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CUs could pre-pay assessment under NCUA plan

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ALEXANDRIA, Va. (5/20/11)--Responding to the comments of many credit unions nationwide, the National Credit Union Administration (NCUA) Thursday released a proposal that would allow most credit unions to voluntarily prepay a portion of their future Corporate Credit Union Stabilization Fund assessments. The Credit Union National Association (CUNA) said it acknowledges that the NCUA has tried to find a different approach to address an issue of importance to credit unions, even though, based on credit unions’ reactions, the plan may need more work before final adoption. If credit unions participate in the plan as outlined, the corporate credit union stabilization fund assessments would be reduced for 2011 and 2012. NCUA staff said today that without a prepayment plan, the assessment for this year’s corporate stabilization fund will hypothetically be around 25 basis points (bp) and around 13 bp for 2012. “Spreading the cost of assessments is an issue of importance to credit unions and one we have raised often with the agency. We will need to learn more about what the full impact of this proposal will be on our member credit unions, and we will be working with them to determine that,” CUNA President/CEO Bill Cheney said Thursday. Under the proposed plan credit unions could prepay corporate stabilization assessments on a voluntary basis of up to 36 bp of insured shares this year. The minimum amount that a credit could advance would be $10,000, meaning that credit unions with less than about $3 million in assets would not be able to prepay assessments. The prepayments, once made, would be held as part of an “account” from which assessments for 2013, 2014 and subsequent years could be withdrawn. The prepayments would be counted as an asset purchase, and not expenses, for accounting purposes, and would not be expensed until used to cover assessments in 2013 and beyond. The NCUA has released the proposal for public comment, and the agency has said that it would only move forward with the plan if it receives commitments from credit unions that equal a minimum of $300 million. The board did not vote on the proposal during Thursday’s meeting. Any prepayments are expected to be made this year. According to CUNA, the structure of the proposal means that participation by any credit union would essentially involve granting the corporate stabilization fund an interest free loan for a few years. At current interest rates, there would not be substantial opportunity costs, but rates could be higher next year and in later years, CUNA said. CUNA has estimated that voluntary payments by all eligible credit unions at the maximum payment amount could reduce the amount of corporate stabilization-related assessments charged in 2011 from 25 bp to 10 bp. Corporate assessments charged in 2012 could theoretically drop to 10 bp from the currently planned 13 bp if maximum advance payments are made. CUNA is urging all eligible credit unions to consider the benefits of the prepayment program and to suggest revisions as appropriate. “We urge all credit unions to participate in the coming information and education events about the program, so that they can develop their own thoughtful views to share with NCUA by June 20, the end of the comment period,” Cheney said, He added, “In the meantime, we appreciate that NCUA has been listening to stakeholders and has taken up a creative approach, like this, to help credit unions deal with the costs of these assessments.” The relatively short comment period is necessary, the agency has indicated, because it will need to adopt a program by late June for any voluntary payments to impact its 2011 assessments. CUNA will be providing more analysis on the proposal to credit unions shortly. An NCUA webinar is planned for next week. Watch for more details in Monday's News Now. For the full NCUA proposal, use the resource link.

CDRLF ad requirements addressed by board

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ALEXANDRIA, Va. (5/20/11)—Hoping to improve transparency and ease credit union use of the Community Development Revolving Loan Fund (CDRLF), the National Credit Union Administration (NCUA) approved changes to its rules.
Click to view larger image NCUA Board members receive their monthly report on the status of the NCUSIF and corporate stabilization from NCUA CFO Mary Ann Woodson. Looking on in the foreground are CUNA Chief Economist Bill Hampel and CUNA Deputy General Counsel Mary Dunn. (CUNA Photo)
The proposed changes, however, would also impose new reporting and monitoring requirements, the Credit Union National Association (CUNA) has noted. The NCUA proposal, which was approved unanimously by the board, would change the CDRLF rule’s low-income credit union (LICU) designation criteria to use “median family income” in the standard for LICU determination instead of “median household income.” The NCUA in a release said that the CDRLF changes would likely increase loan demand “due, in part, to reduced program burdens on participating credit unions, thereby enhancing the provision of basic financial services for low-income households.” The proposal was released for a 60-day comment period, and CUNA will soon post a regulatory comment call on the release. The board also approved revisions to its advertising regulations to require radio and television ads to include a reference to National Credit Union Share Insurance Fund (NCUSIF) coverage. Ads that are less than 15 seconds would be exempted. The final rule applies to the cover page of credit union annual reports and main internet pages. Another final rule would implement the Dodd-Frank Act’s temporary unlimited share insurance for non-interest-bearing transaction accounts. The share insurance rule, which will continue until Dec. 31, 2012, applies only to traditional non-interest-bearing accounts, such as a demand checking or share draft accounts that are held by individual members or businesses. The insurance does not apply to negotiable order of withdrawal accounts, money-market accounts, or interest on lawyers trust accounts. Insurance and loan funds were also covered during the monthly briefing on the status of the agency’s NCUSIF and its corporate stabilization fund. NCUA Chief Financial Officer Mary Ann Woodson reported that the NCUSIF's equity ratio stood at 1.29% as of April 30, holding steady in line with last month’s number. The agency also did not write off any insurance loss expenses for the second month straight. The NCUSIF held $1.2 billion in reserves and the Temporary Corporate Credit Union Stabilization Fund had earned $7.2 million in revenues as of April 31. CAMEL 3, 4, and 5 credit unions represented a combined 22% of total insured shares. The number of CAMEL 4 and 5 credit unions increased by eight, totaling 374, while the number of CAMEL 3 credit unions dropped by four. While not discussed at the meeting the NCUSIF report indicates an insurance premium is not planned for this year. For more on the NCUA meeting, use the resource link.

NCUA alters indemnification proposal

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ALEXANDRIA, Va. (5/20/11)--The National Credit Union Administration (NCUA) approved a final rule addressing so-called “golden parachute” compensation arrangements and indemnification payments, with several clarifications. The rule does not apply to “bona fide” deferred compensation plans or severance pay plans that are not just for certain employees. One key clarification from the agency’s initial proposal, which was released in September, is language that ensures that current contracts held by credit union executives would not be impacted by the new rules, unless they are revised. The new rules would apply to new contracts. The golden parachute provisions would apply if the credit union is in insolvent, in conservatorship, has a CAMEL 4 or 5 rating or is otherwise in "troubled condition." Severance packages and other assorted employee benefits will not be impacted. The indemnification payment limits would only apply to legal proceedings that are brought by the NCUA or a state regulator where the wrong-doer was assessed a civil money penalty, removed from office or subjected to a cease and desist order. Repayment of related legal expenses will then only be permitted if a given credit union’s board of directors determines that the employee in question acted consistently with their fiduciary duty and the payment of these legal expenses will not materially adversely affect the credit union’s safety and soundness. The Credit Union National Association (CUNA) remains concerned about the application of this rule and is urging the NCUA to re-examine this final rule after it has been in effect for one year. The final rule will come into effect 30 days after it is published in the Federal Register. For the NCUA release, use the resource link.

Key senators reminded of fraud cost to card issuers

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WASHINGTON (5/20/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney in a letter to senators in the 20 states impacted by a recent Michaels craft store data breach reminded the legislators that credit unions’ ability to help their members cope with the aftermath of these crimes would be hindered if interchange fee cap regulations become law later this year. “If constituents affected by these or other breaches contact your office, we hope you will encourage them to contact their card-issuing credit union for assistance,” Cheney said. While credit unions will work with their members “to investigate, reissue the debit card, and block future suspicious transactions,” Cheney added that the merchant responsible for the breach will not assist them. “Credit unions are able to provide these member services because of the interchange fees that merchants pay to participate in the payment system,” Cheney said. The proposed interchange regulations would limit debit card swipe fees to as little as 12 cents per transaction. While a proposed exemption for issuers with under $10 billion in assets is included in the proposal, Cheney noted that regulators, including Federal Reserve Chairman Ben Bernanke, are unsure whether this exemption would work in practice. The letter was sent to senators in Colorado, Delaware, Georgia, Iowa, Massachusetts, Maryland, North Carolina, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Utah, Virginia, and Washington State. A letter was also sent to Sen. Mark Kirk (R) of Illinois. For the full letter, use the resource link.

Inside Washington (05/19/2011)

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* WASHINGTON (5/20/11)--Sen. Bob Corker (R-Tenn.) and Senate Banking Committee Republicans sent a letter to that panel’s chairman urging hearings and a speedy markup on legislation to establish an new governance structure for the Bureau of Consumer Financial Protection (CFPB). Similar legislation has been making its way through the House. The letter to Chairman Tim Johnson (D-S.D.) The senators back legislation that would broaden CFPB leadership from a single director to a multi-member board. The change, proponents argue, would bring more accountability to the new consumer agency. “As the financial regulatory reform bill (that created the CFPB) was being debated, the creation of a consumer bureau with no accountability and a director who answered to no one was a key issue that began to derail negotiations,” wrote Corker. “While we all believed consumer protections needed to be strengthened, whether Republicans or Democrats are in charge, no one person should have the power the director of the bureau is currently given,” the joint letter said… * WASHINGTON (5/20/11)--For the second time, global regulators will assess how effectively banks put in place international guidelines on pay and bonuses. The Financial Stability Board (FSB), which establishes international policies and standards in finance, completed its first peer review in March 2010, but concluded that some key issues were unresolved and effective implementation was incomplete. Group of 20 (G20) country leaders advised all countries and international financial institutions to implement the FSB principles and standards by the year-end 2010. The 2011 assessment will survey a sample of major firms directly, according to the FSB, and also ask for feedback on gaps in regulatory and supervisory oversight; progress and potential challenges faced by firms in implementing the principles and standards; and how market practices have evolved in recent years. The FSB principles for sound compensation practices and their implementation standards were endorsed by the G20 leaders at two summits in 2009 …