Activity Abounds for Credit Unions in the Capitol

Georgia CapitolThis week the state Legislature reached day 13 of the 40-day session, and is moving even slower than last year as the session was at the midway point this time in 2010. Revenue numbers are up, but the state still has deep budget cuts to make as the gap between what is needed to run the state and what is available is a chasm. In this setting, the Legislature continued their review of the Tax Council’s proposal to reform the state’s tax code. This proposal, and the (likely) many bills on tax reform measures that will follow in the coming weeks, will occupy a significant portion of time in the Legislature. But even with the issues of the budget, tax reform, and other well-publicized topics of water, transportation, and immigration, there were several issues of industry interest that saw activity in the past four days:

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State News

Activity Abounds for Credit Unions in the Capitol
Registry Bill
Legislative Leadership Night with Credit Unions

Washington, D.C. News

Senate Banking Agenda Includes MBLs & NCUA Oversight
Warren: CFPB Will Work for Reduced Reg Burden
Treasury Housing Plan Could Eliminate GSEs
House Financial Services Plans to Address CU Priorities

Industry News

CU Loan Volume Drops for the First Time Since Early 80s

Public Influence

Cheney Talks Interchange, MBL Cap on Bloomberg Radio
Money Rocks at My Credit Union!
Social Media Gets New Focus at NCUA

News of Interest

Bellco Receives UBIT Refund from IRS
54% of ATL Mortgages Underwater

News of the Competition

FDIC Sues Georgia Law Firm

 
February 11, 2011
 
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State News
 

Activity Abounds for Credit Unions in the Capitol

This week the state Legislature reached day 13 of the 40-day session, and is moving even slower than last year as the session was at the midway point this time in 2010. Revenue numbers are up, but the state still has deep budget cuts to make as the gap between what is needed to run the state and what is available is a chasm. In this setting, the Legislature continued their review of the Tax Council’s proposal to reform the state’s tax code. This proposal, and the (likely) many bills on tax reform measures that will follow in the coming weeks, will occupy a significant portion of time in the Legislature. But even with the issues of the budget, tax reform, and other well-publicized topics of water, transportation, and immigration, there were several issues of industry interest that saw activity in the past four days:

  • “Protecting Georgia’s Homeowners Act of 2011” (HB 204): As anticipated in last week’s Legislative Update e-mail, Rep. Billy Mitchell introduced this legislation aimed at foreclosures . . . but specifically, foreclosure rescue scams. The bill will be reviewed closely, but in the current version exempts financial institutions in its language to prevent homeowners from falling victim to individuals who defraud consumers out of their homes under false pretenses.
  • The Insurance Certificate Bill (HB 66), after much debate in the halls, was heard in the Insurance Committee this week. Last week’s Legislative Update e-mail highlighted this bill from Rep. Howard Maxwell on the new process that the Insurance Commissioner instituted with his January 10th directive on creating/approving forms to be used to provide evidence of an insurance policy’s existence. The Government Influence Team has worked with the bill sponsor to modify the language to make it clear that financial institutions are notified in the event of a lapse in coverage, and will continue to monitor this bill as it moves through the legislative process.
  • Immigration reform . . . not a topic one would typically consider in credit unions, but one that is important to watch as it could impact the hiring practices for any business. One of the bills on this topic is HB 87 by Rep. Matt Ramsey, which among other things, would require any business employing five or more individuals to utilize the federal employment eligibility verification system known as E-Verify. Many credit unions are already familiar with this system, but this bill if passed would require its use before a business license could be issued or renewed.
  • Credit Report Review Bill (SB 42) by Sen. Donzella James which would limit when an employer could review a credit report for hiring purposes, but currently exempts federally insured credit unions and banks.
Rounding out the activity on the final day the week was the Attorney General’s anticipated bill HB 237 to address “robo-signing” foreclosures, the Department of Banking and Finance’s Housekeeping Bill (HB 239), and HB 209 on how foreclosure sales are listed. As of press time these three bills are in the process of being introduced and will soon be analyzed. Watch for next week’s Legislative Update e-mail for details on this legislation and the rest of the activity of next week. As always, to learn more about these bills and the others that are being monitored on behalf of credit unions, please click here to access the Georgia credit union legislative tracking site.
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Registry Bill

This week the Vacant Property Registry bill (HB 110) by Rep. Mike Jacobs was heard in Judiciary Committee this week. In the days following, it was subsequently redrafted with input from various industry representatives ranging from the Government Influence Team, banks, Realtors, home builders, county, city government officials, code enforcement officers, and the State Bar. All individuals with different perspectives and issues that are being pushed . . . and the bill is likely to change again in the next several days!

Readers of last week’s Legislative Update e-mail will recall that this bill seeks to prevent counties and cities from creating (or continuing in some areas) foreclosure registries with significant fees, and would set parameters for any local government that sought to institute one. While the bill in its original form expanded the concept of a “foreclosure registry” to any property that is abandoned or unoccupied, it appears that this concept would be difficult at best to track (and as a financial institution, almost impossible) and as such, is being reconsidered as just applying to foreclosure properties. The Government Influence Team is working closely with the bill sponsor and interested parties to protect the interests of credit unions as one can imagine the various viewpoints on this bill.

This legislation seeks to set standards across the state, limit the scope to how local governments apply this concept, and cap the fees that are associated with such. With the patchwork of at least 11 cities or counties that have activity on this front – either with enacted foreclosure registries (such as DeKalb County), or cities that have instituted vacant property registries (such as Albany), or counties that have recently considered but have not instituted anything yet (such as Gwinnett) – one can see how uniformity across the state on this issue could be beneficial. Stay tuned!

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Legislative Dinner
From left: Warren Butler, Georgia United CU; State Rep. Tom Dickson; State Sen. Jesse Stone; Phyllis Cochran, Augusta VAH FCU, and State Rep. Jon Burns
Legislative Leadership Night with Credit Unions

Building relationships with legislators is an important factor for any group that takes an active role in advocacy activities to help shape legislation. On Tuesday, February 8th the credit union movement had that opportunity when the credit union systems boards and Advocacy Policy committee members and CUPAC Trustees met with state elected officials at the annual League-hosted legislative dinner that is held in conjunction with the February board meetings. State senators and representatives from the two banking committees, caucus leadership, Attorney General Sam Olens, and Insurance Commissioner Ralph Hudgens spent the evening with credit union advocates learning more about our industry. The legislators heard firsthand from credit union leaders on how credit unions make a difference in the lives of 1.8 million Georgians. This event is a prime opportunity to build relationships with the elected officials who make decisions on issues that impact the ability to serve your membership; and there were a wide range of legislators to share the credit union message. After the event credit union leaders and legislators alike commented to the Government Influence Team on how many elected officials were in attendance, and how much they appreciated the opportunity to meet with each other.
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Washington, D.C. News
 

Senate Banking Agenda Includes MBLs & NCUA Oversight

Member business lending (MBL), interchange fees, and oversight of some NCUA actions will be a few of the many issues discussed as the Senate Banking Committee progresses through its work in the 112th Congress. Committee Chairman Sen. Tim Johnson (D-S.D.) laid out these and other priorities in a recent memo to his committee colleagues.


U.S. CapitolThe MBL cap, which currently stands at 12.25% of total assets, could be raised as high as 27.5% if legislation that was offered by Sen. Mark Udall (D-Colo.) is reintroduced this year. Lifting the MBL cap would inject over $10 billion into the economy, creating over 108,000 new jobs at no cost to taxpayers.

CUNA has called for a comprehensive examination of interchange regulations, which are slated to come into effect later this year. The Federal Reserve's interchange proposal would place an arbitrary cap, perhaps as low as 7 cents, on interchange fees, and CUNA has warned that this arbitrary cap could result in credit unions having to eliminate their debit card programs altogether. Credit unions may also be forced to introduce new fees in an effort to keep their vital debit card programs alive. More than 450 Georgia credit union advocates have voiced their concern to the Fed on the proposal; to send a letter today please use the Grassroots Action Center before February 22nd.

Other activity of the Senate Banking Committee will be on NCUA's ongoing efforts to deal with the effects of the corporate credit union crisis. Prompt corrective action and net worth standards for credit unions will also be discussed, as will insuring interest on lawyers' trust accounts at credit unions. Johnson in the Senate Banking memo said that some of these pressing credit union issues could be addressed through oversight hearings, while others could require legislative intervention. More general financial priorities for the committee include oversight of Dodd-Frank Act implementation and possible housing finance reform. The committee had not released a schedule of upcoming hearings at press time.

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Warren
Elizabeth Warren
Warren: CFPB Will Work for Reduced Reg Burden

The Consumer Financial Protection Bureau (CFPB), once it is fully organized later this year, will work to reduce some regulatory burdens faced by credit unions and other financial institutions and will review the impact of its own rules on credit unions and other small financial service providers, CFPB architect Elizabeth Warren said in a recent letter to Rep. Randy Neugebauer (R-Texas).


Warren's letter was prompted by a Jan. 18 request from Neugebauer for more information on the development and future operations of the CFPB. Neugebauer, who serves on the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit, also discussed the CFPB during an early January meeting with Warren. In Warren's letter, she said she shares Neugebauer's "concern for promoting consistent regulation and minimizing implementation burdens," and added that the CFPB’s dialogue with the NCUA and other financial regulators is "imperative" as the CFPB transitions into its own regulatory activities.

The CFPB will take over a number of regulatory roles from the Federal Reserve and other agencies on July 21. The NCUA will remain mostly independent, however, as credit unions holding less than $10 billion in assets will not be examined by the pending CFPB. The NCUA will have a seat on a pending regulatory council. CFPB representatives have discussed the agency's goals and future work with credit unions, leaders of other financial institutions and individual consumers as it works toward the July 21 deadline. CUNA has met with the CFPB as well, stressing the need to minimize credit unions' regulatory burdens, costs and requirements . . . and has delivered commentary on how consumer financial regulations can be improved and how consumer financial disclosures can be pared down. CPFB has noted that improving the transparency and consumer-friendliness of many financial products would benefit credit unions, holding competitors to the same high standards generally used by credit unions in these core areas.
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Treasury Housing Plan Could Eliminate GSEs

Government-sponsored enterprises Fannie Mae and Freddie Mac, and the concept of government-backed mortgages itself, could be eliminated under a U.S. Treasury plan, Bloomberg News has reported.

GSE elimination is one of three options that will soon be presented by Treasury Secretary Tim Geithner, the Bloomberg story said. White House Press Secretary Robert Gibbs confirmed that that presentation would be made before Congress this Friday, February 11th.


The Treasury is also expected to suggest a gradual phasing out of government guaranteed mortgage-backed securities, thus restricting government intervention in the mortgage market to only the worst of financial situations. Geithner will also propose an incremental reduction in the government's support of the GSEs as a third option. The conforming loan cap, which currently stands at just over $729,000, would also be reduced under one proposal. The Treasury will stop short of proposing specific legislation, and sources told Bloomberg that the proposal could change before it is delivered to the Congress.

GSE reform, and, more specifically, transitioning the GSEs out of their current conservatorship, was the focus of a February 9th hearing before the House Financial Services Committee's capital markets subcommittee. Republican House members and other GSE critics have taken issue with taxpayer costs associated with the government takeover of Fannie Mae and Freddie Mac. In a letter sent to Geithner, Consumer Financial Protection Bureau architect Elizabeth Warren and House and Senate financial committee leaders, CUNA recommended that the government find a way to promote housing market efficiency, even if Fannie and Freddie are replaced. The government should also develop a strong supervisory system for secondary mortgage market participants, CUNA said, and added that secondary mortgage market should remain open to all parties.

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House Financial Services Plans to Address CU Priorities

Credit union priorities such as interchange fee legislation, financial regulatory burdens, and examination of some NCUA actions will be among the oversight priorities of the House Financial Services Committee.

The panel held a markup session to determine its oversight priorities for the 112th Congress on February 10th. The committee in its oversight plan report said that the effectiveness of financial regulations and the difficulties caused by regulatory burdens will be examined, and added that it may require regulators to review their own rules to "identify those which may be unnecessarily burdensome or outdated." A specific review of the corporate credit union system's recent issues and possible reforms to the corporate system and the NCUA itself is also planned. The committee also plans to review whether government support of larger financial institutions has harmed credit unions and other small institutions by implying they are "too small to save." The panel has scheduled a Feb. 17 hearing on interchange fees, and the committee also highlighted interchange fee examination in its oversight plan.

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Industry News
 

CU Loan Volume Drops for the First Time Since Early 80s

Credit union loan portfolios nationwide collectively declined by 1% in 2010 – the first time in roughly 30 years that their loans declined, according to a CUNA economist's analysis of December's monthly estimates of credit unions. "Full-year 2010 operating results at credit unions were a mixed bag," Mike Schenk, CUNA vice president of economics and statistics, told News Now. "The 2010 results reflect some substantial operational improvements, but also reveal that credit unions have not fully recovered from the effects of the economic downturn."

Loan chartsUsed-auto loans (4%), fixed-rate first mortgages (2%) and credit cards (2%) all showed increases in the year, but most other areas of loan portfolios eked out marginal gains or reflected outright declines, Schenk said. "Indeed, in the aggregate, credit union loan portfolios declined by 1% during 2010 – the first year since 1980 that the portfolio shrunk," he added. "This is a clear reflection of weak labor markets, a general nervousness on the part of many consumers and, as a consequence, members who are focused on paying down debt to manageable levels."

Credit union loans outstanding decreased 0.2% during December, the same decline as in November. Credit card loans led loan growth, increasing 1.5%, followed by fixed-rate mortgages, unsecured personal loans, and used-auto loans, which rose 1.0%, 0.7% and 0.3%, respectively. Meanwhile, home equity loans declined 0.1%, adjustable-rate mortgages dropped 1% and new-auto loans fell 1.8%. Credit union loans in December totaled $579.1 billion, compared with $587.4 billion in December 2009.

Credit union savings balances grew 0.6% in December 2010, compared with a 0.5% decrease during November. Share drafts led savings growth, increasing 2.8%, followed by regular shares (0.9%) and money market accounts (0.3%). Individual retirement accounts rose 0.3%, while one-year certificates decreased by 0.3%. Credit union savings in December totaled $804 billion – or $34.6 billion more than the $769.4 billion in December 2009. "Credit union savings balances increased by a modest 4.5% in 2010, led by an 11% increase in regular shares and a 10% jump in money market accounts," Schenk said. "Share drafts and individual retirement accounts grew by 6% and 4% respectively, but certificates – which account for one-third of total credit union savings – declined by 5% in the year. Members have clearly decided that with market interest rates stuck near 0% it makes more sense to pay down debt than to build savings balances."

The combination of declining loans and growth in savings account balances pushed the movement-wide loan-to-savings ratio down to 72% at the end of 2010 – a significant decline from readings of 76% at year-end 2009 and 83% at the end of 2008, Schenk said. While a steep yield curve undoubtedly helped to buoy credit union earnings low loan growth and the resulting relatively fast growth in investment portfolios put pressure on credit union earnings during the year, he added. The liquidity ratio – the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities – remained constant at 19%. To read more please click here.

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Public Influence
 

Cheney Talks Interchange, MBL Cap on Bloomberg Radio

CUNA President/CEO Bill Cheney during a February 3rd appearance on Bloomberg Radio's Taking Stock with Pimm Fox urged the Federal Reserve to stop and study the new Interchange law, rather than forging ahead with new rules, so that everybody wins – consumers, merchants and financial institutions. The Fed should be given the time needed to consider all interchange-related costs and set a reasonable interchange rate to avoid "unintended consequences," Cheney said. These unintended consequences could include the elimination of debit card programs by credit unions or the addition of new fees that would be imposed on credit union members in order to keep the programs. The Federal Reserve's interchange proposal would place an arbitrary cap, perhaps as low as 7 cents, on interchange fees. Cheney challenged retailer claims that any savings gained from this interchange fee cap would be passed on to consumers.


The promise and progress of credit union member business lending legislation was also addressed during Cheney's appearance. Prompted by one show host's observation that big banks have recently been reluctant to lend to small businesses, Cheney noted that credit unions are waiting to do more to help the economy, and could do so if the cap is raised. Cheney also confirmed one host's suspicions that fear of competition is the sole motive behind banker opposition to the MBL cap lift.

The hosts noted Federal Reserve Chairman Ben Bernanke's statement that more jobs would be needed if the economic recovery is to be sustained, and Cheney said that that employment gap could also be filled once the MBL increase is passed into law. Lifting the MBL cap to 27.5% of total assets would create over 108,000 new jobs, Cheney said. CUNA has estimated that the MBL cap increase would add $10 billion in new funds into the market, at no cost to taxpayers.

Click here to hear an excerpt from Cheney's comments.

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Youth Week 2011Money Rocks at My Credit Union!

Whether your credit union chooses to celebrate National Credit Union Youth Week™ the entire month of April or just during the official dates, April 17-23, 2011, CUNA offers plenty of resources for a successful celebration, including:

Now is the time to start planning — Youth Week early bird pricing ends March 4, 2011. Transform youth into saving rock stars – learn more and order promotional materials today!

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Social Media Gets New Focus at NCUA

NCUA, known already to "tweet" on Twitter, is enhancing its outreach through social media and has brought on a new employee to lead the charge. NCUA says it wishes to ensure a "vibrant and active presence in the social media sphere," which includes a presence, not only on Twitter, but on Facebook, YouTube and other forms of electronic communications as well. Kenzie Snowden is the NCUA's new social media and outreach specialist. She started in that position a week ago.


NCUA Chairman Debbie Matz said of the development, "The Social Media and Outreach Specialist position is about the future. NCUA is continuing to explore all avenues to enhance communication with consumers, the credit union industry, and other audiences. I look forward to NCUA reaching new audiences, and new levels of transparency, through the outreach that will be initiated by our Social Media program." Prior to joining the NCUA, Snowden did a stint in social media development with the public affairs office at the U.S. Patent and Trademark Office.

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News of Interest
 
 

RefundBellco Receives UBIT Refund from IRS

Bellco CU received three checks on February 1st totaling $291,691.62 from the IRS, the result of the Greenwood Village, Colo.-based credit union winning its challenge to the IRS's policy toward unrelated business income tax (UBIT) and its application to credit unions. Bellco CU CEO Doug Ferraro told News Now the three checks were "a full refund of the three years in which we sued over" the IRS's policy. He noted his law firm received the checks yesterday. "It nearly brought tears to the eyes of one staff member who worked on this case for so long," Ferraro said. "In the end, credit unions prevailed on every major issue in the lawsuit. It was a decisive blow to the IRS position on various elements of UBIT for state-chartered credit unions, and serves as a template for organizing insurance and investment activities in a way to ensure they are not subject to UBIT," he said.


Judge Christine M. Arguello of the U.S. District Court of Colorado in Denver ruled in November 2009 that investment and insurance products sold by Bellco to members, including credit life and disability insurance and some other products, stocks, bonds, mutual funds and annuities, were "substantially related" to Bellco's tax-exempt purposes, and therefore the income from those activities was, under the law, exempt from UBIT. In October 2010, the U.S. Department of Justice abandoned its plans to appeal that ruling. The case was the second time within a year that a U.S. District Court had upheld credit unions' challenges to UBIT rules. In 2009, Community First CU, Appleton, Wis., was ruled exempt from UBIT on income from credit life insurance, credit disability insurance and GAP coverage.

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Underwater54% of ATL Mortgages Underwater

The Atlanta Business Chronicle reported on February 9th that 54 percent of Atlanta mortgages are under water, and the area had the fastest increase in negative equity at the end of 2010. Home values dropped 15.3 percent to an average of $128,100 . . . and this marks a 27.5 percent drop from the area’s real estate market peak. To read more please click here.

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News of the Competition
 

FDIC Sues Georgia Law Firm

The FDIC sued a Henry County law firm for its role representing a failed bank (Neighborhood Community Bank of Newnan) in closing commercial loans for a real estate developer that it also represented in other matters. These loans, made from 2005 to 2007, resulted in losses of approximately $6 million for the bank. Smith, Welch & Brittain LLP of McDonough committed legal malpractice by closing the loans for the bank while representing the borrower, according to the FDIC complaint. To read more please click here.

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