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Inside Washington (05/20/2010)

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* WASHINGTON (5/21/10)--The Senate rejected a credit card amendment from Sen. Sheldon Whitehouse (D-R.I.) that would require national banks to offer borrowers credit based on interest rate limits in their states. The amendment failed 60 to 35. Whitehouse said he intended for the measure to bar any lender from exporting interest rate rules from states in which they are based for non-mortgage based consumer credit offers (American Banker May 20). He also said his provision aimed to separate consumer advocates from bank defenders. The amendment’s vote came after a failed move to invoke cloture on the regulatory reform bill. Sen. Maria Cantwell (D-Wash.) was one of two Democrats to vote against the cloture, saying the reform bill is too soft on derivatives. All swaps should be cleared, she said ... * WASHINGTON (5/21/10)--The Federal Deposit Insurance Corp. (FDIC) is receiving help from private investors after the agency shouldered the cost of 240 bank failures by tapping into its deposit insurance fund--which has sunk into the red, said The New York Times (May 19). The investors are taking over troubled banks to ease the burden on the government. On Thursday, FDIC was expected to announce that it would reduce the amount it puts aside to cover future losses by more than $3 billion during the first quarter. This would be the first reduction it has experienced since second quarter 2007. Seventy-two banks have failed this year, and industry representatives worry that more will follow. The agency--which previously predicted that 1,000 banks could fail--now foresees about 500 or 750 failures ...

Program extensions may be voted by House next week

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WASHINGTON (5/21/10)—It is expected that as early as next week the U.S. House may vote on a package of government funding extensions, which carries a number of provisions of specific interest to credit unions. The American Jobs and Closing Tax Loopholes Act (H.R. 4213) is comprehensive legislation designed to extend unemployment insurance, COBRA benefits, and certain tax credit among, other items. The bill also features provisions that would affect:
* The U.S. Small Business Administration (SBA): The bill extends the 2009 Stimulus Act SBA provisions, such as certain fee eliminations and increased guarantees for SBA 7(a) and 504 loans. These program enhancements currently are set to expire on May 31; * The National Flood Insurance Program (NFIP): The bill extends NFIP authorization to Dec. 31. It currently expires on May 31; * The Tax-free Individual Retirement Account Distributions for Charitable Donations: The bill would re-establish this provision and extend it to Dec. 31. The authority expired the end of last year, and reauthorization is likely to be made retroactive to the first of this year; * New Markets Tax Credit: The bill would extend this credit through the end of 2010; and * Single Employer Pension Plan Relief: The bill allows defined benefit plans to extend the period to amortize any shortfalls. Plan administrators would be able to choose to increase the amortization period from seven to nine years, and in some situations 15 years, subject to new requirements.
If approved by the House, the bill would then go to the Senate for consideration.

CUs win Ky. Supreme court FOM case

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WASHINGTON (5/21/10)—A field-of-membership lawsuit that has been winding its way through the Kentucky court system since 2006 was decided favorably for credit unions by that state’s Supreme Court. The state high court overturned a lower court ruling that came as a blow to credit unions when it sided with bankers’ arguments that the Kentucky Department of Financial Institutions (DFI) lacked authority to grant FOMs based on the state's Area Development Districts (ADD). The case was brought by Home Federal Savings and Loan Association against the Kentucky regulator and is known as Home Fed. Sav. & Loan v. Kentucky. The bankers in the case argued that state law does not permit community-based FOMs for state-chartered credit unions. They argued that the ADD would equal a community charter. While the lower court agreed that when the state legislature narrowed the language of its definition of who can be a credit union member it meant to expressly forbid community charters, the Supreme Court on May 20 said the argument “is not convincing.” The court noted that the broader language existed in the Model Credit Union Act for 60 years before the General Assembly streamlined it. The decision said: “Rather, the difference between the former and current versions of the statute is the primary indicator of the legislature's intent to change the statute's meaning. “ When the legislature amended the statute in 1984, it moved from specific, narrow allowable categories to more generic language. This indicates a legislative intent to broaden the allowable categories of membership, which would include at least those areas previously allowed, so long as they could reasonably be understood to fit within the current language of the statute.” The Credit Union National Association (CUNA) filed a "friend of the court" brief in April 2008. General Counsel Eric Richard said at the time that CUNA got involved in the case because the lawsuit was part of a pattern in which bankers were challenging community charters in state courts around the country. In addition to Kentucky, Richard noted, multiple cases had been brought in Missouri, since resolved by state legislation, and in Pennsylvania. Richard said of the May 20 ruling, “Credit unions can really welcome this court’s push-back of the bankers’ misguided attacks trying to throw up unnecessary obstacles in front of Americans who want to enjoy the benefits of credit unions membership. Richard said Thursday, “The Kentucky court ruling is even more important now than when the case started in 2006 as so many Americans have reacted to the turbulent economic and financial conditions by moving their money to credit unions for safe, reliable financial services.” He added, "The Kentucky Supreme Court's decision shows that the court looked at the history of the credit union movement in great detail, both in Kentucky and elsewhere. It is not surprising that court concluded that the Kentucky legislature's amendments in 1984 were intended to broaden opportunities for geographic fields of credit union membership, not to eliminate geographic fields of membership as the bank plaintiff had argued." Wendell Lyons, president of the Kentucky CU League added, “It’s a great day for credit unions in Kentucky and for the dual chartering system in Kentucky--but more importantly for the millions of Kentuckians that will now be able to join a credit union.”

Senate clears reg reform CUNA opposed with interchange in

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WASHINGTON (5/21/10)—Despite achieving numerous improvements to the Restoring American Financial Stability Act (RAFSA), the Credit Union National Association (CUNA) ultimately opposed the financial regulatory reform package approved by the U.S. Senate late Thursday when it included provisions that would allow the government to intervene in setting interchange fees. The Senate voted 59 to 39 to pass the legislation, which was created in response to the economic crisis of 2008 and is intended, overall, to prevent a repeat in the future. CUNA backed the intent of the reform bill noting that as the nation recovers from the most significant financial crisis since the Great Depression, it was unquestionable that the statutory regime governing the regulation of financial services needed to be improved. Those improvements, CUNA urged however, must come in a balanced manner that corrects the shortcomings of the system that contributed to the crisis, protects the financial system from future systemic threats, and does not adversely affect those parts of the system that have performed well throughout the crisis, such as credit unions. CUNA worked closely with Senate lawmakers as they crafted their reform bill over many months, and sought many improvements on behalf of credit unions which were ultimately included in S.3217. The improvements included:
* Retention of the National Credit Union Administration (NCUA) as the prudential regulator of credit unions; * Inclusion of language that directs a new Bureau of Consumer Financial Protection to guard against burdening credit unions and other financial institutions with burdensome duplicative regulations by ensuring that outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; and * Designating that the NCUA examine credit unions with less than $10 billion in total assets for compliance with consumer protection regulations.
CUNA opposed an amendment that would cap ATM-related fees at 50 cents. Those amendments were never successfully brought up for a vote. In a letter early this month, CUNA President/CEO Dan Mica wrote to all senators: "We do not dispute the need for financial regulatory reform legislation, and we recognize that much of this bill's focus is on correcting regulatory shortcomings that have little or nothing to do with credit unions." However, the CUNA leader warned at the time that if the Senate adopted interchange amendments drafted by Sen. Richard Durbin (D-Ill.), it would prompt CUNA to vigorously oppose the legislation. Mica said Thursday, "Although we worked with Sen. Durbin in good faith to make changes to the language passed by the Senate last week, and we believe Sen. Durbin is sincerely concerned about credit unions, an agreement that would satisfy credit unions concerns could not be reached." Specifically, CUNA is concerned that the Durbin amendment would allow merchants to discount among preferred networks and also provide certain discounts for cash, check and debit card payments. CUNA has urged changes that would ensure that merchants cannot discriminate based on the issuing institution. The regulatory reform package may now take one of two routes to become law. The House and Senate most likely will go to conference to work out differences between the Senate bill and a similar one approved by the House earlier this year. During this process, CUNA would continue to work to lessen the interchange amendment’s impact should it survive the conference process. Less likely but possible, the House could accept the Senate bill language and vote on that package. Either process requires that a bill is signed by the President to become law.

NCUA expenses 170M to cover future CU losses

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ALEXANDRIA, Va. (5/21/10)--The National Credit Union Administration (NCUA) on Thursday reported that it has expensed an additional $170 million from the National Credit Union Share Insurance Fund (NCUSIF) to its reserves to cover future losses related to natural person credit unions. The NCUSIF's reserves, which would be used to pay for future natural-person credit union losses when they occur, currently stand at $896.3 million total. NCUA Chief Financial Officer Mary Ann Woodson reported that the NCUSIF has incurred $177.4 million in total insurance loss expenses during 2010. The agency has expensed those funds for accounting purposes to set them aside to cover future losses related to credit union failures that may occur. Woodson reported little change in the number of CAMEL Code 3, 4 and 5 credit unions that were reported last month. THE distribution of assets in troubled, low-ranked CAMEL credit unions also hasn't changed much since January, Woodson added, and other NCUA staff indicated that the growth of troubled credit unions has slowed somewhat. NCUA staff also noted that there are several positive signs within the credit union system that indicate that the overall soundness of credit unions may be improving. However, they cautioned the board, saying that they would wait to see the next set of quarterly reports, which are due out on June 30, and continue to monitor the condition of troubled credit unions this summer before they can make a determination on the overall health of the credit union system. While NCUA staff noted that the NCUSIF and Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessments would likely amount to between 15 and 40 basis points combined, staff indicated that total expenses and share growth would factor into that decision. The total amount of reserves will also play a role in the NCUA’s determination, which is expected to be made this fall. The NCUA will also consider splitting the fees used to maintain its the NCUSIF and the TCCUSF at that time for billing purposes, according to NCUA Chairman Debbie Matz, in order to help clarify which assessed funds are for the TCCUSF to cover corporate credit union losses and which funds are for the NCUSIF to cover natural-person credit union losses. (See News Now, NCUA to consider splitting share insurance, corp. fees, May 14.)

NCUA releases SAFE Act rule extends TCCULGP dates

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ALEXANDRIA, Va. (5/21/10)—New issuances under the National Credit Union Administration’s (NCUA) Temporary Corporate Credit Union Liquidity Guarantee Program (TCCULGP) will continue to be permitted until at least Sept. 30, 2011 after the NCUA on Thursday approved a board action memorandum. In approving the memorandum, the NCUA also voted to limit the
Click to view larger imageAt an open board meeting Thursday, National Credit Union Administratin Chairman Debbie Matz (center) considers a plan to allow the Temporary Corporate Credit Union Liquidity Guarantee Program to continue though least Sept. 30, 2011. The three-member board voted in favor of the extension. (CUNA Photo)
maturity date of those new issuances to September 30, 2012. Debt that is issued after June 30 and has a maturity date that falls after Sept. 30, 2012 will not be covered by the TCCULGP. The board may elect to further extend the program at a later date. The NCUA during its board meeting was also briefed on a final rule that implements the Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act. Under the SAFE Act, credit union staffers that are involved in originating mortgage loans, including home equity loans, will be required to register with a new nationwide mortgage registry within six months after the registering procedures are established. Registering will require staff to provide finger prints and information for background checks and to obtain a unique identifying number. To be subject to these requirements, credit union employees will have to have made a minimum of five mortgage loans in a given year. While these NCUA rules will not apply to credit union service organizations (CUSOs), CUSOS and their employees must register, and be licensed, under the SAFE Act pursuant to state law. The rules will apply to credit union volunteers that process mortgages. If approved, the employee database would likely be “up and running” in 2011, NCUA staff said. The rules would likely apply to the approximately 3900 federally-insured credit unions which issue more than five mortgages a year, NCUA staff estimated. While the NCUA Board has already approved the final regulation, this is an interagency rule that has yet to be signed off by all the agencies charged with writing the regulations to implement the SAFE Act.