CUNA Regulatory Advocacy Report
January 23, 2012
Here is our CUNA Regulatory Advocacy Report for the week of January 20, 2012, which highlights some of the issues we have been dealing with this week:
- CUNA Meets with New Treasury Assistant Secretary Cyrus Amir-Mokri
- CUNA Continues to Fight Back on NCUA Issues
- CUNA Urges CFPB to Provide Meaningful Regulatory Relief
- CFPB Holds Hearing on Payday Lending; Meets with the League and CUs
- CFPB – Request for Information Regarding Private Education Loans and Private Educational Lenders
- Payments Update
- HUD – Proposed Rule Implementing a Discriminatory Effects Standard into the Fair Housing Act
- Mountain America CU Receives Award from WH Advisory Council on Financial Capability
CUNA Meets with New Treasury Assistant Secretary Cyrus Amir-Mokri
Earlier this week, I had the opportunity to visit with Mr. Cyrus Amir-Mokri, the new Assistant Secretary for Financial Institutions, in his office at the U.S. Treasury Department. During the meeting, we had a candid discussion about a number of issues of concern to credit unions, including:
- Preserving credit unions’ federal tax exemption;
- Achieving meaningful regulatory relief, both from NCUA rules as well as those of other regulators;
- Treasury’s support for increased member business lending;
- The need for credit union supplemental capital;
- The recent Government Accountability Office study regarding NCUA’s handling of failed institutions, its use of prompt corrective action and its failure to provide GAO with the information it sought to verify NCUA’s loss estimates for the legacy assets of the failed corporates in a timely manner; and
- The Consumer Financial Protection Bureau, and that credit unions do not need any new regulations to make them protect the interests of their members.
In our meeting, he was engaged on all of these issues and the dialogue was extensive as he asked a number of insightful questions, including ones about NCUA and the need for regulatory relief. Click here for a copy of the follow-up letter I sent to him. We will continue urging the Administration to support credit unions by helping to preserve the tax exemption, providing regulatory relief and endorsing supplemental capital, while the Administration continues to stand behind increased member business lending for credit unions. Bill Hampel, Eric Richard, Mary Dunn, and Ryan Donovan accompanied me at the meeting.
CUNA Continues to Address NCUA Issues
I wanted you to be aware of our most recent efforts to stand up for credit unions, with strong support from the leagues, on a number of fronts with the National Credit Union Administration. In particular, as a continuation of our initiatives to get more information for credit unions about the agency’s budget, yesterday we sent to NCUA a detailed request for timely and more complete answers to a range of questions about the agency’s resource allocation and budget process. You can access the document we sent to NCUA here.
Another issue we are pursuing is more favorable regulatory and reporting treatment for Troubled Debt Restructurings (TDRs), which are loan modifications under which the loan agreement is changed to accommodate the borrower’s financial difficulties. Click here to see the memo we sent to Larry Fazio, NCUA’s Director of Examination and Insurance, that discusses a list of concerns about the agency’s handling of TDR requirements and recommendations for improvements.
We also continue to urge NCUA to either drop its proposal to regulate credit union service organizations (CUSOs) or to make substantial improvements before the proposal is adopted. CUNA Regulatory Advocacy staff reiterated our concerns and recommendations with several NCUA senior staff again this week. Click here to see the Comment Letter CUNA filed on the CUSO proposal.
In addition, CUNA has already weighed in with NCUA to raise concerns about the agency’s loan participation proposal, which was issued in December and among other things would establish concentration limits for purchasing credit unions and apply NCUA’s loan participation limitations to state chartered federally insured credit unions. Last week, CUNA held a number of conference calls with key subcommittees and CUNA Lending Council members on the proposal, and CUNA staff were on separate calls with league representatives as well. The Evangelical Christian Credit Union (ECCU), which is one of a number of credit unions with substantial loan participation programs, has developed an excellent comment letter and CUNA will be working with them and our other groups as we develop our own formal response to NCUA on the loan participation proposal.
While there are many concerns with the proposal, some of the more significant ones that we have already flagged and will address in our letter are:
- The proposal is not needed and NCUA has not provided sufficient justification for it;
- In fact, the proposal which purports to strengthen safety and soundness would have the opposite effect in that it would stymie the ability of a number of credit unions to use loan participations to manage credit and liquidity risks;
- Dual chartering would be hurt by eliminating flexibility for state regulators to address loan participation issues; and
- The concentration limits, particularly as they apply to loan participations purchased from one originator (25% of the net worth of the purchasing credit union), are arbitrary and raise concerns about their practical application.
CUNA Urges CFPB to Provide Meaningful Regulatory Relief
Yesterday, three senior Consumer Financial Protection Bureau (CFPB) staff who are heading up the agency’s project to streamline regulatory requirements met with CUNA’s Deputy General Counsel and Senior Vice President Mary Dunn to discuss the project and learn more about credit union’s regulatory concerns as they relate to federal consumer financial protection laws and regulatory requirements.
The CFPB group said they wanted to “identify areas of real concern” and develop useful recommendations to address regulatory streamlining issues. CFPB staff on the call yesterday reiterated that the project is a priority for the agency. The call focused on CUNA’s initial concerns about redundant and burdensome regulatory requirements in Federal consumer protection regulations and CUNA’s general ideas for improving rules imposed on credit unions without jeopardizing consumer protections. CUNA addressed a number of issues, including:
- Duplicate disclosures on ATM screens and on the outside of the machine that are not only redundant but that open the door to litigation when the outside notices have been removed, destroyed or otherwise disabled;
- The need for a higher trigger level for purposes of reporting and compliance under the Home Mortgage Disclosure Act (Regulation C);
- The need for changes in the Truth-in-Lending generally and in particular to the commentary regarding multi-featured open-end lending products;
- Limiting any possible CFPB data collections;
- Concerns about annual privacy notices; and
- Recommendations for further consolidating adverse action notices under Regulation B (Equal Opportunity Act and the Fair Credit Reporting Act) and relief from annual privacy notices.
In addition, CUNA urged the agency to undertake as one of its first projects streamlining the regulatory requirements associated with mortgage loans and credit cards. The CFPB is seeking comments through February 21st on streamlining the rules that were transferred to it in July. CUNA will be filing an extensive letter and will be circulating our draft shortly, working with a number of our subcommittees, councils and leagues. We will also be following up with another meeting at the CFPB, at its request, in the coming weeks. In the meantime, click here for CUNA’s Regulatory Comment Call regarding CFPB’s streamlining project and click here for CUNA’s survey to get your responses on regulatory provisions you would like to see changed.
CFPB Holds Hearing on Payday Lending; Meets with the League and CUs
The CFPB held its first field hearing yesterday on payday lending, in Birmingham, Alabama. CFPB Director Richard Cordray spoke about the need to examine and supervise payday lenders to ensure their compliance with federal consumer financial laws. You can read a transcript of Director Cordray’s remarks here.
The League of Southeastern Credit Unions President and CEO Patrick La Pine and his staff coordinated with the CFPB regarding the participation of Mr. Daryl McMinn, VP of Operations from Listerhill Credit Union. In his testimony, Mr. McMinn emphasized that credit unions provide better small, short-term loan alternatives to high fee payday lenders. He provided examples of how his credit union provides loans and other financial services to its members, as well as financial literacy programs. In addition, he urged the agency to concentrate on the problem areas with under-regulated or unregulated financial service providers, and not to increase the already enormous regulatory burdens on credit unions.
The hearing coincided with the release of the CFPB’s “Short-Term, Small-Dollar Lending Procedures” field guide that CFPB examiners will use to supervise and examine payday lenders with regard to federal consumer financial laws. For the first time, the CFPB will be able to supervise and examine all non-bank payday lenders. The field guide also describes the types of information that CFPB examiners will gather to evaluate payday lender policies and procedures, assess whether lenders are in compliance, and identify risks to consumers throughout the lending process.
The field hearing also included perspectives from consumer groups, non-bank payday lenders, other financial industry representatives, and the public. Also in attendance were Congresswoman Terri A. Sewell (D-AL) and United States Attorney Joyce White Vance.
CFPB Richard Cordray met with league member credit unions and representatives while he was in Alabama and I understand the discussions were productive and timely. I want to commend Mr. McMinn, Patrick La Pine, and his staff for their efforts to ensure that CFPB officials, wherever they go, have a good understanding of the work credit unions do to serve their members.
CFPB – Request for Information Regarding Private Education Loans and Private Educational Lenders
On January 17, 2012, CUNA filed its comment letter with the CFPB regarding its Request for Information concerning Private Education Loans and Private Educational Lenders. There are about 300 credit unions that currently offer student loans to their members. CUNA encouraged the CFPB to be mindful of the positive role credit unions play in providing student loans to members pursuing educational opportunities. We also encouraged the CFPB to continue to take an analytical and deliberative approach to its information gathering and rulemaking efforts, particularly with regard to generating a report regarding private education loans and private education lenders and with any follow-up actions. Along these lines, to the extent the CFPB has authority to do so, we encourage the CFPB to study the costs of higher education, the value received from higher education, and the impact of increasing costs on students and their families, and provide a report to Congress on its findings.
On Wednesday, CUNA participated on a call with the Financial Crimes Enforcement Network (FinCEN)’s Bank Secrecy Act Advisory Group (BSAAG) Suspicious Activity Report (SAR) Subcommittee to discuss the compilation of potential articles, trends, and data for the next SAR Activity Review publication planned for May 2012. We continue to coordinate on Bank Secrecy Act and other payment developments with our Payments Policy Subcommittee, the Examination and Supervision Subcommittee, Leagues, credit unions, our Compliance area, and others.
Regarding the Automated Clearing House (ACH) network, CUNA continues to work with NACHA – The Electronic Payments Association to advocate for beneficial changes to proposed rules that impact the ACH network and to minimize compliance burdens for credit unions. As part of their strategic planning process for 2013 to 2015, NACHA encourages credit unions and other ACH stakeholders to respond to an online survey on their use of the ACH Network, what types of priorities NACHA should focus on (e.g., Person-to-Person (P2P) and mobile payments, risk management programs, faster settlement and clearing, etc.), current initiatives and proposed rules, and any other feedback. The NACHA survey will be open through Tuesday, January 24, 2012.
Earlier this week, the Federal Reserve Bank of Atlanta posted a blog entry on establishing an effective, comprehensive payments risk management program for financial institutions. An effective risk management program should include: (1) proper planning and strategy on payments risk; (2) comprehensive understanding and identification of risks commensurate with the payments profile at the financial institution; (3) policies to help mitigate identified payment risks and internal controls over transactions; and (4) periodic measurement and monitoring. Financial institutions with successful risk management programs are able to assess and mitigate risks across multiple payment channels, products, and delivery systems. Also, the Federal Reserve Bank of Atlanta recently posted presentations from their November 2011 conference on “The Role of Government in Payments Risk and Fraud.” Presentations included discussions on the impact of regulatory efforts on fraud and payments risk from the Federal Reserve Board and Reserve Banks, Department of Justice, CFPB, and other entities.
HUD – Proposed Rule Implementing a Discriminatory Effects Standard into the Fair Housing Act
CUNA filed its comment letter with HUD on January 17, 2012. CUNA believes that incorporating a discriminatory effects standard into the Fair Housing Act is premature at this point. HUD should not consider implementing a discriminatory effects standard until after the U.S. Supreme Court has reached a decision in Magner v. Gallagher, No. 10-1032. The U.S. Supreme Court granted certiorari in this case on November 7, 2011 and oral argument is scheduled for February 29, 2012. In Magner v. Gallagher, the U.S. Supreme Court will review the precise issues that HUD’s proposed rule addresses. The questions presented in the case are (1) whether a lawsuit can be brought for a violation of the Fair Housing Act based on a practice that does not have a discriminatory intent but instead has a discriminatory effect, and (2) if so, what test should be used to determine whether a practice has a discriminatory effect and therefore violates the Fair Housing Act. CUNA is concerned that implementing a uniform discriminatory effects standard before Magner v. Gallagher is decided could cause unnecessary confusion for both lenders and borrowers regarding the proper interpretation of the Fair Housing Act.
Mountain America CU Receives Award from WH Advisory Council on Literacy
The President’s Advisory Council on Financial Capability held its first meeting of 2012 this week. The Council, which was established in 2010 to help the public understand financial matters and make informed financial decisions, would have concluded its efforts this month had the President not issued an Executive Order last month to extend the Council’s operations until January of 2013. The meeting included a discussion with Alan Krueger, Chair of the President’s Council of Economic Advisors, who focused on the European sovereign debt issue, the slow recovery from the recession, and the long-term unemployment rate.
In addition, the Council announced the recipients of the inaugural Workplace Leader in Financial Education award, which was created by the American Institute of Certified Public Accountants and the Society for Human Resource Management to highlight the importance of financial wellness in the workplace. Among the handful of recipients was Mountain America Credit Union, West Jordan, Utah, for its attention to financial literacy, as evidenced by the credit union’s financial education program that provides employees and their family and friends with targeted training and resources on financial issues. Mountain America’s program, which has been in place for almost a year, is intended to educate its employees for not only their benefit but also so that they have the knowledge base to understand and answer questions on financial matters that their members may have.
With all these issues, we will pursue credit unions’ regulatory interests to the greatest extent possible. In the meantime, if you have any questions or comments about this report, please feel free to contact Mary Dunn, Bill Hampel, or me.