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CUNA Refutes Banks' Tax Attacks In Hill, White House Letters

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WASHINGTON (6/27/13)--Credit Union National Association President/CEO Bill Cheney Wednesday called it "offensive" that representatives of banks and thrifts, "which time and time again have needed taxpayer funded bailouts," have gone to top policy makers to say that "the government can no longer afford the credit union tax status." Cheney fought off the most recent bank attacks in letters to President Barack Obama and to Senate Finance Committee and House Ways and Means Committee leaders.

The CUNA letters were in direct and immediate response to letters the American Bankers Association sent to the president and the Independent Community Bankers Association sent to the Senate and House tax policy makers attacking the credit union tax status.

Cheney noted the positive benefits the credit union tax status conveys to everyday Americans. The evidence overwhelmingly suggests that credit unions are fulfilling the purpose of their tax exemption, Cheney noted. Credit unions offer higher returns on savings, lower rates on loans, and most importantly, low or no fees--and these benefits, combined, result in more than $8 billion in direct financial benefits each year to the 96 million Americans who belong to credit unions, he emphasized.

"The benefits from credit unions translate into real money that boosts communities and which consumers and small business owners can put in their pockets to use as they need or want to," the CUNA CEO noted.

Banks in recent days have elevated their attacks on the credit union tax status, as witnessed by the ABA and ICBA letters urging Obama and legislators to examine the credit union tax status.

Cheney warned in the CUNA letters that banks want to come to Congress and talk about how credit unions keep banks from making more money off of American consumers.

However, Cheney said, "the question is not whether the existence of credit unions adversely affects banks and their shareholders, but rather whether credit unions employ the tax status to fulfill the purpose for which it was created: 'to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.'"

Credit unions' cooperative structure leads them to be more risk averse, and this, in turn, leads to a countercyclical lending effect that permitted credit unions to continue to lend during the banking crisis when other lenders evacuated markets or were otherwise unable to lend, Cheney added.

The CUNA letters also refuted incorrect banker assertions regarding credit union structure and membership.

"Other than the banking trade associations' tired efforts, there is absolutely no evidence to suggest that the credit union tax status is controversial," Cheney wrote. "What is controversial," he added, "is the bankers' suggestion that credit unions ought to be taxed, which would in effect raise taxes on 96 million Americans."

Both CUNA letters also include a white paper that provides greater detail on the benefits consumers receive as a result of credit unions being in the marketplace.

For the full letters, use the resource links.

NEW: Baucus, Hatch Announce 'Blank Slate' Tax Reform; CUNA, Leagues Ready to Fight

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WASHINGTON (6/27/13, UPDATED 12:12 p.m. ET)--The leaders of the Senate Finance Committee, Sens. Max Baucus (D-Mont.) and Orrin Hatch (R-Utah), sent a letter to all their Senate colleagues today advising them to plan to be ready to tackle a tax reform vote early this Fall.

The letter notes that the committee will take a "blank slate" approach to its bill, which would remove all tax expenditures from the code and would add back in those that make the grade.

"Our tax code is bloated and outdated.  The income tax was established a century ago, in 1913.  And it has been a generation since our last tax reform in 1986.  As Chairman and Ranking Member of the Finance Committee, we are determined to complete tax reform this Congress," Baucus and Hatch pen in their "dear colleague" letter.

The senators' letters warns there is a tight timeframe for lawmakers who want to suggest language for the reforms; all proposed language for a bill must be submitted for the committee's consideration by July 26, it says.

"This is the scenario we have told credit unions to expect and it is the timing we have anticipated," said CUNA President/CEO Bill Cheney. "CUNA and the leagues launched our groundbreaking 'Don't Tax My Credit Union' campaign over a month ago to defend this threat.

"Our success will rest on credit unions engaging their members to send Congress a strong message: Don't Tax My Credit Union."

Cheney noted that credit unions offer higher returns on savings, lower rates on loans, and most importantly, low or no fees--and that these benefits combine to result in more than $8 billion in direct financial benefits each year to the 96 million Americans who belong to credit unions.

Already, there have been more than 170,000 visits to the "Don't Tax My Credit Union" site and 165,000 messages have been sent to the House and Senate. Some 300,000 people have also shown support for the "Don't Tax My Credit Union" campaign via social media outlets like Facebook and Twitter. 

"That can only be a beginning to the voices Congress hears so lawmakers truly understand that a new tax on credit unions would be a tax on those 96 million credit unions members," Cheney said.

NEW: Metsger Pledges Effective, Not Excessive, Regulatory Approach

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WASHINGTON (UPDATED: 11:40 A.M. ET, 6/27/13)--National Credit Union Administration board nominee Richard Metsger said "updating, simplifying, eliminating and clarifying existing rules to ensure that they are effective, but not excessive, consistent with safety and soundness," will be a focus if he is confirmed to serve the agency.

"I firmly believe a regulatory agency should strive to be its own best critic," he said, noting the NCUA's policy of reviewing one-third of its rules and regulations each year. "I can assure you that, if confirmed, this will not be merely a mechanical exercise for me. I will approach this rolling review with diligence," he added.

Metsger made his remarks in a prepared statement before the Senate Banking Committee this morning.

The nominee, who would fill the vacant NCUA board seat created when former member Gigi Hyland exited last year, served as Oregon state senator from 1999 to 2011, where he chaired the Oregon Senate committee that heard all financial institution legislation. He was a member of the board of directors at Portland Teachers CU from 1993 to 2001 and has also been a board member of Financial Beginnings, a nonprofit focused on increasing students' financial literacy.

"If confirmed, I will add a fresh set of eyes to policies old and new to reflect that diversity [of experience]," Metsger said.

He also listed the continued protection of the National Credit Union Share Insurance Fund as a priority. "Because the fund is capitalized by member credit unions themselves, it is in the best interest of member credit unions to have a strong, forward-looking regulator, committed to protecting the fund from losses," he said. 

Credit union safety and soundness is "job one" of the regulator, and "must not be compromised," Metsger added.

Concentration Risks, Examinations Highlighted in NCUA OIG Letter

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WASHINGTON (6/27/13)--There are currently 19 recommendations by the National Credit Union Administration  Office of Inspector General (OIG) that are open and unimplemented and, according to the OIG,  the top three in importance concern issues regarding concentration risks and examination procedures.

The NCUA OIG identified the unimplemented or partially unimplemented recommendations in response to a June 17 inquiry by Rep. Darrell Issa (R-Calif.), who heads the House Oversight and Government Reform Committee.

Named number one on the OIG's list of priorities is its recommendation that the NCUA determine whether to propose or change regulatory guidance to establish limits or other controls for concentrations that pose "an unacceptable safety and soundness risk," and to determine an appropriate range of examiner response to high risk concentrations.

The inspector general's letter notes that the agency agreed with the recommendation. The NCUA has provided training to examiners and issued a Supervisory Letter to credit unions (see resource link)  advising them how to evaluate and manage concentration risk.  

"NCUA further anticipates issuing--later in 2013--a proposed revision to update the risk-based net worth component of its current Prompt Corrective Action (PCA) regulation. In this regard, the agency has created a new taskforce to propose revisions to PCA and, to achieve this end, the taskforce is monitoring closely similar rulemaking in the banking industry," the letter notes.

Second on the open-actions list is an OIG recommendation for the NCUA to develop a "more specific process, such as trigger reports or standards, so examiners can better identify, analyze, and monitor loan concentrations during exams, as well as between exams."

The OIG notes that the NCUA has "current and future plans" to update its Automated Integrated Regulatory Examination Software (AIRES) to better guide examiners to the review of concentration risk.

To date, the OIG says, the agency has "enhanced the quarterly regional risk reports to better detect excessive growth of various loan investment products; updated the national risk reports to identify concentration risk, including excess levels in products such as real estate and (member business loans) and issued credit union and supervisory guidance addressing concentration risk and how to mitigate it."  

Final on the top three list is OIG's recommendation to require that examiners document and retain the "specific procedures and analysis performed during their quarterly review of the 5300 Call Reports" and then forward the analysis should then to the Supervisory Examiner for review.

Thus far, the OIG told Issa, the agency has added a worksheet to exam.xls within AIRES to help identify increasing levels of concentration. Further, the March 31, 2013, AIRES update included risk.xls, which is an excel workbook that provides a review for several key risk areas and helps determine appropriate risk-based examination scope steps.

"As with the first open recommendation noted above, we are continuing to monitor the agency's implementation efforts in this area as we plan and conduct current and future audits and (material loss reviews)," the letter concludes.

Rep. Waters' Panel On Housing Reform Includes CUNA's Hampel

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WASHINGTON (6/27/13)--Credit Union National Association Chief Economist Bill Hampel will discuss credit union priorities for housing finance market reform during a Friday panel discussion organized and moderated by Rep. Maxine Waters (D-Calif.), the ranking Democrat of the House Financial Services Committee.

This is the second in a series of panels convened to discuss "how to best provide safe, decent, and affordable rental and homeownership options to American families, while taking steps to prevent another crisis that led to the conservatorships of [Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac] in 2008."

The previous panel discussion was held in April. "This panel discussion builds on that conversation by providing an opportunity for industry stakeholders to share their point of view on how to approach reform," Waters said.

CUNA has repeatedly said that any changes to secondary mortgage market structure must allow credit unions and other small issuers to maintain full and unrestricted access to that market. CUNA has also highlighted the importance of preserving 30-year, fixed-rate mortgages and ensuring that the secondary market is strong enough to weather economic adversity.

The panel discussion will also feature commentary from:

  • National Association of Realtors Senior Policy Representative Anthony Hutchinson;
  • Independent Community Bankers of America Vice President of Lending and Housing Policy Ann Grochala;
  • Mortgage Bankers Association Vice President of Single-Family Research and Policy Development Mike Fratantoni;
  • National Multi Housing Council Senior Vice President of Government Affairs Cindy Chetti; and
  • American Securitization Forum Executive Director Tom Deutsch.
The discussion will be held at 9 a.m. (ET) in the Rayburn House Office Building.

A Senate bill that would wind down Fannie Mae and Freddie Mac and replace them with a new mortgage guarantor, the Federal Mortgage Insurance Corporation (FMIC), was introduced on Tuesday.  President/CEO Bill Cheney noted that the bill "is an important first step to creating a secondary mortgage market that focuses on ensuring access to all financial institutions in need a functioning mortgage market, including credit unions." (For more, see June 26 News Now story: Senators Unveil Important First Step To GSE Reform.)

CUNA is open to a variety of approaches to reform and looks forward to working with all interested congressional leaders.

CFPB Defines 'Responsible Conduct' For Supervised Entities

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WASHINGTON (6/27/13)--When launching an enforcement investigation the Consumer Financial Protection Bureau looks for some specific factors to determine whether a financial entity's conduct was "responsible." The bureau has sent out a guidance bulletin to make it clear what some of those factors are.

Only the top four credit unions in total assets are supervised and examined by the CFPB.

The factors the CFPB includes in enforcement discretion include:
  • The nature, extent, and severity of the violations identified;
  • The actual or potential harm from those violations;
  • Whether there is a history of past violations; and,
  • A party's effectiveness in addressing violations.
In addition, the CFPB guidance notes that in addition to those and other factors, supervised entities can engage in certain activities-- both before and after the conduct in question-- that the bureau may favorably consider in exercising its enforcement discretion. A party may:

  • Proactively self-police for potential violations;
  • Promptly self-report to the bureau when it identifies potential violations;
  • Quickly and completely remediate the harm resulting from violations; and,
  • Affirmatively cooperate with any bureau investigation above and beyond what is required.
The CFPB  bulletin refers collectively to the above as "responsible conduct," and notes such conduct "may favorably affect the ultimate resolution of a bureau enforcement investigation."

Use the resource link to read more on this from the CFPB.

New Rules On CU Loan Participations Take Effect July 25

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WASHINGTON (6/27/13)--July 25 is the effective date of the National Credit Union Administration's final rule on loan participations, which implemented a number of improvements, sought by the Credit Union National Association, from the original proposal.

CUNA President/CEO Bill Cheney welcomed the agency's changes to its original plan and said it gave credit unions a "much more workable framework" to utilize loan participations.

"The original proposal had strict limitations and we are pleased to see that NCUA has taken into consideration the majority of CUNA's recommendations and worked with the system to make significant improvements in the final rule," Cheney said of the rule.

The NCUA last week approved the final rule and set a limit on loans from one originator of 100% of a credit union's net worth. This is up from the proposed 25% of net worth cap. Also very significant, the federal regulator approved an expanded waiver process for the single-originator limit and limits to one borrower. CUNA urged such changes and the CUNA board emphasized credit union concerns as it worked to make the rule more practicable.

CUNA also sought the formation of a working group, which the agency established.

"We think the process and outcome were improved as a result. We will be urging similar approaches in the future," said CUNA Deputy General Counsel Mary Dunn.

The NCUA also approved a provision so that credit unions pushed over the limit by new rule can move their loans into line: such credit unions would not have to sell loans immediately to come into compliance but can bring their participation activity into line in the ordinary course of business or seek a waiver.

The rule was published in the June 25 Federal Register, and that document sets the July 25 effective date.

Use the resource links to read more.