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Ways and Means Releases Working Group Tax Reform Report

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WASHINGTON (5/7/13)--A 550-plus page report on tax policy reform created by 11 House Ways and Means working groups and delivered to the Joint Committee on Taxation Monday mentions the credit union tax exemption, as expected.

The report states, "Credit unions are exempt from federal income taxation. The exemption is based on their status as not-for-profit mutual or cooperative organizations (without capital stock) operated for the benefit of their members, who generally must share a common bond."

The report also notes that the definition of common bond has been expanded so more people can access credit unions.

It continues: "While significant differences between the rules under which credit unions and banks operate have existed in the past, most of those differences have disappeared over time."

This final sentence on credit unions in the report comes directly from a study from last years of the Clinton administration.

Upon release of the working groups' report, Credit Union National Association President/CEO Bill Cheney emphasized that preserving the credit union tax exemption is CUNA's highest priority.

"However," he added, "the most effective way that we can do that is to ensure that our members and supporters, nationwide, understand the value that credit unions bring to their memberships and consumers at large and how the tax exemption plays a critical role for not-for-profit credit unions.

"We cannot take anything for granted--we urge credit unions to take action and tell the story to their members. Visit our Tax Advocacy Toolkit for information and the tools to make that happen." (See resource link for members-only toolkit.)

Ways and Means Committee Chair Dave Camp (R-Mich.) and ranking member Sander Levin (D-Mich.) called the report an "important and comprehensive overview of the tax code, an overview of some of the most commonly referenced previous tax reform proposals and summarizes the views of more than 1,300 submissions offered to the Ways and Means Committee by key stakeholders."

They pledged that the committee will "dig into its details over the coming weeks."

The Ways and Means working groups accepted public comment until April 15, and prior to that deadline CUNA participated in a committee briefing on the credit union tax status, talking to four members of the powerful tax-policy committee and about 15 staffers, and also submitted a comment letter.

Among the points emphasized by CUNA about the tax exemption:

  • The economic benefits provide gains to tax-paying credit union members and other consumers that far outweigh any funds that would be brought in by imposing a federal income tax on credit unions;
  • While the Joint Committee on Taxation estimated the credit union "tax expenditure" meant $0.5 billion in unclaimed government revenues in 2012, CUNA estimates that credit unions gave $8 billion back to their members and other consumers in the form of low fees, low rates and other benefits;
  • A tax on credit unions is a tax on 96 million Americans who are their members.

Further, CUNA pointed out,  credit unions provide full and fair service to all members and  more than half of members that rely on credit unions for their primary financial services are middle class Americans, bringing in annual incomes of $25,000 to $75,000.

FHFA Limiting Fannie, Freddie Loan Purchases To 'Qualified Mortgages'

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WASHINGTON (5/7/13)--As of Jan. 10, 2014, Fannie Mae and Freddie Mac must limit their future mortgage acquisitions to loans that meet the requirements for a qualified mortgage, including those that meet the special or temporary qualified mortgage definition, and loans that are exempt from the "ability to repay" requirements under the Dodd-Frank Act.

Under the directive issued Monday by their regulator, The Federal Housing Finance Agency (FHFA),  Fannie and Freddie will no longer purchase any loan subject to the Consumer Financial Protection Bureau's "ability to repay" rule if the loan:
  • Is not fully amortizing;
  • Has a term of longer than 30 years; or
  • Includes points and fees in excess of three percent of the total loan amount, or such other limits for low balance loans as set forth in the rule.
Effectively, this means Fannie Mae and Freddie Mac will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule, the FHFA said in a release.

Fannie Mae and Freddie Mac will be able to continue purchasing loans that otherwise meet the underwriting requirements in their selling guides, including loans where the borrower's debt-to-income ratio is greater than 43%. 

Use the resource link to read the FHFA announcement.

Congress Back For Three-Week Session

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WASHINGTON (5/7/13)--Both chambers of the U.S. Congress are back in session  until a week-long Memorial Day district work period, which begins May 27.

Among hearings of some interest to credit unions this week are these sessions slated for Tuesday:

  • The House Financial Services Committee has scheduled a full committee markup of pending legislation from the subcommittee on capital markets, including: H.R.701, to amend a provision of the Securities Act of 1933 directing the Securities and Exchange Commission to add a particular class of securities to those exempted under such act to provide a deadline for such action; H.R.801, the "Holding Company Registration Threshold Equalization Act of 2013"; H.R.1341, the "Financial Competitive Act of 2013"; H.R.634, the "Business Risk Mitigation and Price Stabilization Act of 2013"; and  H.R.1062, the "SEC Regulatory Accountability Act"; and,
  • A Senate Commerce, Science and Transportation subcommittee hearing on "Credit Reports: What Accuracy and Errors Mean for Consumers."
And on Wednesday:

  • The House Small Business Committee will hold a full committee hearing on "Retrospective Review: Have Existing Regulatory Burdens on Small Businesses Been Reduced?"
  • The Senate Judiciary Committee's Crime and Terrorism Subcommittee will hold a hearing on "Cyber Threats: Law Enforcement and Private Sector Responses."

New White Paper Assesses DDoS Risk To CUs

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WASHINGTON (5/7/13)--Over the past eight months, a buzz has grown around news of Islamic hacktivist groups targeting U.S. banks with powerful distributed denial of service (DDoS) attacks. Against this backdrop, writes Chief Technology Officer Kevin Prince of CompuShare in a just-released white paper, credit unions and community banks have to ask themselves: How concerned should we be?

Compushare, a technology management provider for the financial services industry, is CUNA Strategic Services' newest alliance provider. Its new white paper, "DDoS Attacks: How Real Are The Risks For Community Financial Institutions," is available to Credit Union National Association members via the trade group's website (see resource link).

A DDoS attack involves using an army of hijacked computers to overwhelm a site with so many requests for attention that it's unable to respond to legitimate requests and thus becomes unavailable. It has become a popular method to make a political or ideological point in which the target is some kind of symbol.

Prince notes that since September, U.S. financial institutions have been under coordinated and timed DDoS attacks: "In total, 50 U.S. financial institutions have been targeted in over 200 separate DDoS attacks with varying effects."

Prince writes that credit unions should understand that, to date, there have been no attacks towards smaller financial institutions: "The attackers are targeting top tier financial institutions." While there is currently nothing to suggest that smaller financial institutions will become a target anytime soon, this could change at any time, warns Prince.

He explains in the white paper that there is little a financial institution can do on its firewall, routers, or intrusion detection and prevention system to stop a DDoS attack.

"To be handled effectively it must be addressed 'upstream' at the ISP or by the third-party hosting provider of your Internet-based services such as online banking (perhaps hosted by your core processor).

"While every community financial institution should have controls like antivirus and patch management in place, you should be reaching out to your Internet Service Providers and Internet banking providers to determine their degree of readiness and response plan in case the DDoS threat should hit close to home," writes Prince.

Overall, the white paper details how a DDoS attack is launched and executed, discusses how to assess risk, and also talks about protecting systems and data.

CUNA Urges Care In CFPB 'Rural,' 'Underserved' Definitions

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WASHINGTON (5/7/13)--In advance of the Consumer Financial Protection Bureau's June 1 effective date for its escrow rule adopted in January, the Credit Union National Association has urged the bureau to get its definition of "rural" and "underserved" areas right because it affects so many other rules that have an impact on credit unions.

The CFPB has proposed amending the escrow rule to clarify how to determine whether a county is "rural" or "underserved."

In a new comment letter, CUNA notes that four CFPB mortgage rules approved in January include provisions for special treatment under various Regulaton Z requirements for credit transactions made by creditors operating predominantly  in "rural" or "underserved" areas.These provisions are:

  • An exemption from the escrow rule's escrow requirement for higher-priced mortgage loans (HPML);
  • An allowance to originate balloon-payment qualified mortgages under the 2013 ability-to-repay final rule;
  • An exemption from the balloon-payment prohibition on high-cost mortgages under the 2013 HOEPA final rule; and
  • An exemption from the requirement to obtain a second appraisal for certain HPMLs under the 2013 interagency appraisals final rule.
While CUNA supports some aspects of the CFPB proposal, there are also aspects that prompt concerns.

"For example, the proposal would amend the Escrow Rule's commentary regarding the term 'adjacent' in the context of determining whether an area is 'rural,' wrote Luke Martone, CUNA assistant general counsel.  "However, since the proposal does not include any relevant data on the impact of this proposed change, we ask that the CFPB refrain from finalizing this aspect of the rule without first making such data available and allowing for informed input from the public."

The new comment letter is highlighted in CUNA's newest Regulatory Advocacy Report, published Monday. CUNA members can use the resource link below to access that publication.