unaffiliated networks.")
The retailers' suit alleges the Fed cap is too high. CUNA's and the coalition's briefs argue the cap is too low and that it does not allow debit card issuers to cover their costs and a reasonable rate of  return on their investments.

The Fed's initial interchange proposal would have set a per-transaction debit interchange fee cap for between seven cents and 12 cents per transaction. However, after receiving thousands of comments, the Fed decided to add the costs of using debit cards--such as network connectivity, hardware, software, and labor costs--in the final calculations, and it settled on a final cap at 21 cents for issuers having assets of $10 billion or more (News Now April 17).

The merchants' suit alleges the Fed's interchange rule exceeds the authority granted to it by Congress, that the final rule is "arbitrary, capricious" and "an abuse of process." (News Now March 6).

The Fed, in an April 13 brief, argued that the regulation "complies in all respects" with the authority granted to it by Congress "to promulgate regulations regarding interchange transaction fees in debit card transactions and network exclusivity and routing." (News Now April 17). The Fed also argued that Congress granted it authority to "consider other costs specific to a particular electronic debit transaction" as it developed the interchange fee regulation."

CU-backed candidates see mixed primary results

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WASHINGTON (5/11/12)--Credit union-backed candidates experienced mixed results in this week's electoral contests, as primaries were held in Indiana, North Carolina and West Virginia.

The biggest news of this week's primaries came when longtime incumbent Sen. Dick Lugar (R-Ind.), a 36-year veteran of that body, lost his primary to Indiana State Treasurer Richard Mourdock. Lugar was supported by the Credit Union Legislative Action Council (CULAC).

CULAC-backed candidates performed well in other Tuesday primary contests.

Indiana State Representative Jackie Walorski (R) won the GOP nomination to succeed Rep. Joe Donnelly (D) in the House, and will face Democratic nominee Brendan Mullen in what is expected to be a competitive general election contest for Indiana's second district House of Representatives seat. Another state rep and credit union supporter, Luke Messer (R), easily won the Republican nomination for the seat vacated by the retiring Rep. Dan Burton (R).

In North Carolina, strong credit union supporter Rep. Walter Jones (R) held on to his Republican nomination, and, on the state level, former North Carolina Community FCU, Goldsboro, N.C., employee John Bell IV (R), who was supported by the North Carolina Credit Union League, defeated incumbent State House member Steven LaRoque by a 54 vote margin. However, LaRoque has requested a recount, according to the Goldsboro Daily News.

Credit Union National Association Vice President of Political Affairs Trey Hawkins said CULAC "will continue to be in the game on behalf of credit union-friendly candidates, and will aggressively support credit union friends in this year's elections."

The presidency, congressional seats, and state and local positions are all at stake in 2012.

New exam manual out soon NCUA says

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ALEXANDRIA, Va. (5/10/12)--A new National Supervision Policy Manual for National Credit Union Administration (NCUA) examiners is scheduled to be finalized in June, the agency said today.

In releasing the new manual, the NCUA said it intends to ensure that credit unions are treated more consistently from region to region. The manual responds to the NCUA Board's direction to remove regional differences in quality control, and implements key recommendations from federally mandated Material Loss Reviews conducted by NCUA's Office of Inspector General, the agency added.

The Credit Union National Association (CUNA) and its Examination and Supervision Subcommittee plan to discuss the new exam manual with NCUA Director of Examinations and Insurance Larry Fazio.

Exam consistency was also emphasized in the recently completed National Training Conference. Training at that conference, which was held in Orlando, Fla., focused on bringing consistent approaches to interest rate risk, credit risk, and problem resolution at credit unions, the NCUA said. Veteran examiners at the conference shared best practices with newer examination hires, the agency added. Federally required training on ethics, diversity, and disability accommodations was also provided.

CUNA noted that while consistency can be positive, the goal is to have examiners treat credit union in a consistently professional manner, allowing the credit union to develop and implement its own solutions to address problems. CUNA will  continue to advocate this to NCUA.

The NCUA said its decision to hold the training conference in Orlando, and not its home base of Alexandria, Va., resulted in significant savings. All funds that were spent on the Orlando training session went to training, the agency emphasized.

For an NCUA release, use the resource link.

Rules on mortgages fees origination in the works CFPB says

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WASHINGTON (5/11/12)--The Consumer Financial Protection Bureau (CFPB) this week previewed upcoming mortgage rulemaking, hinting that rules regulating mortgage origination points and fees, and addressing mortgage loan originators' qualifications and compensation, are under development.

"Mortgages today often come with so many different types of fees and points that it can be hard to compare offers," CFPB Director Richard Cordray said in a release. "We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them," he added.

To address mortgage market issues, the CFPB said it is considering:

  • Requiring lenders to give borrowers at least a certain minimum reduction of the interest rate in return for paying discount points on a mortgage;
  • Requiring lenders to offer consumers a no-discount-point loan option; and
  • Banning mortgage loan origination charges that vary with the size of the loan, instead allowing brokerage firms and creditors to only charge flat origination fees.
The CFPB is also considering setting qualification and screening standards for loan originators. Under the potential standards, loan originators would need to meet certain character, fitness, and financial responsibility standards, would be required to submit to criminal background checks, and would need to undertake origination training that is specific to the types of loans they process.

Rules that would reaffirm a Federal Reserve Board regulation that prevents loan originators from receiving compensation based on a loans interest rate or other loan terms are also under consideration, the CFPB said.

A CFPB Small Business Regulatory Enforcement Fairness Act (SBREFA) panel discussion on these mortgage issues is expected to be held in the coming weeks, and a full slate of mortgage rules is expected to be proposed by the CFPB this summer and finalized by January 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.

For the full CFPB release, use the resource link.

CUNA calls for NFIP action in letter to Congress

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WASHINGTON (5/11/12)--The National Flood Insurance Program (NFIP) is scheduled to lapse at the end of this month, and the Credit Union National Association (CUNA) this week urged members of Congress to "extend the authority of this crucial program or pass comprehensive reform" soon to ensure that NFIP coverage continues.

Credit unions, as well as other lenders, cannot write certain mortgages without NFIP coverage. In the past the program has lapsed for brief periods--three times in 2010.

The CUNA letter noted that previous lapses in NFIP authorization have caused significant disruption in the mortgage underwriting process for thousands of prospective homeowners.

Sen. David Vitter's (R-La.) S. 2344 would extend the NFIP through the end of this year. That bill was discussed during a Wednesday Senate Banking Committee hearing. Representatives from flood-prone municipalities, insurance and realty groups, and a conservation organization testified at the hearing. Those who testified all agreed that long-term reauthorization of the NFIP is needed. Committee members also agreed that an extension is needed.

Vitter during the hearing said he would continue to promote his legislation, and would propose, as a floor amendment, his NFIP Senate bill.

Legislation that would extend the NFIP for five years has also been approved in the House and by the Senate Banking Committee. CUNA in the letter said it supports a portion of the House-passed bill (H.R. 1309) that would allow lenders or servicers to charge the borrower for the cost of premiums and fees incurred by the lender or servicer in cases where a borrower who is required to have flood insurance either cancels or lets the required policy lapse and then fails to purchase flood insurance within 45 days after notification of the lapse.

The Senate should include this common-sense language in any bill flood insurance bill it considers, the letter said.

Democrats and Republicans, including Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking minority member Richard Shelby (R-Ala.), have agreed that the NFIP is in need of reform, but a comprehensive reform package has not been agreed to in the House or Senate.

CUNA this week joined the National Association of Home Builders, the Council of Insurance Agents and Brokers, and many other finance, insurance and construction groups to remind members of Congress that they could provide certainty for the housing market and strengthen our economic recovery continuing to ensure access to affordable flood insurance. (See related May 9 News Now story: CUNA, trades urge Senate to pass NFIP extension)

For the full CUNA letter, use the resource link.

Inside Washington (05/10/2012)

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  • WASHINGTON (5/11/12)--Christopher L. Peterson has been hired by the Consumer Financial Protection Bureau to serve as the agency's enforcement analyst, according to the law firm Ballard Spahr.  Peterson, who has taken a leave from his position as associate dean for academic affairs and professor of law at the University of Utah, is an outspoken critic of payday lending and the Mortgage Electronic Registration System (MERS). In an article that will be published later this year in the Washington & Lee Law Review, Peterson will recommend that cities and other local municipalities enact ordinances requiring payday lenders to prominently disclose "Warning: Predatory Lender" on their signage …
  • WASHINGTON (5/11/12)--Rep. Carolyn Maloney (D-N.Y.), senior member of the House Financial Services Committee, along with 46 co-sponsors, has introduced legislation that would limit the number of overdraft fees that can be charged to one per month and six per year. Overdrafts also would have to be "reasonable and proportional" to the cost of the transaction. Consumers would also be required to opt in to overdraft plans with clear disclosure of coverage and fees and improved notification procedures. Manipulation of transaction posting to maximize fees paid to financial institutions would be banned under the legislation. "The Federal Reserve opt-in rule for debit card overdrafts has been in effect since August 2010," Maloney said. "But it is quite clear more needs to be done in the area of consumer disclosures and to help consumers avoid multiple overdrafts. That's why my bill expands the opt-in requirement to paper checks, ATMs and recurring monthly payments--and also increases disclosure to consumers when an overdraft occurs, limits the fees' price and frequency, and bans the manipulation of transactions," she added …
  • WASHINGTON (5/11/12)--Sen. Sherrod Brown (D-Ohio) Wednesday introduced legislation designed to prevent large banks from putting the economy and financial system at risk. The Safe, Accountable, Fair, and Efficient (SAFE) Banking Act would institute a 10% cap on any bank's share of the total deposits of all insured U.S. banks. The liabilities that any one financial company can take on would be capped at 10%, relative to the U.S. financial sector. The non-deposit liabilities, including off-balance-sheet (OBS) exposure, of a bank holding company would be limited to 2% of the gross domestic product (GDP) for a nonbank financial institution. For a nonbank financial institution, the measure would impose a limit on the non-deposit liabilities, including OBS exposure, of 3% of the GDP. Bank holding companies and selected nonbank financial institutions would be held to a 10% leverage limit, including OBS exposure …
  • WASHINGTON (5/11/12)--The House of Representatives on Wednesday adopted an amendment to the Commerce, Justice Science and Related Agencies Appropriations Act of 2013, that will prohibit the Department of Justice (DOJ) from entering into any future residential mortgage-backed security settlement agreement with state attorney generals and banks that would take money away from private investors without their consent. The amendment, sponsored by Scott Garrett (R-N.J.), would bar the DOJ from being a party to a single or multi-state court settlement where funds are removed from any residential mortgage-backed securitization trust. Investors such as state retirement systems, 401(k) plans, public and private pension plans, insurance company annuities and mutual funds would be protected because the DOJ could not interfere with private contract rights or investors' right to due process before the government can take their property …
  • WASHINGTON (5/11/12)--Fannie Mae Wednesday reported net income of $2.7 billion for the first quarter, compared with a net loss of $6.5 billion in the first quarter of 2011 and following a net loss of $2.4 billion in the fourth quarter of 2011. The improvement was due primarily to lower credit-related expenses, resulting from a less significant decline in home prices, a decline in the company's inventory of single-family real estate owned (REO) properties, improved REO sales prices and lower single-family serious delinquency rates, the government-sponsored enterprise (GSE) said.  Fannie Mae did not require funding from Treasury Department in the first quarter. The company's 3.1 billion income in the first quarter of 2012 is sufficient to pay the first-quarter dividend of $2.8 billion. The GSE's total loss reserves, which reflect its estimate of the probable losses it has incurred on loans in its guaranty book of business, decreased to $74.6 billion as of March 31 from $76.9 billion on Dec. 31 …
  • ALEXANDRIA, Va. (5/11/12)--The National Credit Union Administration (NCUA) has scheduled a closed board meeting for 10:00 a.m. ET on Monday, May 14. Supervisory issues are on the agenda ...