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Regulator commends CUs efforts in Calif. budget crisis

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ALEXANDRIA, Va. (7/9/09)--While California's banks are denting their image from playing hardball on registered warrants--IOUs stemming from the state's budget crisis--credit unions received commendation from their federal regulator for their flexibility in working with the IOUs. "Credit unions are making a business decision to accept these warrants to assist their members affected by the financial situation confronting the state of California," said National Credit Union Administration Chairman Michael E. Fryzel. "I commend the credit union community in California for their willingness to prudently work with affected members, exemplifying what credit unions do best," he added. California lawmakers are wrestling a $26.3 billion state budget deficit. The state was expected to send out more than $3.3 billion in IOUs for the month to private contractors, state vendors, people getting tax refunds and local governments for social service. But banks are pressuring the legislature to end the impasse by saying they will not accept the IOUs after Friday. That tactic is earning them criticism from consumer advocates, and some say banks may lose customers to institutions willing to accept the IOUs longer--like credit unions. Credit unions have not set a deadline for accepting the IOUs, whose official redemption date is Oct. 2. According to California Credit Union League spokesman Henry Kertman, nearly 60 credit unions already have confirmed they would accept the IOUs. Only two indicated they might stop accepting them on Friday (Associated Press July 8). Credit unions are bucking the banks over the IOU issue to help their members, not to gain a share of the business now controlled by banks, said league economist Daniel Penrod (Union-Tribune July 8). Mission FCU is accepting IOU deposits of up to $5,000 from those who were members as of July 1, said Chief Financial Officer Ron Araujo. If the state warrants are larger than that amount, deposits must be approved by branch managers, he told the newspaper. At San Diego Metropolitan CU, which serves primarily city employees, a two-day hold will be placed on warrants from members who have belonged to the credit union for less than 30 days, said Linda Rossi, senior vice president of operations and marketing of the credit union. Riverside, Calif.-based Altura CU announced Tuesday it is accepting the IOUs without setting a deadline for them. "We realize that many of our members do not have the luxury of waiting months to access their money," said Ricki McManuis, senior vice president of corporate communications at Altura. "People need to be able to cash those warrants because they can't write IOUs to pay their own bills." The credit union will hold the warrants and redeem them when they mature. State Controller John Chiang's website advised Californians to contact their financial institution, and if the institution won't accept the warrants to "open an account at another financial institution that will accept registered warrants, or you will have to hold the warrant until it matures on Oct. 2." Banks are being criticized for taking multibillion dollar bailouts from the federal government while declining to lend a hand to the state's budget stalemate. Those warning they won't accept the IOUs beyond Friday include JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., as well as some regional banks, said Associated Press. Consumer advocates and government officials said banks should be more sympathetic, especially since they've benefited directly from taxpayer dollars. The IOUs carry an interest rate of 3.75%.

CUs fill void as student-loan lenders retrench

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CHICAGO (7/9/09)--Credit unions' student lending programs have gained the attention of The Chronicle of Higher Education. With traditional student loans in short supply as lenders retrench through the economy, credit unions are stepping into the opportunity of private student lending, Credit Union National Association Senior Economist Mike Schenk, told the publication (July 10). "It's very clear that in general, while other lenders are retrenching and scaling back, credit unions are lending more and more," Schenk said. Twenty-two credit unions in Connecticut have signed onto private loans since June, when Connecticut passed a law providing a partial guarantee for private loans credit unions make to students who are state residents or who attend college there. Fifteen credit unions in New Jersey pooled $50 million so they could make private student loans, New Jersey Credit Union League President/CEO Paul Gentile told the Chronicle. Very few of them were offering private loans before the group collaborated. Several other states' credit unions have expressed interest in the program, he said. Others offering the loans include USC CU at the University of Southern California, Los Angeles; Harvard University Employees CU and MIT FCU, both of Cambridge, Mass.; and Stanford FCU, Palo Alto, Calif., (News Now April 17, Jan. 26, June 11). Some of the programs offer specialized graduate student loan programs for international students who don't qualify for federal aid. And Credit Union Student Choice, a credit union service organization (CUSO) that provides turnkey private student lending services to more than 82 credit unions nationwide, has noticed the uptick in interest among credit unions. Those 82 credit unions have made about 3,000 loans, with an average rate of 5.8%. None of the credit unions charged origination fees. Other lenders typically charge 0% to 6% in origination fees, said Michael J. Weber, vice president of marketing at Credit Union Student Choice. In the Chronicle's article, Weber noted that there's been more discussion and activity among credit unions about student lending that ever before. On Tuesday, Credit Union Student Choice announced the creation of two new staff positions to help develop its program and accommodate the increase in business, according to a press release from the CUSO. Why the interest in student lending?
* Credit unions' membership is aging. Student loans help attract the younger set. * Credit unions didn't sell loans on the secondary market, so now they're in good position to offer the loans--unlike the big banks that watched their secondary market dry up. * Credit unions realize it's yet another opportunity in a bad economy to show how they come through to meet their members' needs.
Meanwhile, 31 Democrats said in a letter Tuesday that rather than ending the Federal Family Education Loan (FFEL) program--the major federal student lending program--Congress should look at alternatives. President Barack Obama's Fiscal Year 2110 budget would end the program and shift all federally backed student loans into the government-funded Direct Loan Program. It would make funding for Pell Grants mandatory (Congress Daily AM July 8). Among those signing the letter were Reps. Paul Kanjorski (D-Pa), Stephanie Herseth Sandlin of South Dakota, and Allen Boyd of Florida. The letter said that jobs in the legislators' states were at stake. The congressional publication said the letter could boost an alternative plan from a coalition of student lenders that includes nonprofit, state-based guaranty agencies. The alternative plan, based on a proposal that Sallie Mae made earlier this year, would preserve an originating and servicing role for private lenders but use capital from the federal government to make student loans.

Harvard researchers extol CUs cards practices

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CAMBRIDGE, Mass. (7/9/09)--Two Harvard researchers, using their independent research, extolled the virtues of credit unions' credit card practices in an op-ed item in The New York Times (June 23). The article, by doctoral students Ryan Bubb and Alex Kaufman, pointed out that the credit card industry says the Credit Card Accountability, Responsibility and Disclosure (CARD) Act "spells the end of the credit card as we know it." However, credit unions' example "puts the lie to these claims. Credit unions conform to the new rules already, while profitably maintaining the basic features that users know and love," they wrote. They conducted a study that compared credit cards issued by banks and those issued by credit unions. "We found that credit unions are less likely to charge the fees and penalties that the new act hopes to eliminate--and when they do, they charge less than other issuers." They also found that credit unions do not increase the interest rate if the borrower fails to make a minimum payment on time, they charge on average half the amount other issues charge for exceeding credit limits, and they offer lower annual fees and longer grace periods than other cards. Credit union cards "are a great test case for how regular cards will perform under the new law," Bubb and Kaufman wrote, warning, "Any bank that attempts to pad its bottom line by, say, levying large annual fees will likely see its customers flee to credit unions or to banks that emulate the credit union model." "Credit union cards demonstrate that punishing fees are not an essential ingredient of profitable lending. This should help assuage fears that the credit card act will bring disaster for credit cards. Rather, it should nudge them toward the gentler credit union model that many Americans already enjoy." Reacting to the study, Brett Thompson, president/CEO of the Wisconsin Credit Union League, said in a press release that because the new law will send many banks scrambling to devise new ways to drive profits, it's still up to bank customers to understand the terms of their cards, read the fine print and be vigilant to protect their own interests. "This study supports what we have always said," Thompson said. "Wisconsin credit unions look out for the best interests of their 2.2 million member owners, not just protecting them from unnecessary costs for credit cards but also on savings, loans, checking accounts, ATMs and just about every other financial service working people use." The league provided several media spots about the survey featuring Chris Henzig, league director of communications, explaining the study's results.

NYIB Friday is deadline to report classroom work

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COLUMBIA, S.C. (7/9/09)--The National Youth Involvement Board reminds credit unions that the deadline for reporting classroom financial education presentation data is Friday. NYIB will recognize top presenters and states at its annual conference Aug. 3-6 in Tempe, Ariz. The NYIB website will accept continual presentation data entry, but the official reporting year is July 1, 2008, to June 30, 2009. Reported data indicate that credit unions reached 300,000 students in classrooms for the second consecutive year. Youth advocates reported 11,245 presentations reaching 374,099 students in the 2007-2008 school year, NYIB said. “Based on classroom data, this year’s challenges have not dampened credit unions’ engagement with young people,” said NYIB Chairman Brandon Pugh, who is also director of communications and public relations at the South Carolina Credit Union League. NYIB’s website allows users to set up profiles, retrieve data, and enter schools or organizations for presentation entry. Collected data is valuable to credit unions, their associations and regulators, and legislators, NYIB said. For more information, use the link.

CFO Council grants record scholarships in 2009

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MADISON, Wis. (7/9/09)--Twenty-six credit union chief financial officers (CFO) and other financial professionals received nearly $50,000 in scholarships from the CUNA CFO Council this year. The council said that earlier this year it recognized that the recession would likely mean new financial challenges and decreased training budgets for credit unions in the coming months. To provide credit unions with more options to meet these challenges, the council increased its scholarship budget to this record amount. Scholarships were awarded based on financial need and could be applied to the council’s annual conference or Credit Union National Association educational programs. For more information, use the link.

CUs new elite card deemed one-of-a-kind

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FARMERS BRANCH, Texas (7/9/09)--Texas Dow Employees CU (TDECU) and TNB Card Services have launched a card product, Onyx, which blends revolving and non-revolving credit to offer triple buying power. The card was designed to compete with elite card brands. Onyx targets members with credit scores of 720 or higher. A cardholder with a $10,000 credit limit can access up to three times the line of credit. The first $10,000 is on a revolving limit, like a traditional card. The remaining balance, or non-revolving credit, is due in full at the end of each billing cycle, said the Texas Credit Union League (LoneStar Leaguer July 8). Cardholders also earn up to 2% cash back for all purchases, including non-revolving transactions. The card also has a benefits package that includes purchase assurance, price protection, extended warranty, travel accident and baggage delay insurance, master rental and concierge service. TDECU and TNB worked together to develop the card. “We took a look at our entire membership, and selected benefits that we felt would be attractive to our members from a brand and feature perspective,” said Ron Wright, TDECU vice president of payment systems. “It wasn’t an easy task, considering we completely customized our processing for this product by developing new fraud tables and risk management strategies in order to manage the complexity and expansion of the product,” added Darby McDermott, TNB Card Services account executive. “We also deployed an advanced behavioral scoring system to routinely monitor cardholder credit and automatically set new spending thresholds based on evolving credit score.”

IKiplingersI touts CUs on service rates

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WASHINGTON (7/9/09)--Credit unions are luring refugees from big banks with better rates and personal service, according to Kiplinger’s Personal Finance Magazine in its upcoming August issue. “Big banks want your money, too, but they’re turning customers off with higher fees and tighter lending--not to mention stress tests and troubled assets,” Kiplinger’s said. “They continue to raise fees, even as the grab for business intensifies and consumers are more cost-conscious.” The magazine touted credit unions’ lower fees by citing statistics from the Credit Union National Association (CUNA) that reveal the difference between what credit unions and banks charge for services. For instance, credit unions charge an average of $25 for overdrafts, while banks charge $30. Also, interest payments on a $25,000 loan for 60 months from a credit union would be $184 less than at a bank, the magazine said. Kiplinger’s also noted credit unions’ lower rates on auto loans. It gave an example of on credit union that charges 3.99% for loans with 12- to 60-month terms. Georgia’s Own CU, Atlanta, offers loan rates as low as 5.2% for 60 months. The credit union also says it will lower rates by a half-point if a member buys a hybrid vehicle, and promises $100 if it cannot lower members’ monthly payments when refinancing car loans.

Nows time to shine--economist to mountain CUs

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POST FALLS, Idaho (7/9/09)--Credit unions have managed through 20 recessions in their 100 years of existence and are flush with opportunities to help them through this one, an industry economist told a gathering of the Mountain Regional Credit Union Roundtable Wednesday. “A down economy should be viewed as an opportunity, not an excuse," Dave Colby, chief economist at CUNA Mutual Group, told 100 attendees. "Credit unions possess so many strengths that can be leveraged in showing members the value they bring them. What we do now will define us going forward.” Colby advised focusing on existing members first. “Use uncertainty as an advantage. Many consumers have been hurt during the recession" and are looking for someone local, they can trust. "Credit unions’ key differentiators over at least the next couple of years will be trust and community.” From a lending standpoint, members are looking for guidance and credit with reasonable terms, Colby said. He advocated a number of ways to leverage those needs by re-writing consumer loans from other institutions, helping members identify great bargains on homes or vehicles and providing an alternative for members struggling with onerous terms from other lenders. “Another strategy to employ with existing members is to promote thrift as a debt alternative,” Colby added. “Some members need to learn how to save, while others are looking for asset preservation. Sell the benefits of saving – from achieving a dream through a down payment to the value of having rainy-day funds versus being forced into bad credit terms in an emergency.” Even existing members don’t know all their credit union can do for them, Colby said. “You have the financial expertise to benefit members. Provide things like financial literacy assistance, or simplify consumer finance through direct deposit or auto bill pay. Then, elevate your credit union’s status in the community by promoting member and employee successes.” Colby cautioned credit union leaders not to focus too much on the current challenges and ignore the future. “Don’t neglect strategic planning. You need to prepare now for the path you will pursue in serving your future membership. “By focusing on your members and their needs during difficult times, they will become your biggest ambassadors. They won’t forget who was there for them when the going was tough. Not only will they become more ‘sticky,’ you’ll find them to be the best marketing tool you could possibly have.”