CUNA Regulatory Advocacy Report

CUNA Regulatory Advocacy Report: March 16, 2012

Good afternoon. Here is the latest CUNA Regulatory Advocacy Report. Since CUNA’s Governmental Affairs Conference starts in earnest March 18, and CUNA staff will be tied up with the conference 24-7, we will not prepare a report next week.

Our next Regulatory Advocacy Report will be March 30, 2012.

  • Quarterly Report on National Credit Union Share Insurance Fund (NCUSIF)
  • Reminder: CFPB Seeks Nominations for Consumer Advisory Board
  • CUNA Meets with the CFPB’s “Older Americans” Office
  • CUNA Joins with Eight Other Major Trade Associations to File an Amicus Brief in Interchange Fee Litigation
  • CUNA Comments on Proposal to Eliminate Requests for Alternative Mortgage Limits for FHA Maximum Mortgage Amounts
  • CUNA Seeks Comments on HUD’s FHA Risk Management Initiative Revising Seller Concessions
  • CFPB Accepting Complaints for Auto & Installment Loans
  • CFPB Proposes Rule for the Protection of Privileged Information
  • CUNA Meets with SBA to Discuss Ways to Increase Credit Union Participation in SBA Lending
  • CUNA and Financial Trade Groups Meet with FDIC Regarding CFPB Remittance Transfers Rule and Underbanked Effects
  • NACHA Proposals on Healthcare Payments Processing and Non-Operator Transactions

Quarterly Report on National Credit Union Share Insurance Fund (NCUSIF)

The latest NCUSIF report reflects the positive trends the credit union system is experiencing. Also, in response to previous questions from CUNA and others, Chairman Matz raised a number of issues during the NCUA Board briefing yesterday on the NCUSIF to clarify the agency’s management of the Fund. NCUA staff reported that the NCUSIF’s equity ratio was at 1.30% as of December 31, 2011. The Fund ratio had risen to over 1.3% by year-end, and was brought back to that level by transferring the excess to the Corporate Stabilization Fund, reducing future stabilization assessments by that amount.

NCUA reported that although the number of CAMEL 4 and 5 credit unions rose during 2011, the insured shares in such credit unions fell substantially during the year. As of year-end 2011, there are 409 CAMEL 4 and 5 credit unions, up from 365 at the end of 2010. However, insured shares in Code 4 and 5 credit unions fell from $38.5 billion (5.1% of total insured shares) to $26.5 billion (3.3% of insured shares) in the year ending last December. NCUA staff also noted that there are 1,741 CAMEL 3 credit unions, which represent 15.9% of insured shares, or $126.5 billion. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 19.2% of total insured shares, down from 23.5% at the end of 2010. There were 16 total credit union failures in 2011, down from 28 in 2010.

Also, as of year-end, the NCUSIF’s reserves stand at approximately $606.6 million, which is down from over $1.2 billion at the beginning of 2011. The reduction was almost entirely due to a decrease in future expected failure costs rather than from actual losses due to resolutions of failed credit unions. In other words, actual and expected losses are substantially below what NCUA had expected a year ago.

What this means is that as a result of a substantial reduction in expected insurance losses, the Fund has been able to reduce its reserves, contributing to a very strong bottom line for the Fund in 2011. This is similar to the way some credit unions have been able to reduce allowance for loan and lease loss accounts in 2011, contributing to improved net income. In fact, if there was no Corporate Stabilization Fund, the NCUSIF would have paid a dividend in 2011 of about 3.5 basis points of insured shares to bring the fund down to 1.30% of insured shares. That would have represented a dividend rate of about 3.6% on credit unions’ share insurance fund deposits. Instead, the excess capital ($279 million) was transferred to the Stabilization Fund, which will lower future assessments by that amount.

Chairman Matz highlighted the decrease in the NCUSIF’s reserves and questioned whether the NCUSIF had been over-reserved, prior to the decrease. The agency’s Chief Financial Officer said NCUA is required to apply a specific reserving methodology, which reflects the agency’s best estimate at one point in time of the risk of losses to the Fund. Agency staff said they are reviewing the methodology as part of an ongoing process to minimize discrepancies between estimates and actual losses.

Turning to the Corporate Stabilization Fund, NCUA staff reported that in December 2010, the agency’s best estimate of remaining future losses related to the conserved corporate credit unions (the Fund’s Net Position) was $7.5 billion, as reported in the audited 2010 financials. According to the Fund’s unaudited December 2011 financial statements, the Net Position is now $5.2 billion. The decline reflects $2 billion in assessments paid by credit unions last year and the $0.3 billion transferred from the NCUSIF. However, this net position does not reflect any change in the valuation of the legacy assets since year-end 2010, despite the fact that there is an updated valuation as of June 2011 on NCUA’s website. The midpoint of the June valuation range is roughly $2 billion below the midpoint of the loss range behind the December 2010 audited financial statements. My staff estimates that unless there have been significant changes in valuation since last June, the current Net Position of the Fund is likely about $3.2 billion, about 40 basis points of current insured shares. Apparently the agency will not incorporate any changes in asset valuations until the next audited financial statements, which it expects by the summer.

Looking to the future, the NCUA Board announced that any NCUSIF premium for 2012 would be in the range of 0-6 basis points. Given the current still high level of reserves of the NCUSIF and the improving condition of credit unions, we would be very surprised if there were any premium this year unless the economy deteriorates considerably. On the Stabilization Assessment, NCUA’s Director of Examination and Insurance Larry Fazio reported that the assessment will be based on several factors, including the cash needs of the Stabilization Fund, the total costs of the resolution of the corporates, the remaining life of the Stabilization Fund, and the ability of credit unions to absorb assessments. Based on these factors, CUNA estimates this year’s assessment at somewhere between 6 and 10 basis points, although it could fall outside that range.

Reminder: CFPB Seeks Nominations for Consumer Advisory Board

We have gotten a number of inquiries about the Consumer Financial Protection Bureau’s Consumer Advisory Board, since it is seeking nominations for members of the Board. We addressed this issue previously but wanted to reiterate some of the details.

First, we want to emphasize that as we have indicated, CUNA is assembling a list of candidates that we will provide to the CFPB Director. Please let Mary Dunn at know as soon as you can if you want to be included or have someone else to nominate.

The Board will advise and consult with the Bureau regarding consumer laws and provide information about emerging trends and practices in the financial sector, including regional trends. The Board will meet at least twice a year and subcommittees of the Board may meet more frequently.

Under the Dodd-Frank Act, the Director of the CFPB must establish the Board which will have at least 16 members, all selected by the Bureau to represent the various interests affected by the Bureau. At least six of the members must be appointed based on the recommendation of the regional Federal Reserve Board Presidents, on a rotating basis, as required by the Dodd-Frank Act.

One-third will be appointed to an initial one-year term; one third will be appointed to an initial two-year term; and one-third will be appointed for an initial three-year term. The length of an appointee’s term will be determined by lottery. Members may be reappointed for a single, second term of three years. The Director will determine who will serve as Chairman and Vice Chairman of the Board. Expenses for non-governmental employees who served on the Board will be paid by the CFPB. Meetings may be held in Washington, DC or outside this area.

In terms of qualifications, the CFPB wants to ensure adequate representation by women, minority groups and individual with disabilities, as well as a diversity of viewpoints. The Board is to include experts in consumer protection, financial services, community development, fair lending and civil rights, and consumer financial services, as well as representatives of institutions that serve underserved communities or areas that have been impacted by higher-priced mortgage loans. Qualified candidates must represent geographic diversity and represent the interests of special populations such as service members, older Americans, students and the underserved. Registered lobbyists and felons (not to be confused!) cannot be appointed.

Nominations must include a letter describing the nominee’s interests regarding the Board and qualifications for the nomination. An indication that the nominee is willing to be considered for Board membership must be included along with a complete resume or curriculum vitae. Letters of recommendation will not be considered. Potential candidates may be asked about financial holdings and professional affiliations and a background check may be performed. We will keep you posted on additional information about the Consumer Advisory Board.

CUNA Meets with the CFPB’s “Older Americans” Office

Earlier this week, I had the opportunity to meet with Mr. Hubert H. (Skip) Humphrey, III, who heads up the CFPB’s Office of Financial Protection for Older Americans, and his staff. CUNA’s General Counsel Eric Richard and Deputy General Counsel Mary Dunn accompanied me.

This office will be focusing on priority assignments for the CFPB on issues concerning consumers age 62 and older and on insuring legitimate caregivers have the information they need to help older Americans avoid financial problems, including abuses from family members, unscrupulous financial counselors and others who seek to take advantage of seniors for their own financial benefit. Mr. Humphrey (yes, he is the son of the former Vice President) and his staff are well acquainted with credit unions and supportive of the efforts a number of credit unions have undertaken to help older Americans.

We were able to spend some additional time with Ms. Jenefer Duane in that office who is working to form national partnerships and coalitions, on a voluntary basis, that would include credit unions and other financial institutions, social services agencies, law enforcement officials and others to ensure abuses can be identified on a timely basis and to ensure that appropriate, remedial steps be taken to protect older Americans.

While I was supportive of these efforts, I also had the opportunity to reinforce that credit unions do not need any new regulations that require them to help consumers, including older citizens. They agreed and want to work with us so that credit unions receive more attention for the favorable programs underway in many areas.

Meanwhile, the CFPB has been working this week with the Southeast Credit Union Association to include a number of credit unions at March a 20th roundtable meeting in Miami to discuss problems confronting older Americans as they seek to manage their finances and what different stakeholders are doing to help. Kudos to Patrick LaPine and his staff for helping to arrange strong credit union participation at the CFPB meeting.

CUNA Joins with Eight Other Major Trade Associations to File an Amicus Brief in Interchange Fee Litigation

On November 22, 2011, several trade associations and two retailer groups (NACS, National Retail Federation, Food Marketing Institute, Miller Oil Co., and Boscov’s Department Store) filed suit against the Federal Reserve Board. The plaintiffs are challenging the Federal Reserve’s debit interchange fee final rule that went into effect last October, as violating the Administrative Procedure Act. The case is captioned: NACS, National Retail Federation, et al. v. Board of Governors of the Federal Reserve System (U.S. District Court for the District of D.C., Case No. 11-cv-02075).

The plaintiffs claim that the Board acted arbitrarily, capriciously and not in accordance with the law, and exceeded its authority under the Electronic Fund Transfer Act (EFTA), which was enacted by the Dodd-Frank Act. Specifically, the plaintiffs challenge the Board’s inclusion of several different types of costs in the final rule, claiming such costs should not have been included. The plaintiffs also challenge the final rule’s requirement that all debit cards be interoperable with at least two unaffiliated payment card networks, regardless of authorization method (PIN or signature), rather than requiring that all debit transactions be able to run over at least two unaffiliated networks (regardless of the authorization method) as required by the EFTA.

In the amicus brief filed March 15, CUNA and eight other major financial trade associations (Amici) argue that the Board’s final rule is deeply flawed as a statutory matter but for reasons contrary to those stated by the merchants. The rule has drastically reduced the debit interchange fees issuers may receive because the Board failed to allow all the costs to be counted that pertain to a debit transaction—not because it allowed too many costs to be counted. Thus, Amici make it clear in the brief they are not supporting the arguments made by either side in favor of or against the final rule, and that Amici are submitting the brief to help the court understand the full spectrum of views from all affected parties. Amici argue the plaintiffs are now pursuing even deeper cuts in issuers’ interchange fees and would further reap the benefits of debit card transactions and payment system innovations for free—an unwarranted and unfair windfall. Amici further argue that the final rule is already flawed because it imposes below-cost caps on interchange fees and does not (1) include all categories of costs incurred by issuers that are reasonably related to an issuer’s involvement in an electronic debit transaction and (2) provide for recovery of a reasonable return to issuers for their services. Therefore, Amici believe the plaintiffs’ position would exacerbate the Board’s failure to include costs of debit card transactions that are permitted by the statutory language of the Durbin Amendment to Dodd-Frank.

Regarding the network exclusivity rule, Amici argue that the plaintiffs’ position to require additional networks would also exacerbate the Board’s statutory interpretation error because the statutory language only requires the Board to prohibit issuers and networks from agreeing to limit processing to only one network, but does not require that the Board compel issuers to affirmatively enable any networks. Overall, Amici argue that plaintiffs’ positions would have the effect of further reducing access to financial services and imposing higher fees for millions of Americans, would threaten to reduce lending and investment by credit unions and banks, and would further benefit merchants at the expense of consumers.

CUNA Comments on Proposal to Eliminate Alternative Mortgage Limits for FHA Maximum Mortgage Amounts

The Department of Housing and Urban Development (HUD) sought comments regarding its proposal to eliminate the process for requesting alternative Federal Housing Administration (FHA) maximum mortgage amounts. Because HUD now has direct price data through CoreLogic for over 2,000 counties, as well as indirect price data for an additional 1,200 counties, only ten counties out of the total 3,234 counties in the United States could qualify for an appeal. But of those ten counties, HUD believes only one (Lancaster County, VA) could actually qualify for an appeal. Since the number of appeals dropped to zero in 2010, HUD finds that the rule permitting a process for requesting alternative FHA maximum mortgage amounts is outdated and unnecessarily disrupts its loan limit determination process. HUD expects that if the appeals process is eliminated, it would be able to release its annual loan limits one month earlier than it has for the past three calendar years (in October rather than November).

Earlier this week, CUNA filed a comment letter, noting that CUNA and its members appreciate HUD’s efforts to release loan limit data one month earlier each year than it does currently. This will enable lenders to accept, with certainty, loan applications in November and December conforming to the following year’s loan limits. However, we are concerned that eliminating the appeals process altogether will penalize the ten counties for which HUD does not have sufficient direct or indirect data to accurately determine a loan limit. Additionally, even though the number of appeals dropped to zero in 2010 (for the 2011 loan limits), we do not believe one year is enough time to conclude with certainty that the appeals process is altogether obsolete—especially given the lackluster state of the current mortgage market. For these reasons, CUNA recommends that HUD maintain an adequate process by which interested parties in these ten counties may request an alternative loan limit, at least until HUD has sufficient data (indirect or direct) to accurately calculate an appropriate loan limit for those counties.

CUNA Seeks Comments on HUD’s FHA Risk Management Initiative Revising Seller Concessions

HUD is proposing a rule that would limit the amount of closing costs a seller may pay on behalf of a homebuyer purchasing a home with financing insured by the FHA. HUD previously accepted comments on this proposal on July 15, 2010, as one of three initiatives proposed to help restore the Mutual Mortgage Insurance Fund (MMIF) capital reserve account. HUD proposes a cap of $6,000 or 3%, whichever is greater, on the concessions a seller may pay on behalf of a homebuyer in purchasing a home insured by FHA. HUD is also proposing narrowing the definition of acceptable concessions to include paying for the following: (4) the borrower’s actual costs to close on the loan, (2) the up-front mortgage insurance premium due on the loan, and (3) an interest rate buydown. HUD previously sought comments on a similar proposal in July 2010, and received over 900 public comments. HUD considered these comments in drafting the current proposal.

Comments must be submitted to HUD by March 26, 2012; please submit your comments directly to CUNA by March 23. Please email your comments to Senior Vice President and Deputy General Counsel Mary Dunn or Counsel for Special Projects Kristina Del Vecchio. The proposed rule is available here.

CFPB Accepting Complaints for Auto & Installment Loans

On Tuesday of this week, the CFPB announced that it is now accepting complaints for auto loans and other types of installment loans with large banks. Similar to the complaints now being accepted by the Bureau for private student loans, mortgages, credit cards and savings products, the Bureau will refer the complaint to the appropriate federal agency when a complaint is received that relates to a small bank or nonbank, and will immediately notify the consumer and identify which agency the complaint was referred to. For those complaints against large banks, the CFPB will handle the complaint directly. The CFPB in its blog indicated that it intends to expand its complaint handling functionality over time to include nonbank auto lenders, as well.

CFPB Proposes Rule for the Protection of Privileged Information

In other CFPB news, earlier this week, the CFPB published its previously announced proposed rule for the protection of privileged information that would codify protections for privileged information submitted to the Bureau by the financial institutions it regulates. In January, the CFPB advised supervised institutions that the submission of privileged information to the CFPB does not waive any applicable privilege with respect to third parties. The proposed rule is intended to provide supervised entities further assurances that providing privileged information to the Bureau will not adversely affect the confidentiality of such information. The proposed rule also clarifies that the CFPB’s transfer of privileged information to another federal or state agency does not result in a waiver of any applicable privilege. When enacted by Congress, the Dodd-Frank Act did not include a provision protecting the privilege of information submitted to the CFPB, even though both the Federal Deposit Insurance Act and the Federal Credit Union Act include such language. Earlier this year, legislation was introduced in the House to amend Dodd-Frank to specifically protect the privilege of information with respect to the CFPB. However, several Senators expressed concern about opening up the Dodd-Frank Act to amendment, so the House Financial Services Committee and Senate Banking Committee leaders introduced bipartisan legislation to fix the problem by amending the Federal Deposit Insurance Act. However, CUNA and NCUA expressed concerns to the Committees’ leaders that failure to provide a corresponding amendment to the Federal Credit Union Act could leave some doubt as to whether the privilege of information that credit unions submit to the CFPB is protected. The Committees’ staff counter that the definition of “person” in the Federal Deposit Insurance Act is intended to mean all persons, including credit unions. Nondepository financial institutions and others who may submit information to the CFPB have concerns similar to ours, and as a result, the legislation has been slowed down while the Committees’ staffs determine how best to resolve the issue. We will continue to monitor both the legislative and regulatory movement around this important area and keep you apprised of developments as they may occur.

CUNA Meets with SBA to Discuss Ways to Increase Credit Union Participation in SBA Lending Programs

Earlier this week, Regulatory Advocacy staff met with a representative of the Small Business Administration (SBA) that acts as a liaison between current or prospective SBA lenders and the SBA. We are working with the SBA to ensure credit unions are aware of the different SBA loan programs for which credit unions are eligible. While the level of credit union participation in SBA lending programs has steadily increased over the past several years, we believe there are still credit unions that are unaware of the loan programs or are apprehensive about participating in such programs.

The SBA’s 7(a) and 504 programs are the primary programs in which credit unions participate. The following options available under the 7(a) program may be of interest to credit unions.

  • The Small/Rural Lender Advantage initiative is designed to accommodate the unique loan processing needs of small community/rural-based lenders, many of which make very few SBA loans.
  • SBAExpress features an accelerated turnaround time for SBA review; a response to an application will be given within 36 hours.
  • CAPLines is an umbrella program that helps small businesses meet their short-term and cyclical working-capital needs. It features the following five lines: Seasonal Line, Contract Line, Builders Line, Standard Asset-Based Line, and Small Asset-Based Line.

The SBA has released a beta version of the lender section of its website to make it easier for current and prospective lenders to navigate and access information—including relevant forms—on these and all other SBA loan programs.
We will continue our efforts in this area and welcome your input on all-things SBA.

CUNA and Financial Trade Groups Meet with FDIC Regarding CFPB Remittance Transfers Rule and Underbanked Effects

On Wednesday, CUNA staff met with staff from the Federal Deposit Insurance Corporation (FDIC), along with other financial trade associations—including the Clearing House Association, NACHA – The Electronic Payments Association, ICBA, and others—to discuss concerns with the CFPB remittance transfers final rule and its unintended consequences and effects on the underbanked and other consumers. The remittance transfers final rule imposes very significant compliance and liability burdens on depository institutions that rely on “open networks” and correspondent institutions to transfer funds internationally. Depository institutions, especially smaller credit unions and community banks, will reduce their international transfer services, such as international wire and international ACH transfers, when the final rule becomes effective on February 7, 2013. CUNA has posted a summary of the CFPB remittance transfers final rule.

As discussed previously, the CFPB is also currently seeking comments on new remittances transfers proposal regarding the safe harbor provisions for the definition of a “remittance transfer provider” and several areas related to transfers that are scheduled in advance, including preauthorized transfers and disclosure requirements. Please review CUNA’s comment call for a summary of the proposal; we continue to seek comments from credit unions. We are also continuing to work with credit unions, Leagues, WOCCU, the CUNA Payments Policy and Consumer Protection Subcommittees, and others to identify compliance issues with the final rule and to advocate for meaningful changes for credit unions.

NACHA Proposals on Healthcare Payments Processing and Non-Operator Transactions

Earlier this week, NACHA issued two proposals regarding changes to the NACHA Operating Rules that apply to Automated Clearing House (ACH) transactions on healthcare payments processing and transactions without an Operator. The first proposal on healthcare payments and remittance ACH processing addresses possible ways that Receiving Depository Institutions (RDFIs) would provide “healthcare remittance information” and formatting requirements to their healthcare provider customers. Healthcare Electronic Funds Transfers (EFTs) would use CCD (Corporate Credit or Debit) entries on the ACH network. Comments on the healthcare ACH proposal are due to NACHA by April 27, 2012. In addition, the second proposal would permit Depository Financial Institutions (DFIs) to apply optional rules that specifically address ACH transactions that are processed without an Operator. Comments on non-Operator proposal are due to NACHA by April 20, 2012. CUNA will reach out to credit unions and review these proposals with the CUNA Payments Policy Subcommittee to determine the impact on credit unions. If you have any comments or questions regarding these proposals or other ACH developments, please contact CUNA Regulatory Counsel Dennis Tsang.


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.

Best regards,

Bill Cheney

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