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Inside Washington (06/11/2010)

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* WASHINGTON (6/14/10)--For those interested in witnessing the opening salvos of the House and Senate conferees during their first meeting to hammer out a final financial regulatory reform package, C-Span’s coverage of the day’s events is available online. The conferees next meet tomorrow, June 15, and again on June 16 and 17. C-Span will continue to broadcast the proceedings live. Last Thursday’s event consisted largely of opening statements that were, pretty consistently, divided along party lines, focusing mainly on the perceived causes of the financial crisis. However, a few hours in, credit union observers may have been gratified to hear the opening round fired against an amendment currently in the Senate reform package that would require the Federal Reserve to intervene in setting interchange fees. The Credit Union National Association (CUNA), state leagues and credit unions have been engaged in a herculean push to inform federal lawmakers of the dangers posed to consumers and to credit unions by that interchange provision. About 1,000 credit union advocates traveled by plane, train, bus and car last week to participate in CUNA’s Hike the Hill effort on interchange. So far, abou 450,000 have made contact with lawmakers via email or phone calls. On Thursday, Rep. Gregory Meeks (D-N.Y) was first to broach the subject, saying that the “hastily” added provision was crippling for credit unions, community banks and the country’s poor… * WASHINGTON (6/14/10)--The House passed a bill Thursday that aims to help the Federal Housing Administration (FHA) boost its capital reserves by charging borrowers a higher annual premium (American Banker June 11). FHA’s Mutual Mortgage Insurance Fund has experienced loan losses that have drained its capital ratio to 0.53%, below the minimum 2% standard. The bill was authored by Rep. Maxine Waters (D-Calif.), who chairs the House Financial Services Committee’s housing subcommittee. The bill will allow FHA to increase its annual premium up to 1.55% from 0.55%. However, FHA said it would not raise the premium immediately. Instead, the agency will charge an annual rate of 0.90% for borrowers who make a downpayment of 5% or less, and 0.85% for borrowers with larger downpayments. The premium changes will generate $4.1 billion for 2011, FHA estimated ... * WASHINGTON (6/14/10)--Federal Reserve Board Vice Chairman Donald Kohn said Friday that Fed Chairman Ben Bernanke has requested that Kohn remain on the board until a new governor is appointed. Kohn will leave no later than Sept. 1. Kohn said in March he intended to resign when his term was up on June 23. While he remains on the board as a governor, he will continue to participate in all board and Federal Open Market Committee meetings ...

NCUA orders corrective actions

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ALEXANDRIA, Va. (6/14/10)-- Sperry Associates FCU, of Garden City Park, N.Y. has been ordered by the National Credit Union Administration (NCUA) to take a series of corrective actions. Those actions include efforts to correct:
* Declining capital; * Participation lending losses; * Potential unrecognized investment losses; * Inadequate due diligence; and * Inadequate testing of high risk areas.
The NCUA, as it released the letter Friday, said the agency and credit union are working closely “ to make a sustained, conscientious effort to correct noted adverse conditions.” The credit union did not return a call ionviting comment. Also on Friday, the NCUA released highlight of a speech by board member GIgi Hyland, to the National Association of Credit Union Supervisory and Audit Committees in Baltimore, on the vigilance needed in the supervisory committee role. The Supervisory/Audit Committee’s role is not “just about counting cash and making sure the books are in order,” but rather includes ensuring management and board members are “fulfilling their responsibilities as good stewards of the members’ money.” She added, “Your auditor should report to you and not management or the board of directors. (This) concept is universal regardless of the size or composition of the organization. "When we as a regulator and insurer see serious breakdowns in these basic principles of independence, we often encounter serious and emerging problems in the organization. Erosion of the principles is often symptomatic of a larger lack of diligence and integrity of the overall control environment.”

Mica in iBankratei History shows consumers lose in interchange controls

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WASHINGTON (6/14/10)—In an online article by credit card expert Leslie McFadden in, Credit Union National Association (CUNA) President/CEO Dan Mica says that if merchants win their fight to get government price controls on interchange fees, history shows consumers will reap no benefit. Mica, quoted extensively in an article called “Would debit interchange reform help consumers?,” notes that merchants argue that their government-enforced cost savings on fees charged to participate in the electronic payments system would promote savings for consumers. That’s not what recent history shows, Mica pointed out. Savings were not passed on to consumers in Australia where government stepped in 2003 and regulated regulate interchange fees, Mica noted. The article, in fact, point out that a study executed by economists in the London office of CRA International revealed quite the opposite. The research found that the Reserve Bank of Australia's reductions in interchange fees increased annual fees and reduced card benefits for consumers. Mica also made the point that a provision meant to carve out small institutions—like credit unions from the reach of the interchange language--could actually penalize both smaller institutions and the customers that use their debit cards. "Under this senate amendment they would allow the networks--American Express, Visa, MasterCard-- to, with this so-called carve out, to allow credit unions to get more of a fee," Mica says. However, credit unions and community banks know that if merchants are able to pay less in interchange for a big bank’s card, which would be covered by amendment, they could simply ask customers to use card other than the one from the small issuer. Mica explains that the provision would not prevent such discrimination.

New NCUA grants would serve low-income members

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ALEXANDRIA, Va. (6/14/10)—There will be new and enhanced National Credit Union Administration (NCUA) grant programs this year to benefit low-income credit union members, the agency’s chairman announced Friday. The grants, which Chairman Debbie Matz said are intended to help credit unions that serve low-income members increase outreach to their local communities, may be used to provide such things as financial education, offer student internships and create jobs at credit unions. In her announcement Matz noted that grants are now available for credit unions to develop plans in order to apply for secondary capital from the U.S. Treasury’s Community Development Capital Initiative. The grants are available through the agency’s Community Development Revolving Loan Fund. “Through the CDRLF, NCUA will also continue to offer loans and grants to help certified low-income credit unions pursue staff and board training; enhance their technology and internal processes; offer the Volunteer Income Tax Assistance (VITA) program; and meet emergency needs,” Matz said. She made her remarks at the 36th annual Serving the Underserved Conference of the National Federation of Community Development Credit Unions in Pittsburgh. Pa. She said there is $1.25 million in available for grants and $6.8 million available for loans through NCUA this year.

CUNA Lawmaker letter crucial to interchange fight

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WASHINGTON (6/14/10)—In a effort coordinated by Reps. Debbie Wasserman Schultz (D-Fla.) and Kenny Marchant (R-Texas), a bi-partisan list of 105 U.S. House members have signed on, as of late Friday, in support of an effort to urge financial regulatory reform conference committee members not to include language on interchange fees in the final legislative package. Credit Union National Association (CUNA) President/CEO Dan Mica immediately commended the effort: “This letter will be crucial in building momentum among lawmakers to remove interchange from the bill. Credit unions are gravely concerned about the consequences of the interchange language, particularly its impact on their members who will face higher fees if it becomes law. “We will continue to press our concerns on Congress about the interchange language, as we did this week with 1,000 credit union activists on the Hill, and continuing contacts with Congress by credit unions nationwide – now at more than 450,000 since May 24.’ At issue is a late-added provision found in the Senate version of the reg reform bill that would ask the government to control interchange fees. The House version contains no interchange language. The House letter to conferees says, “This language will devastate credit unions and community banks, while providing no discernable benefits for consumers.” It underscores other concerns regarding the interchange language, and in part cites numerous articles in the national press that have “highlighted the potential unintended consequences of the interchange amendment, particularly its negative impact on consumers.” An additional concern of those 85 who signed the letter is the lack of transparency regarding the process by which the language was added to the Senate bill. “(W)e also have strong reservations about the lack of congressional review, debate or study about these provisions. The debit rate-setting provision has never been vetted by any committee in either chamber. “Furthermore, the recently completed (Government Accountability Office) report was almost exclusively dedicated to the impact of related interchange legislation on the credit card market, not the debit card market. Yet that study still concluded that ‘the costs of [credit] card acceptance might shift from merchants to card holders if interchange fees were limited.’” “We believe the GAO’s conclusion raises similar concerns about the impact of these changes on consumers of debit cards,” the coalition of lawmakers wrote. Credit union advocates in town this week for CUNA’s national grassroots campaign, launched to oppose the interchange amendment, supported the Wasserman-Schultz-Marchant effort and urged their lawmakers to sign on in support of the letter. CUNA asks credit unions to continue contact with lawmakers and request that they sign on to the Wasserman Schultz-Martchant letter by the close-of-business-Tuesday deadline.