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Remittance rule should protect consumers CUNA trades

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WASHINGTON (6/22/12) —The Consumer Financial Protection Bureau's (CFPB) pending remittance rule, as currently constructed, "will significantly diminish the availability of international transfer services and increase the cost of such services for consumers," the Credit Union National Association (CUNA) and other financial services trade groups said in a letter to members of the U.S. Congress.

The letter was submitted for the record of a Thursday House Financial Services financial institutions and consumer credit subcommittee hearing on money service business supervision. The Clearing House Association L.L.C., the Consumer Bankers Association, the Financial Information Forum, the American Bankers Association, The Financial Services Roundtable, the Independent Community Bankers of America, NACHA – The Electronic Payments Association, and the National Association of Federal Credit Unions all co-signed the letter.

Under a new remittance rule adopted by the CFPB earlier this year, remittance transfer providers would be required to disclose the exchange rate, all fees associated with a transfer, and the amount of money that will be received on the other end. Remittance transfer providers will also be required to investigate disputes and fix mistakes. The rule is scheduled to become effective on Feb. 7, 2013.

The remittance regulation broadly defines the term "remittances" to include virtually all cross-border electronic funds transfers initiated by consumers in the U.S., other than most transfers involving credit, debit, and prepaid cards. The joint letter said this definition "is inconsistent with the traditional understanding of what constitutes a remittance transfer and is so broad that it will capture all consumer-initiated international electronic fund transfers regardless of their value or purpose."

The letter added that the CFPB's proposed 25-transaction-per-year safe harbor to exempt providers from being considered a "remittance transfer provider" is too low to provide meaningful relief to institutions that truly do not offer remittance transfer services "in the normal course of business." The exemption will not prevent hundreds of financial institutions from exiting the market, the letter warned.

Moreover, the Final Rule places providers at risk for amounts beyond what they received to perform the transfer service: namely fees and taxes charged by other entities, as well as the principal amount of a remittance transfer. This framework creates considerable risk of financial loss that providers will be largely unable to mitigate or manage, encourages active fraud, and threatens the business case for consumer international transfer services.

Many financial institutions may be forced to severely limit their international transfer product offerings or exit the market altogether, the letter said, warning that small institutions may lack the resources to monitor foreign tax laws or changes in fees charged by unrelated financial institutions. Increased compliance costs created by the new regulation could also be passed on to consumers, the letter added.

Consumer access to international funds transfers through their banks, credit unions, and broker-dealers is now in serious jeopardy due to the "nearly impossible compliance challenge" presented by the pending CFPB regulation, the letter added. The letter said more time is needed to appropriately assess and navigate the issues presented by the CFPB remittance regulation.

For the full letter, use the resource link.

SBA MBLs reg relief are CUNA topics at hearing

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WASHINGTON (6/22/12) —While the total number of credit unions' U.S. Small Business Administration (SBA)-supported loans have grown by 89% since December 2007, credit unions could do even more to help small businesses if the U.S. Congress would raise the cap on member business loans (MBL) and provide regulatory relief, Redwood CU President/CEO Brett Martinez told a House subcommittee yesterday.

Click to view larger image Redwood CU President/CEO and CUNA Board Member Brett Martinez told subcommittee members that SBA guaranteed loans and credit union MBLs can both help small business owning credit union members. (CUNA photo)
tinez, who testified on behalf of the Credit Union National Association (CUNA) before the House Small Business investigations, oversight and regulations subcommittee,  said regulatory roadblocks and the 12.25% of assets MBL cap are hurting the ability of credit unions to do more to improve the "fragile economic recovery.'' Martinez is a CUNA board member.

He said his credit union and others are "severely constrained'' by the cap and urged House lawmakers to pass legislation by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) to raise the cap to 27.5% of assets for qualified credit unions.

Martinez, whose 220,000-member, $2 billion-asset Santa Rosa, Calif.-based credit union is the largest SBA credit union lender in the country by loan volume, said his financial institution is at 75% of the cap. If the cap isn't increased, his credit union could only make member business loans for another 18 months, he added. His credit union has about $190 million in outstanding member business loans and $68 million in SBA loans, and has had to sell some of its business loans on the secondary market to stay within the MBL cap, he noted.

He also reiterated CUNA's estimate that MBL cap increase legislation would generate $13 billion in new capital and create 140,000 jobs in the first year following enactment. Those benefits, he pointed out, would come at no cost to the American taxpayer.

In response to a question from the subcommittee chairman, Rep. Mike Coffman (R-Colo.), Martinez said that relatively few credit unions make business loans because the low MBL cap discourages additional credit unions from getting into business lending. Martinez told subcommittee member Janice Hahn (D-Calif.) that credit unions could make more loans if the SBA made the application process easier and provided additional training to credit unions.

He urged lawmakers to extend the SBA 504 refinance loan program and the SBA 504 First Mortgage Lien Pool (FMLP) programs, both of which are scheduled to expire this September.

In response to another question from Coffman, Martinez said when discussing loan options with members his credit union doesn't steer them towards an SBA or member business loan because one or the other is easier for his financial institution. Rather, their primary consideration is which loan is most appropriate for the member.

Others who testified at the hearing were: Tim Dixon, senior vice president, head of Small Business Administration Lending, Citizens Bank, Warrensville Heights., Ohio;   Robert Marquette, president/CEO, Members 1st FCU, Mechanicsburg, Penn.; and David Rader, business executive, SBA Lending, Wells Fargo, Minneapolis, Minn.

Inside Washington (06/21/2012)

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WASHINGTON (6/22/12)--The Office of the Comptroller of the Currency (OCC) has adopted an interim final rule amending its lending limit rule to apply to certain credit exposures arising from derivative transactions and securities financing transactions. Effective July 21, the statutory definition of loans and extensions of credit for purposes of the lending limit will include certain credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim rule applies to both national banks and savings associations. National banks and savings associations have through Jan. 1, to comply with the rule's requirements as to derivative transactions and securities financing transactions. The OCC provided a short-term exception under its lending limits authority to allow time for national banks and savings associations to adjust for compliance with the new standard. To reduce the burden of these new credit exposure calculations, particularly for smaller and mid-size banks and savings associations, the rule permits use in certain circumstances of look-up tables for measuring the exposures for each transaction type. This method permits institutions to adopt compliance alternatives that fit their size and risk management requirements, consistent with safety and soundness and the goals of the statute …

Regulators issue military mortgage guidance

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WASHINGTON (6/22/12)--Credit unions must ensure that they inform their members who are in the military and receive Permanent Change of Station (PCS) orders of any available mortgage assistance options and that they don't engage in any deceptive practices.

Those are among the expectations set forth in guidelines issued by the Federal Reserve, the National Credit union Administration,  the Consumer Financial Protection Bureau and other financial regulators to mortgage servicers.

The guidelines mandate that employees of mortgage loan servicers be adequately trained about the options available for assisting military homeowners with PCS orders. Credit unions and other servicers must provide accurate, clear and readily understandable information about available options including the Making Home Affordable Program and other programs offered through Fannie Mae, Freddie Mac, the Federal Housing Administration, the Department of Veteran's Affairs, and the US Department of Agriculture's Rural Development programs.

The regulators said they are especially concerned about the potential harm that could be caused if servicers do any of the following:

  • Fail to provide homeowners with PCS orders with accurate, clear, and readily understandable information about available assistance options for which the homeowner may qualify based on information known to the servicer.  These options should be consistent with the servicer's public representations and agreements with government agencies;
  • Ask homeowners with PCS orders to waive their legal rights under the Servicemembers Civil Relief Act or any other law as a prerequisite to providing information to the homeowner about available options or evaluating the homeowner's eligibility for assistance;
  • Advise homeowners with PCS orders who are current on their loans and able to make the monthly payment to intentionally skip making payments in order to create the appearance that they are having financial difficulties in order to obtain assistance for which they would not otherwise;
  • Fail to provide a reasonable means for homeowners with PCS orders to obtain information on the status of their request for assistance; and
  • Fail to timely communicate the servicer's decision regarding requests for assistance from homeowners with PCS orders and failing to include an explanation of the reason for any denials.
The guidelines do not require servicers to offer any particular loss mitigation programs. However, if  a regulator determines that a servicer has engaged in any acts or practices that are unfair, deceptive or abusive, or that otherwise violate Federal consumer financial laws and regulations, the agency will take appropriate supervisory and enforcement actions and mandate appropriate corrective actions.

The other agencies that signed on to the guidance are the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.

To access the guidance, use the resource link.

Guidelines issued on bank foreclosure mistake compensation

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WASHINGTON (6/22/12)--Banks regulated by the Federal Reserve and the Office of the Comptroller Currency might have to pay borrowers between $500 and $125,000 if they make mistakes during the foreclosure process, according to guidelines issued Thursday by those agencies.

The guidance states that remedies may include lump-sum payments, suspension or rescission of a foreclosure, a loan modification or other loss mitigation assistance, correction of credit reports, or correction of deficiency amounts and records.

The agencies also gave a two-month extension, until Sept. 30, for eligible borrowers to request a free review of their mortgage foreclosures under the Independent Foreclosure Review.

Actions by mortgage servicers that could result in having to pay a penalty include, but are not limited to:

  • Foreclosing on a borrower, in violation of the Servicemembers Civil Relief Act.
  • Foreclosing on a borrower who is not in default.
  • Failing to give a qualified borrower a permanent modification if they have complied with the agreement.
  • Foreclosing on a borrower before the expiration of a written modified payment plan. Denying a borrower's loan modification application that should have been approved; and
  • Failing to offer loan modification options as required by an applicable program.
  • Giving a borrower a loan modification with a higher interest rate than should have been charged under the relevant loan modification program.
  • Foreclosing on a borrower in violation of federal bankruptcy laws.
  • Not providing a borrower with proper notification during the foreclosure process.
  • Committing errors that did not result in foreclosure, but resulted in other financial damage.
The guidance also states that if a borrower requests a foreclosure review, he or she is not precluded from taking other actions related to their foreclosures.  A servicer is not permitted to require a borrower to sign a waiver of the borrower's ability to pursue claims against the servicer in order to receive compensation under the Independent Foreclosure Review.

To read the guidelines, use the resource link.