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Appeals court UIGEA is not unconstitutionally vague

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WASHINGTON (9/3/09)—The Unlawful Internet Gambling Enforcement Act (UIGEA) has had its vocal detractors and staunch supporters since even before it became law in 2006 and regulators have since been struggling with the task of implementation. In a recent opinion issued this week, the U.S. Court of Appeals in Philadelphia ruled that UIGEA is neither unconstitutionally vague nor does it violate gamblers’ right to privacy. The decision involves a suit filed in 2007 by the Interactive Media Entertainment & Gaming Association Inc., of New Jersey, against the U.S. Attorney General, the Federal Trade Commission (FTC) and the Federal Reserve System. The FTC and Fed are the federal regulatory bodies tasked with crafting rules to put the law into effect. In March 2008, U.S. District Judge Mary L. Cooper dismissed the New Jersey association’s challenge of UIGEA’s constitutionality and the Sept. 1 court of appeals decision upholds that ruling. The Internet Gambling law forbids the placing, receiving or in any other way knowingly transmitting a bet or wager using the Internet. Financial institutions are statutorily prohibits financial institutions from processing transactions used to place illegal bets online. A three-judge appeals court panel, rendering the 10-page decision, declared that UIGEA “clearly provides a person of ordinary intelligence with adequate notice of the conduct that it prohibits.” Credit Union National Association (CUNA) General Counsel Eric Richard Wednesday said, “This decision, however, in no way addresses the costly and vague unfunded mandate this law place on credit unions and other financial depository institutions.” Richard reiterated CUNA’s support for enforcement of reasonable laws to prohibit unlawful Internet gambling. “However, UIGEA inflicts unreasonable policing requirements on financial institutions, which have proven difficult for financial institutions to meet,” he said. House Financial Services Committee Chairman Barney Frank (D-Mass.) has introduced two bills on this issue. The first, the Reasonable Prudence in Regulation Act (H.R. 2266), would push back implementation of UIGEA by a year. It’s currently due to take effect on Dec. 1, this year. CUNA supports this bill. Frank’s second bill, the Internet Gambling Regulation Consumer Protection and Enforcement Act (H.R. 2267), would allow Internet gambling companies to accept bets from persons in the United States if they are licensed by the U.S. Treasury Department and maintain effective protections against underage and compulsive gambling and money laundering and fraud. CUNA hasn’t taken a position on this legislation. Neither bill has yet been scheduled for committee consideration.

Inside Washington (09/02/2009)

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* WASHINGTON (9/3/09)--Two reports criticizing federal regulators’ oversight of failed banks were issued last week. The reports come after the Federal Deposit Insurance Corp. (FDIC) was criticized in July for “slow and inefficient” oversight of the failed Franklin Bank of Houston (News Now July 9). The reports state that regulators should have been tougher with the National Bank of Ocala, Fla., and MagnetBank in Salt Lake City. Both failed in January (American Banker Sept. 2). FDIC’s inspector general said the FDIC supervised MagnetBank but could have taken more action, such as noting a 2007 exam that indicated problems with the bank’s commercial real estate lending. The report also said the Office of the Comptroller of the Currency should have been quicker to address problems it identified at National Bank, which failed because of construction and development loan losses ... * WASHINGTON (9/3/09)--The Federal Reserve Bank of New York has expanded its network of Term Asset-Backed Securities Loan Facility (Talf) agents to include investors Wells Fargo Securities LLC, Williams Capital Group LP, Loop Capital Markets LLC and CastleOak Securities LP (American Banker Sept. 2). TALF is intended to make credit available to consumers and small businesses by facilitating the issuance of asset-backed securities ... * WASHINGTON (9/3/09)--The Mortgage Bankers Association (MBA) was expected to propose a framework Wednesday that would overhaul Fannie Mae and Freddie Mac by allowing them to create securities that could be backed by certain kinds of mortgages (The Wall Street Journal Sept. 2). The companies would back the securities against defaults and pay fees into a federal insurance fund that would in return guarantee interest and principal payments to bondholders. However, the insurance fund would only go into effect if the companies suffered big losses. The framework would replace the current system--which assumes that the government would back Fannie and Freddie if they ran into trouble. The proposed backstop is needed to revive investor confidence, said John Courson, MBA president/CEO. Foreign investors have reduced their holdings in companies’ debts even though the government had infused Fannie and Freddie with capital. On Tuesday, Fannie and Freddie’s shares reportedly fell 17% in the New York Stock Exchange ...

CU-backed candidate wins Calif. special election

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WASHINGTON (9/03/09)--Credit union-backed candidate John Garamendi on Tuesday won a California special primary and will serve as the Democratic candidate for the congressional seat that will be vacated by incoming State Department official and current representative Ellen Tauscher (D-Calif). Garamendi, who currently serves as lieutenant governor and previously served as state insurance commissioner, was supported by the California Credit Union League and the Credit Union Legislative Action Council (CULAC), and defeated 13 fellow candidates by gaining 26.2% of the total vote. However, Garamendi will next need to win a special general election on Nov. 3, since he did not win the 50% of votes needed to automatically assume the vacant congressional seat. Garamendi is expected to win the seat because District 10, which spans Contra Costa, Solano and Alameda counties in Northern California, is mainly Democratic. Garamendi’s main opposition will be Republican David Harmer, with American Independence Party candidate Jerry Denham, Green Party candidate Jeremy Cloward, and Peace and Freedom Party candidate Mary McIlroy also set to contest the open seat. If Garamendi wins the November election, California Governor Arnold Schwarzenegger would appoint a replacement lieutenant governor. CULAC and the league earlier this year also supported Judy Chu (D-Calif.), who won a special election for the House seat from the 32nd district.

CDFI announces 100 of Recovery Act funds deployed

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WASHINGTON (9/3/09)--Money awarded through the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund has been dispensed in record time, with the full $98 million in Recovery Act funds for financial assistance being distributed to a total 59 CDFIs and 10 Native American CDFIs within two months of the start of this year’s program, the Treasury announced this week. In a statement announcing the distribution of the funds, CDFI Fund Director Donna J. Gambrell said that the release of the funds was a “significant accomplishment” that was “achieved by utilizing new internal business practices that enabled the disbursement of the Recovery Act resources faster than ever before.” These financial assistance awards are "critical to getting these community-based lenders the capital they need to provide distressed communities they serve with the resources to stimulate local economic recovery,” she added. Gambrell earlier this year reported that recent economic and political changes, combined with the decline of loan availability from the mainstream lending community, caused demand for CDFIs to "skyrocket." “Moving quickly to support communities made particularly vulnerable by the economic downturn” was a top priority for the CDFI Fund, Gambrell said in the recent release.

Free-market think tank backs increased MBL power

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WASHINGTON (9/3/09)--Existing restrictions on credit union business lending should be lifted through legislative action, the pro-free market, Washington, D.C.-based Competitive Enterprise Institute (CEI) advocated in a letter sent to Senate offices early this week. Though his organization promotes the complete removal of any rules that place caps on a credit union’s ability to provide loans to its members, CEI’s Director of the Center for Risk, Regulation, and Markets Eli Lehrer said that H.R. 3380, the Promoting Lending to America’s Small Businesses Act, is “a good start” that is “worthy” of “careful consideration.” The legislation, which was introduced in late July by co-sponsors Rep. Paul Kanjorski (D-Pa.) and Rep. Ed Royce (R-Calif.), would double the current statutory Member Business Lending (MBL) cap of 12.25%, and would exclude from the new 25% statutory cap loans of less than $250,000, business loans in underserved areas, and loans to non-profit religious institutions. Reiterating credit union claims that lifting the MBL cap could produce as much as $25 billion in new capital for investment, the letter added that the legislation would “expand credit where it is needed most” which could “presumably increase the level of prudential care taken with regard to credit-worthiness standards.” According to the letter, the smaller size and “narrowly-focused” lending standards of the “average credit union” result in the majority of available credit going to “smaller businesses that wish to use difficult-to-value assets,” businesses that can experience difficulties if they try to borrow from other financial institutions.