ALEXANDRIA, Va. (6/27/11)--St. James A.M.E. FCU of Newark, N.J. became the tenth federally insured credit union to be liquidated this year, the National Credit Union Administration announced Friday. North Jersey FCU of Totowa, N.J., a full-service institution with $194 million in assets and more than 29,700 members, immediately assumed St. James A.M.E. Federal Credit Union’s members and those members experienced no interruption in credit union services. The NCUA liquidated St. James after determining the credit union was insolvent and had no prospect for restoring viable operations on its own. At the time its liquidation, the credit union served 831 members and had deposits of approximately $1 million. St. James was chartered in 1946 and originally served embers of the St. James African Methodist Episcopal Church in Newark. Membership was expanded to include members of the Greater Mt. Teman A.M.E. Church in Elizabeth, N.J., in 1994.
WASHINGTON (6/27/11)--Current bank prompt corrective action (PCA) rules, which were largely untested before 2007, result in a too-little-too-late supervisory approach, according to a recent Government Accountability Office (GAO) study that was required under the Dodd-Frank Wall Street Reform Act. Under PCA rules for banks, as it is with credit unions, as an institution’s capital level deteriorates, its CAMEL rating goes up. When that happens, regulators are required to increase supervision and take actions meant to force management to make improvements. If those improvements do not materialize, the regulator is required to close the bank before losses to the Deposit Insurance Fund (DIF) can multiply. The banks’ DIF is funded with taxpayers’ dollars, while the National Credit Union Share Insurance Fund is supported solely by the credit union system. However, the mechanics of the PCA rules are substantially similar. The report noted that as a result of bank failures, the DIF balance fluctuated from roughly $51 billion in early 2007, to approximately negative $21 billion in late 2009, and stood at negative $7.4 billion as of the end of 2010. A key finding of the GAO report is that, since the country’s financial meltdown in 2008, PCA actions at banks not only grew tenfold, but for those that ultimately failed PCA did little to decrease losses to the DIF compared to failures that did not go through a PCA routine. The GAO report indicated the fault largely fell with having capital levels serve as the main trigger for PCA actions: “(P)roblems with the bank's assets, earnings, or management typically manifest before these problems affect bank capital. Once a bank falls below PCA's capital standards, a bank may not be able to recover regardless of the regulatory action imposed.” All four federal banking regulators—the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve, and the Federal Deposit Insurance Corporation—stated that “PCA was not designed for the type of precipitous economic decline that occurred in 2007 and 2008,” according to the report. The GAO made several recommendations for the federal banking regulators to consider, including “adding a measure of risk to the capital category thresholds and increasing the capital ratios that place banks into PCA capital categories.”
*WASHINGTON (6/27/11)--The House Appropriations Committee approved the fiscal year 2012 Financial Services and General Government Appropriations bill, which provides annual funding for the Treasury Department, the Small Business Administration, the Securities and Exchange Commission, the Consumer Financial Protection Bureau (CFPB), and several other independent agencies, (American Banker June 24). The bill includes $19.9 billion in funding for the agencies, which is nearly $2 billion--or 9%--below last year’s level, nearly $6 billion below the President’s fiscal year 2012 request, and more than $700 million below the pre-stimulus, pre-bailout levels enacted in 2008. The bill also would cap mandatory funds for the CFPB at $200 million--the limit is $600 million--and subject it to the annual appropriations process beginning in 2013. The Dodd-Frank Act prescribes that the bureau receive a percentage of the Federal Reserve budget and is not subject to the appropriations process … *WASHINGTON (6/27/11)--In letters to federal regulators, several banks expressed concern about a requirement that they submit resolution plans outlining how to unwind them in a crisis. One concern is how firms may be penalized if regulators do not like their plans. Under the Dodd-Frank law, the agencies can take remedial action if the living wills, as the resolution plans are known, are deemed inadequate (American Banker June 24). The requirement could potentially mandate significant restrictions on the activities and operations of financial services firms, David T. Hirschmann, president for the Center for Capital Markets Competitiveness of the U.S. Chamber of Commerce, wrote in a June 10 letter. The living wills are required under the Dodd Frank Act to give the federal government authority to seize and wind down institutions deemed too systemic to be resolved through bankruptcy. The proposal, drafted jointly by the Federal Deposit Insurance Corp. and the Federal Reserve Board, would apply to firms with more than $50 billion in assets … *WASHINGTON (6/27/11)--Small businesses won a record $97.95 billion in federal contracts, or 22.7% of eligible contracting dollars in fiscal 2010, the Small Business Administration (SBA) announced Friday. The increase marks the largest single year jump in more than five years, and is a significant improvement over fiscal 2009, when 21.9% of contracting dollars were awarded to small businesses, SBA said. Performance in four out of five of the small business prime contracting categories showed improvement, with increases in contract dollars and also in performance against statutory goals. “When the federal government gets contracts into the hands of small businesses, it is a ‘win-win’ situation: small businesses have the opportunity to grow and create jobs and the federal government gets access to some of the most innovative and nimble entrepreneurs,” said SBA Administrator Karen G. Mills.
WASHINGTON (6/27/11)--The National Flood Insurance Program (NFIP) has been on the Government Accountability Office’s (GAO) high-risk list since 2006, when the program had to borrow from the U.S. Treasury to cover losses from the 2005 hurricanes, and its outstanding debt and operational and management challenges keep it there, GAO said in a recently released report. The report outlines measures that could be taken to place NFIP on sounder financial footing “in light of public policy goals for federal involvement in natural catastrophe insurance,” the GAO said. It also highlights the operational and management challenges at FEMA that affect the program. Above all, the GAO report said, congressional action is needed to increase the financial stability of NFIP and limit taxpayer exposure. (Use the resource link to access the report.) NFIP reform has been the subject of hearings in both the U.S> House and Senate this year. On June 9, Senate Banking Committee Chairman Tim Johnson (D-S.D.) opened his panel’s hearing on the program saying that, while he hopes to ensure the future of NFIP--which provides more than $1.2 trillion in coverage to Americans in flood-prone areas--the program does need reforms. The program, he said, has a beneficial effect on both the insurance and housing markets. And on the House side in March, a Financial Services subcommittee conducted a hearing to look at reform proposals. Rep. Judy Biggert (R-Ill.), chairman of the subcommittee conducting the review, cited "inadequate management and insufficient funds," as key problems of the program. "It's crucial that we begin to restore the financial integrity of NFIP so that homeowners and businesses in flood-prone areas, like many in Illinois, are not left without any protection and taxpayers are not on the hook for the failings of NFIP," she said.
, the Credit Union National Association’s (CUNA) newest addition to its electronic information toolshed for members, has started a conversation about what credit unions should focus on in the changes the Federal Reserve made this spring to its Regulation Z. The blog says that although it does not take effect until October 1, the Fed’s amended rule carries significant changes and credit unions should be aware of such things as new provisions addressing “floor” rates, preferential rates for employees, consumer’s ability to pay, reevaluation of rate changes and a new definition of “significant terms”. Last week CompBlog
took a look at “floor” rates and “ability to pay,” and promised more Reg Z postings to come. On fixed-minimum, or “floor” rates, the blog notes such things as;
* Under an “Advance Notice Exception” provision, a creditor isn’t required to provide a notice of change in terms for open-end loans for an increase in a variable-rate APR if the bump up is due to an increase in an index that was previously disclosed, isn’t under the control of the creditor, and is available to the general public; * However, a variable-rate plan that’s subject to a fixed minimum or “floor” doesn’t meet the conditions of the exception to the advance notice requirements in Reg. Z Section 226.9(c)(2)(v)(C); and * Supplemental material to the final rule clarified that a 45-day advance notice of change in terms is required for all open-end loans (except HELOCs) prior to a rate increase on a variable-rate account that’s subject to a fixed minimum or floor.
On Reg Z changes to a credit cardholder’s “ability to pay,” the Fed final rule requires a card issuer to consider a consumer’s independent ability to make required payments on a credit card account, regardless of the consumer’s age, before opening a new card account or increasing the credit limit on an existing account. Outside of community property states, a card issuer may not rely solely on “household income” provided by an applicant on a credit card application, but will need to obtain additional information about the applicant’s independent income. Information concerning the applicant’s “income” or “salary”, however, may be relied on in order to determine whether the applicant has the ability to make the required payments. Use the resource link below to access CUNA’s CompBlog
(members only) and read the Reg Z posts in their entirety. The conversation on Reg Z continues today.
WASHINGTON (6/27/11)--Credit unions will want to be aware of last weeks U.S. Supreme Court decision to hear a Real Estate Settlement Procedures Act--or RESPA--class action case that involves title insurance. The case is known as First American Financial Corp. v. Edwards.
Broadly, the case revolves around whether a consumer, who based a purchase of title insurance on a referral by a real estate settlement agency--under conditiions the consumer claims violated RESPA's anti-kickback provisions, can sue in federal court if there is no evidence of actual injury.
Credit Union National Association Deputy General Counsel Mary Dunn said Friday that the case has significant implications for credit unions.
Credit unions work very hard to comply with all consumer protection laws they are subject to, such as RESPA for mortgage lenders. Also, they generally support reasonable legal protection for consumers.
However, awarding damages when a consumer is not harmed raises serious concerns and this issue deserves judicial review, she said.
To have standing to sue, the class representative, plaintiff Denise P. Edwards, had to meet three requirements, according to court documents: injury, causation, and redressability.
The defendants, First American Corp. and First American Title Insurance, argue that Edwards has not suffered a concrete injury and has not alleged that the charge for title insurance was higher than it would have been without the exclusivity agreement. In fact, the defendants have noted, the plaintiff cannot make that allegation because Ohio law mandates that all title insurers charge the same price.
If the Supreme Court rules against Edwards, CUNA's Dunn noted, it could help credit unions battle against unjustified, gotcha-types of lawsuits that are sometimes filed against lenders under RESPA.
A question raised but not answered so far in the case--and not likely to be addressed by the Supreme Court justices--is whether the title insurance company's tie-in arrangement with the title insurance company is, in itself, an improper arrangement.