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Inside Washington (05/19/2009)

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* WASHINGTON (5/20/09)--Neal S. Wolin was confirmed by the Senate Monday to serve as deputy secretary to the Treasury Department. Wolin was named deputy assistant to the president and deputy counsel to the president for economic policy in February. From 2001 to 2008, he served as president/CEO for property and casualty operations at the Hartford Financial Services Group. He also served as general counsel to the Treasury from 1999 to 2001 and deputy general counsel from 1995 to 1999 ... * WASHINGTON (5/20/09)--A Small Business Administration program--America’s Recovery Capital--expected to begin mid-June could run out of funds quickly. Tony Wilkinson, president, National Association of Government Guaranteed Lenders, said there will be a lot of demand for the program and more demand than available funds (American Banker May 19). The program will provide no-interest, deferred-payment loans to help small businesses. The loans will be disbursed over a six-month period. Payments will be deferred for one year, and after the deferral period ends, borrowers will repay the loan over five years. Commercial lenders, including credit unions, will make the loans ... * WASHINGTON (5/20/09)--Treasury Secretary Timothy Geithner said he does not believe the government should set caps on executive pay. Rather, constraints should be placed on the incentives compensation systems create. The financial crisis was magnified by people who paid to take a large amount of short-term risk, he added (American Banker May 19). Geithner spoke at the National Press Club in Washington, D.C., on Monday. The Treasury is expected to release executive compensation rules next week as required under a stimulus amendment by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) ... * WASHINGTON (5/20/09)--Darryl Tait has joined the Credit Union National Association (CUNA) as Communication Specialist. He is based in CUNA's Washington, D.C. office. Tait will contribute to News Now, NewsWatch and other special projects produced by the communications department. Prior to joining CUNA, Tait worked for several publications at Falls Church, Va.-based Tax Analysts, including Financial Reporting Watch and World Tax Daily. He graduated with a bachelor of arts degree in English from the University of North Carolina at Greensboro ...

Credit card practices bill approved by Senate

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WASHINGTON (5/20/09)—The Senate on Tuesday voted 90-5 to approve H.R. 627, the Credit Cardholders' Bill of Rights, which would prohibit lenders from making arbitrary changes to the interest rates and terms associated with a card that holds an existing balance. Under the provisions of the bill, lenders must maintain low introductory rates for six months and may not increase the annual percentage rate (APR) on a credit card for the first year that the credit account is open. If a lender chooses to raise a cardholder’s interest rate, the lender must inform the cardholder 45 days before that rate is raised. Card issuers would also be prevented from changing the payment conditions of any credit card. However, lenders would be allowed to increase interest rates once an account has been delinquent for 60 days. In a May 19 statement, Senator and bill co-sponsor Christopher Dodd (D-Conn.) said the bill “will insist on consumer protections that are strong and reliable, rules that are transparent and fair, and statements that are clear and informative.” While the bill as passed by the Senate would “help rein in” many abusive credit card practices, CUNA President/CEO Dan Mica said Tuesday he was concerned that some portions of the bill could “have the unintended consequence of raising compliance costs and making credit more expensive and less available to consumers.” Legislation mirroring the existing regulation that has been adopted by federal bank and credit union regulatory agencies would have been more palatable for credit unions, the CUNA statement said. The bill, as currently amended, does not address interchange fees, but will commission a study of interchange fees by the Government Accountability Office. CUNA has consistently opposed any changes to the current interchange fee regulations, and said Tuesday that “efforts to affect interchange and other elements of the payment processing system would have detrimental effects on the credit unions who issue debit cards and credit cards for their members.” CUNA said the decision to begin a GAO study of interchange rates was “a more prudent approach” than hastily moving legislation. The House version of the bill passed 357-70 in late April. It is believed that portions of the bill were crafted to ensure quick passage, and Congress will now try and reconcile any differences between the two bills. President Barack Obama has asked Congress to deliver the final legislation to his desk by Memorial Day.

CUNA supports NCUA appropriations requests

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WASHINGTON (5/20/09)—The Credit Union National Association on May 19 declared its support for the National Credit Union Administration’s (NCUA) request for continued authority to allow the Central Liquidity Facility (CLF) to lend to its statutory cap of $41 billion. In a letter sent to ranking House Financial Services Subcommittee members Jose Serrano (D-N.Y.) and Jo Ann Emerson (R-Mo.), CUNA also asked the reps. to consider allowing the CLF to lend directly to corporate credit unions. Committee members should also “consider ways to make the CLF a more efficient liquidity tool for corporate credit unions,” the letter added. CUNA also suggested that legislators expand the use of Community Development Revolving Loan Funds (CDRLF) by asking NCUA to allow smaller community development credit unions to use these funds as secondary capital. Such a move would allow these credit unions to absorb the costs of National Credit Union Share Insurance Fund replenishment while continuing to provide much needed services to their members. The CDRLF provides grants and low-interest loans to designated low-income credit unions. NCUA and the National Federation of Community Development Credit Unions should be able to allow the use of CDRLF funds as secondary capital without harming the “safety and soundness” of related institutions or “unduly constraining the operations of this important group of credit unions,” CUNA said. NCUA should also be granted $1 million in CDRLF funding, the letter added.

Management failed to control Norlarco risk OIG

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ALEXANDRIA, Va. (5/20/09)—Sounding hauntingly familiar, the National Credit Union Administration’s (NCUA’s) Office of Inspector General (OIG) found blame for the failure of Norlarco CU could be placed squarely on the shoulders of credit union management, and that state and federal regulators could have acted more definitively. Norlarco, of Fort Collins, Colo., was placed into conservatorship by state regulators in May 2007 after a number of its construction loans issued in Lee County, Fla., became delinquent. In July, the NCUA took control of the credit union and removed its board of directors. And in 2008, Public Service CU, Denver, successfully bid to purchase the assets and assume the shares of Norlarco. The OIG’s assessment of what went wrong at Norlarco was very similar to the finding in its study to determine reasons behind the 2007 failure of Huron River Area CU of Ann Arbor, Mich. Regarding credit union management, both reviews found that credit risk and strategic risk were major factors in the credit union failures and that, in both cases, management did not adequately manage and monitor the credit risk within its loan programs. Regarding the new report on Norlarco, the OIC said specifically that management:
* Failed to conduct a due diligence review of its relationship with its third party vendor, First American Funding, LLC1 (First American); * Failed to adequately oversee the Residential Commercial Lending (RCL) program; * Created a concentration risk by committing to fund $30 million per month in construction loans; * Failed to develop an adequate asset-liability management (ALM) policy; and * Failed to develop adequate policies and a strategic plan to guide the credit union and the RCL program.
“In addition, we determined Norlarco management took undue advantage of its field of membership to grow the RCL program,” the OIG said in its executive summary. The report also faulted regulators, state and federal. The OIG determined that examiners “did not adequately evaluate the safety and soundness of Norlarco's loan participation program.” That lapse, the study said, resulted in a missed opportunity to slow the RCL programs growth, which might have mitigated the loss to the National Credit Union Share Insurance Fund. Even so, the OIG made no formal recommendations to NCUA in the report. It noted, instead, that Norlarco clearly failed to follow NCUA guidance available at the time; and further noted that NCUA has added to that guidance since. The NCUA had no comment on the report.

House Senate pass corporate stabilization bill

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WASHINGTON (5/20/09)—The House and Senate on May 19 approved S. 896, the Helping Families Save Their Homes Act, which would extend $250,000 share and deposit insurance coverage and help credit unions manage the impact of the financial crisis on the credit union system through a corporate stabilization program. The bill, which passed the House yesterday afternoon on a 367-54 vote, would extend the $250,000 federal share and deposit insurance ceiling until 2013. This ceiling is set to expire at the end of the current year. Just hours after the House vote, the Senate approved the bill by unanimous consent. The bill now goes to the President, who is expected to sign it before the end of the month. Under S. 896, the National Credit Union Administration's (NCUA) borrowing authority would also be extended to $6 billion, with a possible further extension to $30 billion under exigent circumstances, under the provisions of the bill. The legislation, as passed, would also permit credit unions to spread the cost of National Credit Union Share Insurance Fund (NCUSIF) replenishment over a longer time period. Credit unions would be given eight years to deal with the cost of a premium assessment that has resulted from losses at wholesale corporate credit unions. Credit unions also would be allowed to book any impairments related to the NCUSIF replenishment over a seven-year period. The NCUA’s corporate credit union stabilization plan will be discussed today in a hearing before the House Financial Services subcommittee on financial institutions and consumer credit, with Service 1st FCU President/CEO Bill Lavage speaking on behalf of the Credit Union National Association. NCUA Chairman Michael Fryzel will also represent the regulator in a separate panel during the hearing. Credit Union National Association President/CEO Dan Mica in a statement yesterday had urged the Senate to approve S. 896 quickly. “This important legislation will help credit unions continue to help their members weather the financial crisis and maintain member confidence in credit unions," Mica said. After the House vote, NCUA's Fryzel issued a statement, which said, "Congress has acted quickly and appropriately in helping NCUA and the credit union industry deal with the corporate situation through the Corporate Stabilization Program." He added that he hoped the bill would quickly be enacted into law.
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