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Two FCUs placed into conservatorship by NCUA

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ALEXANDRIA, Va. (5/4/11)--Noting it would work with both financial institutions to “resolve issues” affecting safety and soundness, the National Credit Union Administration announced yesterday that it had placed two federal credit unions into conservatorship: Valued Members, of Jackson, Miss., and Hmong American, of St. Paul, Minn. Both credit unions remain open and operating, although services of Hmong American have moved to a new location. The NCUA, in its announcements, noted that a decision to conserve a credit union enables the institution to continue regular operations “with expert management in place, correcting previous service and operational weaknesses.” It also enables members to continue their business with their credit union. Valued Members, chartered in 1957 and serving Leake County, the underserved community of Madison County, and a number of employee groups in and around Jackson, has approximately $9 million in assets and 2,030 members. Hmong American FCU's new location is 56 East Sixth Street, Suite 314, St. Paul, MN 55101. Credit union members and others may continue to reach the credit union at 651-228-0455. Valued Members and Hmong American are, respectively, the fourth and fifth federally insured credit unions placed into conservatorship in 2011. The agency has posted on each credit union’s website an electronic frequently-asked-questions (FAQ) document to help members with information on the conservatorship. Use the link below to see one of the FAQ sites.

Cheney editorial CUs need help in data theft dealings

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WASHINGTON (5/5/11)—While credit unions stand ready to help their members deal with the aftereffects of data breaches and other security issues, they must also be able to afford the cost of helping their members, Credit Union National Association (CUNA) President/CEO Bill Cheney said in a recent Huffington Post editorial. Cheney's editorial noted that credit unions are issuing new debit cards and working with their members following a recent security breach that compromised the credit card numbers and other personal information of 77 million users of Sony's online gaming platform PlayStation Network. However, Cheney said, “contrary to what some might think, the expense for taking this action is not and will not be reimbursed by Sony. “When all is said and done, credit unions and banks will have spent millions on what appears to be a major security failure caused by Sony's inability to protect its consumer data,” Cheney said. Credit unions and banks rely on interchange revenue to cover the cost of debit program administration, “including in these circumstances, reacting to a merchant data breach,” and Cheney said that fraud protection and other debit-related costs would not be covered by the 12 cent per transaction fee that has been proposed by the Federal Reserve’s interchange fee cap regulation. This gap is another reason why members of Congress should support Senate legislation that would delay the implementation of new interchange rules and require further study of the impact that those rules could have on consumers, financial institutions, and merchants. Cheney added that a proposed exemption for institutions with $10 billion or less in assets woud not work, and said that the Fed’s proposed rule would “affect all debit-card-issuing credit unions and other financial institutions. “Data breaches such as the one we learned about last week will only exacerbate the problem for credit unions because the proposal and the underlying legislation would not allow these costs to be taken into consideration in terms of our ability to collect interchange revenue,” he said. For the full op-ed, use the resource link.

CUNA backs intent of subcommittees CFPB actions

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WASHINGTON (5/5/11)--As a House subcommittee voted on a series of bills addressing the Consumer Financial Protection Bureau (CFPB), the Credit Union National Association (CUNA) submitted a statement for the markup session’s record in support of the goal of achieving rules that balance consumer protection and the safety and soundness of institutions providing financial services.” The House Financial Services subcommittee on financial institutions and consumer credit on Wednesday approved a trio of bills that it said would “strengthen consumer protection and bring transparency, oversight and accountability” to the CFPB. The three bills, H.R. 1315, H.R. 1121, and H.R. 1667, will face a full committee vote on May 12. H.R. 1315, the Consumer Financial Protection Safety and Soundness Improvement Act, would modify the voting procedure of the Financial Stability Oversight Council (FSOC) when voting to stay or set aside rules finalized by the CFPB by reducing the threshold for the Council to take action from a two-thirds vote of the Council to a majority vote of the Council, excluding the Director of the Bureau. CUNA said that such a move helps to “balance consumer protection with safety and soundness concerns.” The legislation also changes the conditions under which the FSOC can stay or set aside CFPB regulations by striking the requirement that the regulation or provision subject to petition by an FSOC member “would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk” and replacing it with a requirement that the regulation subject to petition be “inconsistent with the safe and sound operation of United States financial institutions.” CUNA suggested that the statute should allow financial regulators to review CFPB regulation in the context of overall regulatory burden. “We could support legislation to expand the conditions that must be met in order for the [FSOC] to override a regulation if the [FSOC] determines a new rule would be unreasonably burdensome for financial institutions and the burden to financial institutions outweighs the benefit to consumers,” CUNA said. H.R. 1121 would replace the single CFPB director with a five member Consumer Financial Protection Commission, a move which CUNA has said that it could support if the potential panel included a member with credit union experience. H.R. 1667 would delay the transfer of consumer protection functions to the CFPB if a “confirmed and accountable director” is not in place by the July 21 transfer date. Subcommittee Chairman Rep. Shelly Moore Capito (R-W.Va.) and House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala.) called the three legislative actions “common sense” measures. For the CUNA release, use the resource link.

NCUA should revisit interchange cost estimates CUNA

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ALEXANDRIA, Va. (5/5/11)—The Credit Union National Association (CUNA) backed the National Credit Union Administration’s (NCUA) request that the Federal Reserve consider “the unique circumstances of smaller credit unions" and grant some interchange fee cap relief to smaller issuers, but also noted that it found the agency’s estimates of debit card transaction costs for larger issuers, as detailed in a Wednesday letter to the Federal Reserve, to be “incredibly understated.” The NCUA yesterday provided additional information about some of the costs associated with and income produced by debit card transactions for credit unions of different sizes when it released results of a survey of 296 credit unions. The survey, which was included in the agency’s letter to the Fed, estimated that credit unions with over $1 billion in assets spend a median amount of two cents per debit card transaction while taking in a median gross income total of 38 cents per transaction. CUNA challenged this conclusion, saying that “significant, essential” internal and/or indirect costs such as labor, equipment, overhead and fraud prevention are not included in this estimate. CUNA also noted that the agency did not include many of the direct costs that the Fed included in its own interchange fee analysis. “Basic amounts paid to third parties for clearing, settlement and authorization amount to far more than the values reported by NCUA in the letter,” CUNA said. It is inconceivable that the median cost at the largest credit unions--those with a median asset size of $1.6 billion--is only a third to a sixth of the average cost at banks with more than $10 billion in assets, CUNA added. “We question the methods used to derive these numbers and urge NCUA to revisit and revise them as soon as possible,” CUNA said. Overall, the NCUA’s analysis found that the smaller the credit union is, the more likely it is that that credit union would lose money on debit card transactions. The NCUA again asked the Fed to ensure that a planned interchange fee cap exemption for credit unions with under $10 billion in assets will work as planned. The NCUA's analysis found that "direct costs per transaction do not fall below the proposed cap until credit unions reach $100 million to $500 million in assets." Credit unions with $10 million or less in assets pay a median cost of 31 cents per debit transaction. Credit unions with $50 million to $100 million in assets pay a median cost of 19 cents per transaction. The NCUA said that these costs "significantly exceed the maximums allowed under the proposed rule," which could set the interchange fee cap at a maximum of 12 cents per transaction. The NCUA acknowledged its cost analysis "likely understates costs for debit card transactions" and was limited to a portion of the total costs of providing debit services. It excluded all "labor, facilities, equipment and other overhead costs," and it appears NCUA considered only a subset of the fees that credit unions pay to third parties in the provision of debit services. For the full letter, use the resource link.

Inside Washington (05/04/2011)

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* WASHINGTON (5/5/11)--Narrowing the scope of commercial banking would help offset risk in the financial system, Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, said Tuesday (American Banker May 4). Hoenig acknowledged it would be nearly impossible to eliminating all risk in the banking system. Hoenig, speaking at the Independent Community Bankers Association conference, said regional and community banks were just as important to the financial systems as the big banks. Limiting the breadth of activities banks could perform would help level the playing field between large and small institutions, Hoenig said. He noted that credit default swaps or structured investment vehicles were generated by commercial banking industry and created more leverage in financial system … * WASHINGTON (5/5/11)--A House Financial Services subcommittee on Tuesday approved a bill to create a market covered bonds in the U.S. The bill, approved by a voice vote of the capital markets dubcommittee, was reintroduced by Rep. Scott Garrett (R-N.J.), who said the legislation will generate increased liquidity and help U.S. financial institutions better compete against their overseas competitors. “With our economy still recovering from the financial crisis and the need to unlock credit at an all-time high, facilitating the development of a covered bond market in the U.S. makes perfect sense,” Garrett said. Covered bonds have been used in Europe for centuries to help provide additional funding options for the issuing institutions and are a major source of liquidity for many European nations’ mortgage markets. The purpose of the U.S. Covered Bond Act of 2011 is to create a legislative framework for the development of a covered bond market in the U.S., he said in a news release … * WASHINGTON (5/5/11)--The Federal Deposit Insurance Corp. (FDIC) on Tuesday closed on a sale of securities as part of a securitization backed by about $394.3 million of performing commercial and multi-family mortgages from 13 failed banks. The securities were purchased by an affiliate of LNR Partners LLC. The FDIC described the sale as a pilot transaction, which marked the first time the agency has sold commercial mortgage loans in a securitization since the beginning of the recent financial crisis. The sale consisted of three securities. The highest-quality, or senior, securities included 80% of the assets, and were at a fixed rate of 1.84%. They are expected to have an average life of 2.6 years. Mezzanine certificates totaled $39.4 million, about 10% of the capital structure, sold at a fixed-rate coupon of 5% and are expected to have an average life of 6.5 years. The subordinate class also totaled $39.4 million and represented the most junior 10% of the capital structure. They sold at a fixed-rate coupon of 5% and are expected to have an average life of 7.1 years. The mezzanine and subordinate certificates are not guaranteed by the FDIC … * WASHINGTON (5/5/11)--The Special Foreclosure Edition of Supervisory Insights, released Wednesday by the Federal Deposit Insurance Corp. (FDIC), highlights lessons learned from an interagency horizontal review of the 14 largest residential mortgage servicers. This review resulted in consent orders for all entities reviewed. FDIC reviews of state nonmember banks have not identified instances of “robo-signing” or other serious deficiencies in mortgage servicing operations. The special edition provides examples, derived from the lessons learned, of effective residential mortgage servicing practices. Supervisory Insights provides a forum for discussing how bank regulation and policy are put into practice in the field, sharing best practices, and communicating about the emerging issues that bank supervisors face. The journal is available on the FDIC’s web site … * WASHINGTON (5/4/11)--The Office of the Comptroller of the Currency (OCC) announced Wednesday that David K. Wilson will become Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner on July 1, succeeding retiring Tim Long. In this post Wilson will chair the OCC’s Committee on Bank Supervision, direct the formulation of policies and procedures for supervision and examination of national banks, and serve as member of the agency’s Executive Committee …