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Issue with provision requiring 21-day statement notice on all open-end lines of ... independence and avoid conflict of interest, that lenders that sell mortgage ... – PowerPoint PPT presentation

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Defense Credit Union Council Annual Conference
San Francisco August 18, 2009
Presented by Dan Berger Executive Vice
President, Government Affairs National
Association of Federal Credit Unions
  • Congress Today
  • Legislative Issues
  • Regulatory Issues

  • Focus on Consumer Issues!

Legislative Issues
  • Declining interest in reg relief presents
    uncertain future in 111th Congress
  • Senator Chuck Schumer (D-NY) announces intention
    to introduce bill to remove CU Business lending
  • Congressmen Kanjorski and Royce introduced H.R.
    3380, Promoting Lending to Americas Small
    Business Act of 2009, on July 29, 2009

Legislative Issues (cont.)
  • NCUA Corporate Plan
  • NAFCU Testifies on Deposit Insurance Issues
    before Senate Banking FI Subcommittee on 3/19/09
  • NAFCU testifies on House plan as part of H.R.
    2351 on 5/20/09
  • Stabilization plan part of S. 896, became law on

Legislative Issues (cont.)
  • EESA/TARP/CLF in 111th Congress
  • (Emergency Economic Stabilization Act/Troubled
    Assets Relief Program/Central Liquidity Facility)
  • NCUA and NAFCU led efforts to allow the CLF to
    borrow up to its authorized amount of 41.5
    billion by removing artificial cap.
    Appropriations Omnibus allows that level until
    end of FY 09 FY 10 Appropriations bills
    continue to remove cap

Legislative Issues (cont.)
  • Regulatory Restructuring
  • Push to restructure financial regulators
  • NAFCU working to protect NCUA/NCUSIF
  • Frank, Dodd both have stated CUs not at fault for
  • Administration Proposal maintains federal charter
    and independent NCUA

Legislative Issues (cont.)
  • Regulatory Restructuring
  • Focus on Systemic Risk Regulator, Consumer
    Protection, Executive Compensation
  • H.R. 3126 would create new Consumer Financial
    Protection Agency
  • Would transfer NCUA consumer authority to CFPA
  • NAFCU letter to HFSC on 6/23/09 Create CFPA for
    unregulated create consumer office at NCUA
  • House attempting to complete their package this
    September Senate unlikely to complete their
    package until after House moves

Legislative Issues (cont.)
  • Credit Cards
  • H.R. 627, The Credit Card Accountability
    Responsibility and Disclosure Act of 2009 signed
    into law on 5/22/09
  • Issue with provision requiring 21-day statement
    notice on all open-end lines of credit in order
    to charge a late fee
  • Could eliminate consolidated statements and due
    date flexibility
  • Effective August 20, 2009
  • NAFCU has contacted key House and Senate members
    on this issue working with them, NCUA and Fed in
    effort to resolve

Legislative Issues (cont.)
  • Interchange Fees
  • Merchants announce campaign targeting 7 key
    lawmakers on 3/30/09
  • NAFCU responded with grassroots effort with CUs
    in those districts
  • Study passed as part of Credit Card bill (H.R.
  • No action yet on introduced bills
  • H.R. 2362 (Rep. Welch)
  • H.R. 2695 (Rep. Conyers)
  • H.R. 1212 (Sen. Durbin)
  • NAFCU successful in fending off attempts to
    attach interchange legislation to credit card
    bill and appropriations legislation

Merchants Newspaper Ad

NAFCUs Newspaper Ad
  • i

NAFCU/CUNA Newspaper Ad
The giant retailers are lobbying Congress for a
sweetheart deal - H.R. 5546. WHO WINS The
giant retailers who reap higher profits and
get exemptions from antitrust laws that could
lead to abuse. WHO LOSES Consumers who will
never see the savings. Small credit unions that
get squeezed. Local communities that will have
fewer choices for credit services. Tell
Congress H.R. 5546 means consumers lose.
Legislative Issues (cont.)
  • Overdraft Fees
  • Carolyn Maloney (D-N.Y.), Chair of the House
    Financial Institutions Subcommittee, reintroduced
    legislation H.R. 1456, on 3/12/09 to make the
    overdraft process as transparent as possible
  • Could eliminate credit union overdraft programs
  • GAO Report released 3/3/08 some disclosure
    issues for CUs, but CU fees generally lower
  • Payday lenders tying their fees to costs of
    overdraft in payday lending debate
  • Chairman Dodd has indicated he may want to look
    at issue as well

Legislative Issues (cont.)
  • Mortgage Bankruptcy Reform
  • House passed broad cram-down measure as part of
    H.R. 1106 this Spring
  • Senate Defeats Durbin Amendment to S. 896 by vote
    of 45-51
  • Durbin amendment would have used Obama
    modification program as a screen giving lenders
    a veto over bankruptcy by offering a
  • NAFCU letter led efforts expressing concerns
    about negative impact on credit unions
  • Senator Durbin, Chairman Conyers, and Chairman
    Frank have all said issue could arise again in
    the Fall if foreclosure and modification numbers
    dont improve

Legislative Issues (cont.)
AAFES Military Star Rewards MasterCard
  • NAFCU working Congress to
  • address this product
  • Its success is dependent on
  • the troops and their families
  • going into debt
  • Congress waiting until a new
  • Under Secretary for Personnel
  • Readiness is appointed.

Legislative Issues (cont.)
  • USAA using insurance products as a conduit to
    market financial products
  • Using both active and passive marketing
  • NAFCU actively working with DoD to address the

Legislative Issues (cont.)
  • CRA
  • Rep. Eddie Bernice Johnson (D-TX) introduced H.R.
    1479, the Community Reinvestment Modernization
    Act of 2009 on 3/12/09
  • Goal to modernize and expand CRA
  • Would extend CRA requirements to Credit Unions
    and other institutions
  • Currently has 46 co-sponsors
  • No companion bill in the Senate

Legislative Issues (cont.)
  • CRA
  • State Chartered CUs in Mass and CT have CRA
  • Barney Frank in 3/2007 Independent Banker (ICBA
    Magazine) CRA to credit unions
  • HFSC Hearing on 30th Anniversary of CRA on
  • NCRCs John Taylor says CUs discriminating
  • NAFCU letter in record
  • Issue could arise as part of Reg Reform

  • The goal is to create a more stable regulatory
    regime that is flexible and effective that is
    able to secure the benefits of financial
    innovation while guarding the system against its
    own excess.
  • Timothy Geithner and Lawrence Summers,
  • The Washington Post, Monday, June 15,

  • Financial Regulatory Reform
  • The creation of a new Financial Services
    Oversight Council of financial regulators
  • The enhanced regulation of securitization markets
  • The creation of a new Consumer Financial
    Protection Agency to focus on consumer protection
    in credit, savings and payments markets
  • The creation of a National Bank Supervisor Agency
    with separate status in Treasury with
    responsibility for federally chartered depository
  • Raise international regulatory standards and
    improve international cooperation

NCUA Board Composition
  • Deborah Matz-D
  • Expected chair
  • Term expires April 10, 2015
  • Gigi Hyland-D
  • Expected vice chair
  • Term expires August 2, 2011
  • Michael E. Fryzel-R
  • Term expires August 2, 2013

Corporate System Restructuring
  • Corporate credit unions should continue to serve
    the liquidity and operational/payment systems
    needs of natural person credit unions
  • Any solvent corporate credit union should be
    permitted to survive voluntary mergers will
    achieve economies of scale
  • Corporates investment authority should be
    carefully regulated for investment authority
    going forward, knowledge is key and independent
    risk analysis must be performed
  • Corporate credit unions should operate under a
    risk-based capital system
  • Maintaining membership capital should not be
  • Voluntary membership capital should be structured
    with a maximum cap and assessments based on usage

Corporate System Restructuring
  • Corporate credit unions should operate under
    corporate governance standards created and
    policed within the industry
  • Board members should consist of only qualified
    natural person credit union directors and staff
  • There should be term limit requirements such as 3
    years, 3 terms
  • There should be no trade association or league
    staff members allowed on corporate boards
  • There should be an independent supervisory
    committee that can hire outside expertise as
  • There should be an investment oversight
    committee it should be permissible for outsiders
    to be members of the committee to access
    requisite expertise

Corporate System Restructuring
  • NCUA will issue their proposed rule this fall.
    They have announced that they will hold a series
    of town hall meetings to discuss the rule. It
    will likely include
  • Concentration risk amendments
  • Changes to Capital requirements
  • At present there is not a plan to require natural
    person credit unions to recapitalize the
    corporate system

Corporate Stabilization Implementation
  • Borrowed 1 billion from Treasury to pay for the
    acquisition of the 1 billion U.S. Central
    Capital Note from the NCUSIF  as a result, the
    NCUSIF will no longer hold the capital note, will
    recognize a recovery of the 1 billion expense,
    and thus will have an increase in equity of 1
  • The NCUA Board directed NCUA staff to take
    necessary actions to legally transfer the
    obligation for performance of the Temporary
    Corporate Credit Union Share Guarantee Program
    (TCCUSGP) from the NCUSIF to the Stabilization
  • The NCUA Board directed NCUA staff to take
    necessary actions to legally transfer the
    obligations of the NCUSIF under the Temporary
    Corporate Credit Union Liquidity Guarantee
    Program (TCCULGP) to the Stabilization Fund

Corporate Stabilization Implementation
  • Credit Unions will be billed in September to
    increase the insurance fund to its normal
    operating level

Proposed Rule Implementing the S.A.F.E. Act
  • The proposed rule would implement provisions of
    the Secure and Fair Enforcement for Mortgage
    Licensing Act
  • The SAFE Act requires that federal agencies that
    regulate financial institutions promulgate rules
    governing the registration of mortgage loan
    originators employed by the institutions they
  • The SAFE Act requires states to create a system
    of licensing all other mortgage loan originators
  • Under the proposed rule, employees of
    federally-insured credit unions would be required
    to register with the Nationwide Mortgage License
    System and Registry (Registry). Similarly,
    federal credit unions would be required to
    register with the Registry
  • State-chartered CUSOs would have to be licensed
    under state law
  • NAFCU supports amendments to the rule to broaden
    the exemption for loan originators

Unfair or Deceptive Acts or Practices (UDAP)
  • NCUA, along with the Federal Reserve and the
    Office of Thrift Supervision issued a joint final
    rule prohibiting certain credit card practices
  • The rule is effective July 1, 2010
  • Part 706 of NCUAs regulations
  • Only FCUs not to state-chartered CUs
  • Overlaps with Credit Card Act

Credit CARD Act
  • Amends TILA, supersedes UDAP Regulation Z
  • Most provisions effective February 22, 2010
  • Two provisions effective August 20, 2009
  • 45-day advance notice
  • Statement sent 21 days before due date
  • Open end consumer credit plan (not just credit

Credit Card Act-21-Day Notification
  • No payment shall be charged a late fee unless
    statement is sent 21 days before the due date
  • Applies to all open end consumer credit plans
  • Not limited to credit card accounts
  • Loanliner and other open-end billing issues
  • If the CU offers a grace period, must be at least
    21 days
  • Grace periods are not mandated by the Act

21-Day Notification
  • NAFCU Response
  • Letter to Chairman of the Federal Reserve, July
    30, 2009
  • Letter to the NCUA Board, July 31, 2009
  • Meeting with the Federal Reserve, August 6, 2009
  • Ongoing discussions with NCUA

Internet Credit Reports
  • CUs will be required to post their credit card
    agreements on their websites
  • Fed collects and aggregates agreements from the
    industry (including CUs) and posts on a public
  • Needs Regulations from Fed
  • Ads for free credit reports must include
    reference to

Credit Cards to Under 21
  • Applications by a person under 21 for open end
    consumer credit must include
  • Submission of financial info indicating
    independent means of repaying obligation (needs
    Fed regulations), OR
  • Signature of cosigner (parent, guardian, spouse,
    or other person over 21)
  • Prescreen offers to persons under 21 prohibited
  • Joint credit cards no increase in credit card
    limit unless approved by parent, guardian,
    spouse, etc

Central Liquidity Facility
  • Background
  • CLF a source of backup liquidity for CUs
  • By statute, CLF can borrow up to 12 times
    subscription (currently at 43.8 B)
  • Recent Actions
  • Changes in investment policy shift of funds from
    US Central to U.S. Treasury securities
  • Shift due to accounting issue auditors finding
    that current 1.8 B of funds in U.S. Central is
    contra equity and not an asset, resulting in
    reduction of CLFs borrowing authority
  • Change in future funding arrangement NCUA
    examining ownership of stock (expected rulemaking
    in near future)
  • Key issue the greater the subscription, the
    greater the CLF borrowing authority to meet CUs
    liquidity needs

Home Valuation Code of Conduct
  • What is the HVCC?
  • The Home Valuation Code of Conduct (HVCC)
    contains requirements related to appraisals,
    including what lenders must do to ensure
    appraiser independence and avoid conflict of
    interest, that lenders that sell mortgage loans
    to Fannie Mae and Freddie Mac must agree to
  • Resulted from an agreement between the GSEs,
    OFHEO (predecessor of FHFA) and the NY Atty. Gen.
  • Applies to all lenders that sell to Fannie and
    Freddie, not just those in NY, and became
    effective on May 9, 2009
  • Compliance and Cost Challenges CUs finding the
    requirement of complete segregation of duties by
    CU employees to be costly
  • NAFCU supporting moratorium until less costly
    alternative found to ensure appraiser
    independence and avoid conflict of interest

Unrelated Business Income Tax (UBIT)
  • General Rule Organizations exempt from federal
    income taxation are subject to UBIT if the
    activity in question is a trade or business
    regularly carried on, and not substantially
    related to furthering the exempt purpose of the
  • Exception to the General Rule Federal Credit
    Unions are U.S. instrumentalities (I.R.C.
    501(c)(1)) and not subject to UBIT

Unrelated Business Income Tax (UBIT)
  • In recent years, the IRS has issued 26 technical
    advice memoranda (TAM) and found that the income
    derived from the following activities are subject
    to UBIT
  • Sale of Accidental Death and Dismemberment
  • Sale of Credit Life Credit Disability Insurance
  • Sale of Members Financial Management Services
  • Nonmember ATM Fees
  • Sale of Guarantee Auto Protection Insurance
  • Sale of Group Life Insurance, Health Insurance,
    Dental Insurance and Cancer Insurance
  • Sale of Car Warranties
  • Car Buying Services
  • Shared-branching arrangements, management
    services to other credit unions, certain CUSOs,
    and sales of financial management services
  • Check sales, collateral protection insurance and
    interchange income are not subject to UBIT
  • Outstanding Litigation challenging some of the
    TAMs pending

Defense Credit Union Council Annual Conference
San Francisco August 18, 2009
Presented by Dan Berger Executive Vice
President, Government Affairs National
Association of Federal Credit Unions
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