April 20, 2012
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U.S. Capitol Keep Up the Efforts!
Credit union advocates are continuing their efforts to line up Senate support for raising the cap on credit union member business lending. If you haven't already urged your Senators to support this measure, now is the time to make your voice heard.

  Rep. David Scott Co-Sponsors Legislation to Repeal
Dual ATM Notice Requirement

A U.S. Representative from Georgia is co-sponsoring legislation to repeal a federal law that requires physical fee-disclosure notices (that are in addition to on-screen notices) on ATMs.

  Get Involved: 2012 Election Season Under Way
It's important to elect candidates who understand and support the credit union industry. Here are several ways you can get involved in political campaigns this year.

  For Your Members: ElectionWatch 2012
Help your members make sense of this year's elections by providing a link on your website to ElectionWatch 2012, a nonpartisan voter information website that now includes a valuable "credit union resources" page.

  Loan Modification & You: How Programs Could Impact
Credit Unions

A federal regulator says reducing loan balances for some troubled homeowners could save billions of dollars, but CUNA's president says it's important to consider the effects such a program could have on private-sector loan modifications.

  Roller Coaster Ride of Foreclosure Levels . . .
What to Anticipate Next?

First-quarter foreclosure filings fell to their lowest level in nearly five years, but the head of one firm that analyzes real estate predicts a flood of foreclosures still to come.

  CFPB Reviewing New Mortgage Rules
The Consumer Financial Protection Bureau (CFPB) is considering new rules, expected to be finalized by January, that it says would increase transparency and accountability in the mortgage market.

  Wachovia Fights Against NCUA Lawsuit
Wachovia Capital Markets filed a motion for dismissal of a lawsuit against it by the National Credit Union Administration (NCUA). The suit concerns mortgage-backed securities that Wachovia sold to two corporate credit unions.

  Legal Battle on Interchange Continues
The Federal Reserve and a coalition of merchants are both seeking judgment in their favor in a federal court case over debit-card interchange fees. CUNA and other groups have filed a brief seeking dismissal of the merchants' suit.

  Subprime Lending Attractive to Big Banks Again
Several large banks have resumed their attempts to attract the business of subprime borrowers, despite critics' assertions that the banks are again preying on vulnerable and financially unsophisticated consumers.

  'Say on Pay' on Wall Street to Be Tested as Shareholders Reject Citigroup Executive Pay Package
Citigroup shareholders rejected a $15 million pay raise for the bank's CEO, but since such "say on pay" votes aren't binding on companies, it's unclear what effect the vote will have.

Capitol with phoneKeep Up the Efforts!

Credit unions across the country continue their efforts in the nationwide call to action for MBL legislation. This call to action activity is one piece of an all-out campaign by credit unions, leagues and CUNA to move this issue forward, and the needle is moving. Senate Majority Leader Harry Reid (D-NV)  has expressed that there will be a vote on the credit union bill to increase the member business lending cap from 12.25% to 27.5% of assets.  The new standalone bill S. 2231 by Senator Mark Udall (D-CO) was introduced under special rules that allow it to bypass all committee jurisdiction, and it can be called up for a full vote by the Senate at any time. Friends of the credit union industry on Capitol Hill have shared privately that leadership of the Senate is waiting for more votes to be confirmed  . . . we must have 60 Senators ready to support the legislation and at this date we are close but not quite at that number . . . and your action could make the difference.    

If you have not done so yet, engage your credit union staff, board and even volunteers to encourage Senator Saxby Chambliss (R) and Senator Johnny Isakson (R) to support Senator Udall’s Bill, S. 2231, when it comes to the floor for a vote in a variety of communication channels: 

  • Send emails:  the call to action to send messages to the Senators can be found here.
  • Make phone calls:  call the Senators’ offices by utilizing the toll-free number (1-877-642-4223) that automatically routes to them (two calls are needed per person; one for each Senator). 
  • Engage your small-business members: If your credit union issues business loans, contact your small-business members to reach out to the Senators and urge their support for the Credit Union Small Business Jobs Bill. This reinforces the message that it is a small-business issue, and combats the banks’ “us versus them” message. 
Please do not give up. Remember, politics is a process and we are working through the process every day.  Keep up the positive efforts. Engage in all the steps above today.
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U.S. Rep. David Scott
Rep. David Scott Co-Sponsors Legislation to Repeal
Dual ATM Notice Requirement

Good news: Legislation has been introduced that would ease current ATM fee disclosure regs to lessen compliance burdens and prevent frivolous lawsuits! During the GAC Hill visits, Georgia participants shared with our state’s legislative delegation concerns over the requirement under current law that a notice be affixed to the front of ATMs. This notice describes that there is a possibility that a consumer will be assessed a fee for using the machine. In addition, ATM owners are required to have an electronic notice on the screen allowing consumers to cancel their transactions if they do not wish to pay the fee. 

This regulatory burden has been a source of ongoing frustration and cost for credit unions and other financial institutions. The notice requirement was originally required to address concerns about the early technology required to have on-screen fee disclosures. Technology has changed, and ATM disclosures are required on the screen as well, but the lack of a physical notice can open an ATM owner to huge fines and a citation for noncompliance. In the last few years, numerous banks and credit unions have been sued for noncompliance, even though the ATM screens had the fee notice and appropriate opt-out option.

After the GAC Hill visits, our very own Georgia Congressman, Rep. David Scott (D-13), is seeking to address this unnecessary regulatory burden. Scott, along with Rep. Blaine Luetkemeyer (R-MO), introduced H.R. 4367 to repeal the Electronic Funds Transfer Act provision requiring the use of physical notices in disclosing ATM fees.  Under the legislation, ATMs would only be required to display the disclosures on the screen, and the physical notices would be eliminated. All Georgia credit unions (and credit unions nationwide) welcome the bill’s introduction, and thank Reps. Scott and Luetkemeyer for their leadership in tackling this issue.
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Get Involved: 2012 Election Season Under Way

Each election season credit unions engage in campaign activity, and this year it is already well under way.  Our thanks to the credit unions that have already committed to or engaged in campaign activity, as well as those that plan to participate in 2012. We hope your credit union is one of them. Campaign activity is an important activity for any industry to engage in, and for credit unions it provides a wonderful opportunity to advance our industry.       

Get InvolvedWhy Get Involved?
Engaging in campaign activity is a visible, powerful way to show support for those candidates who support our industry. It is a positive tool to grow political influence, something that is necessary when shaping legislation that can impact our industry. And, it is a direct way to help those who help credit unions get re-elected.  This year, campaign assistance is needed more than ever. Every elected official running for re-election is faced with new territory due to new district lines because of re-districting (only happens every 10 years).  With the new district lines, some legislators are facing completely new districts. Also, there is a brand new Congressional district for Georgia. This uncertainty equates to greater need for campaign assistance and greater opportunities for credit unions! 

How Can Your Credit Union Make a Difference?
Getting involved in the 2012 election season could not be easier. Below are three easy steps that any credit union can take (and some have engaged in all three!): 

  1.  Link ElectionWatch2012 to your credit union website to encourage your members to vote (see related article below). 
  2. Volunteer in a campaign. You can volunteer on your own, or you can volunteer in a coordinated “credit union campaign day.”  The Government Influence Team is communicating with various campaigns to coordinate volunteer opportunities in the months to come. Please take advantage of them when they arise (or if you have been contacted already). Often, a call made by the volunteer is the ONLY contact a constituent may have with the candidate, and can make the difference not only in whether they vote, but whether they vote for your candidate. If you have a race you wish to be involved in, please share it with us as it will help in the coordination of campaign activities.
  3. Engage your credit union in a campaign tour. Credit union tours are a painless, yet powerful way to engage in campaign activity. It can be as simple as inviting the legislator to tour your facility to meet members and staff, and learn a little about what makes your credit union unique; products, services, outreach.  What makes this action valuable to candidates is to highlight the visit in your credit union newsletter. Six Georgia credit unions have already engaged in tours! Our thanks to Associated CU, Delta Community CU, Georgia’s Own CU, Georgia United CU, Gwinnett FCU, and Robins FCU for conducting tours with elected officials.  More are pending. If your credit union is interested, please contact a member of the Government Influence Team today. 

There are more detailed ways to get involved with campaigns in addition to the above. In previous election years credit unions have engaged in fundraising directly for a candidate and/or conducted partisan communications in support of a candidate. Please note that with anything surrounding elections, there are a myriad of federal and/or state election laws that must be followed. If your credit union is interested in engaging in campaign activity please contact the Government Influence Team (Cindy Connelly, Mike Culbertson, or Brandee Bickle) and we will be happy to assist.

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ElectionWatch 2012For Your Members: ElectionWatch 2012

Credit unions all across the state have taken advantage of a free nonpartisan election resource:  ElectionWatch 2012. This program is a one-stop, nonpartisan voter information website to encourage the members you serve to "get out the vote," and to educate them on important aspects surrounding the elections. The collection of information on the website offers current information that can help any individual register to vote, access various voting options, learn more about candidates, and keep up with political information, all without taking a political stance. If you have not accessed this tool as of yet, we encourage you to link ElectionWatch 2012 on your credit union website. New for this ElectionWatch is an added password-protected "credit union resources" page to provide additional tools for your organization:

  • two unique sample newsletter articles that can be utilized to demonstrate the importance of voting as a credit union member
  • on-hold educational messages for the primary and/or the general election
  • a short video to help educate staff on the importance of getting involved with grassroots activities
  • information on how to obtain other election-focused items, such as lobby posters, buttons for credit union staff, stickers for mailings, customizable posters, and statement stuffers

At a minimum, link ElectionWatch to your website today to help educate your members on the importance of voting. Credit union members represent 1.8 million of the potential voters in the state of Georgia, and by encouraging members to vote, credit unions can be an active part of a simple, yet powerful grassroots activity.

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Loan Modification & You: How Programs Could Impact Credit Unions

Mortgage giants Fannie Mae and Freddie Mac could save $1.7 billion more than current loss-mitigation approaches by reducing loan balances for some troubled homeowners, according to a preliminary analysis by the firms' federal regulator.  The findings presented on April 10th hinted at a potential shift in the position of the Federal Housing Finance Agency (FHFA), which until now has kept a hard line against forgiving debts of homeowners by maintaining that other types of loan modification are less costly to the taxpayer-backed mortgage giants. That math changed after the Treasury Department offered to pick up part of the tab for any debt-forgiveness program. To read the April 10th Wall Street Journal article for more, please click here

Loan modificationsFrom a credit union perspective: If the FHFA proposes a mortgage principal forgiveness program, it should take into account any potential spillover effects such a program could have on private sector mortgage modifications, CUNA President/CEO Bill Cheney said in a letter to Edward DeMarco, acting FHFA director.  The letter follows remarks that De Marco made on the potential FHFA principal forgiveness program. Such a program would be limited to borrowers with GSE-backed mortgages, and the program would likely impact a fraction of the estimated 11 million underwater borrowers in the country today, De Marco said. Even though an FHFA-sponsored principal forgiveness program would not directly affect credit unions' balance sheets, if such a program spills over into the private sector, there is concern that it could have a significant negative impact on credit unions with regard to the loans held in their portfolios.

The anticipated benefit of principal forgiveness is that by reducing foreclosures relative to other modification types, losses would be lowered and housing prices would stabilize faster, producing broad market benefits, DeMarco said. However, a larger group of underwater borrowers who have remained faithful to paying their mortgage obligations are a greater risk to housing markets and taxpayers, he added. Encouraging their continued success could have a greater positive impact on the recovery of housing markets, he said.

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Roller Coaster Ride of Foreclosure Levels . . . What to Anticipate Next?

The April 11th edition of The Washington Post reported that foreclosure filings fell during the first quarter of 2012 to their lowest levels since the housing market began its collapse nearly five years ago, according to new data from the firm RealtyTrac. The number of foreclosures during the first three months of this year was the lowest quarterly total since the final quarter of 2007. The numbers show that in March foreclosures were filed on just fewer than 199,000 properties, a 17 percent decrease from a year earlier; the first time the monthly total has dipped below 200,000 since July 2007. 

Roller coasterWhile there have been recent signs of renewed life in the nation’s housing market, the declining number of foreclosure filings might not be as encouraging as the data might suggest.  “The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” RealtyTrac chief executive Brandon Moore said in a statement. “The dam may not burst in the next 30 to 45 days, but it will eventually burst.”  A coming flood of foreclosures is expected in part because some states – such as Florida, California and New York – have a long backlog. It sometimes can take three years to complete the foreclosure process.  One would hope that the levels in Georgia are not included in this backlog as we are often touted one of the states with the highest rates of foreclosure filings (and are a non-judicial foreclosure state).

What is anticipated: Many banks and mortgage servicers halted or dramatically slowed foreclosures in late 2010 after public revelations of widespread problems with flawed and fraudulent paperwork, further clogging foreclosure pipelines. But many market watchers expect foreclosures to ramp back up this year, after a $25 billion settlement over those “robo-signing” practices among five of the nation’s biggest banks and a collection of state and federal officials. A new wave of foreclosures could further drive down home prices in the short term – even while helping heal the housing market over the long term by clearing backlogged inventories and getting distressed properties into the hands of new owners.  The RealtyTrac data shows that California and Florida still lead the nation in foreclosure filings. California accounted for 23 percent of the country’s filings in the first quarter, with 133,245. Florida posted the second-highest total, with 73,344.

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CFPB logoCFPB Reviewing New Mortgage Rules

The Consumer Financial Protection Bureau (CFPB) announced during the week of April 9th that it is considering a series of new mortgage rules that aim to increase transparency and accountability in the market; rules they intend to finalize by January of 2013. "The mortgage servicing rules we are considering reflect two basic, common-sense principles – no surprises and no runarounds," CFPB Director Richard Cordray said. "For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It's time to put the 'service' back in mortgage servicing," he added.

The CFPB said it would release an advanced notice of proposed rulemaking this summer, and release the rules for public comment before finalizing them in January of 2013. The agency said it could provide an implementation period of up to one year, but has not yet decided how long of a transition period is necessary.  According to the CFPB, some of the rules under consideration would require:

  • Mortgage servicers to provide regular monthly statements covering the mortgage loan principal, interest, fees and escrow, the amount of and due date of the next payment, and (in some cases) information on financial and foreclosure avoidance counseling;
  • Servicers to warn mortgage holders before interest rate changes are made to their adjustable-rate mortgages;
  • Increased contact with mortgage holders before foreclosure proceedings can be initiated; and
  • Lenders could also be required to provide greater information on help that is available to homeowners facing foreclosure.

Some of the rules would also limit force-placed insurance, which can be purchased by mortgage servicers when mortgage borrowers do not maintain hazard insurance on their properties (force-placed insurance can often be far more expensive than privately purchased insurance). Other proposed rules could require servicers to post mortgage payments promptly after they have been received, to increase mortgage holder ease of access to their own account information, and to quickly correct account errors.

The agency said it may also work with other regulators to collaboratively address mortgage servicing issues. The CFPB said it would meet with a Small Business Review Panel to discuss the proposal and "will also be conducting other outreach to gather feedback from consumer groups, industry, and other agencies." The CFPB also continues to work on revised mortgage applications and mortgage loan closing documents, and proposed forms of these disclosures are scheduled to be released in July.

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Wachovia Fights Against NCUA Lawsuit

Wachovia Capital Markets has filed a motion to consolidate a lawsuit filed against it by NCUA over residential mortgage-backed securities (RMBS) sold to corporate credit unions with a similar suit filed by NCUA against RBS Securities.  The NCUA's original complaint against Wachovia alleged that originators of the RMBS had systematically abandoned the stated underwriting guidelines, resulting in riskier RMBS unbeknownst to the corporates.  Wachovia representatives sold about $100 billion in RMBS to the two corporates in 2006, and U.S. Central purchased approximately $80 million in RMBS underwritten by Wachovia.
ScaleWachovia Capital Markets has also filed a motion in a federal court in Kansas to dismiss the NCUA lawsuit completely. In its motion to dismiss, filed in the U.S. District Court for the District of Kansas, Kansas City,  Wachovia argued that the MBS bought by U.S. Central FCU and Western Corporate FCU before they were placed into conservatorship by NCUA fell into a special category. Known as "Alt-A" or mortgages, these securities are neither "prime" nor "subprime." Wachovia argued that its prospectuses for the investments clearly outlined the risks involved. In its motion, Wachovia says that "approximately 73% of the loans were reduced documentation or no documentation loans, i.e., loans for which the borrower was not required to submit proof of his or her income, assets, or both."
NCUA's original complaint against Wachovia alleged that originators of the RMBS had systematically abandoned the stated underwriting guidelines and resulted in riskier RMBS that the corporates would not have bought, had they known.  Wachovia representatives sold about $100 million in RMBS to the corporates in 2006.U.S. Central purchased about $80 million in RMBS underwritten by Wachovia. The crux of Wachovia's motion to dismiss focused on NCUA's meeting requirements for statute of repose and statute of limitation deadlines for filing the lawsuit and whether an extender statute applies to the case. Wachovia noted that the three-year statute of repose extinguishes NCUA's federal claims and that the extender statute, which would grant an extension to the deadline for filing in some cases, does not apply. Those arguments followed a tentative ruling set in a U.S. District Court in California on a similar RMBS case, NCUA vs. RBS Securities, and said a case cited by NCUA, American Pipe Tolling, does not apply. Stay tuned!

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CardLegal Battle on Interchange Continues

The Federal Reserve in a brief filed April 13th asked the U.S. District Court for the District of Columbia to declare summary judgment in its favor in a case brought against the regulator by a coalition of retailer organizations seeking to invalidate the Fed's debit card interchange rule. The retailer coalition (NACS, National Retail Federation, Food Marketing Institute, Miller Oil Co. Inc., Boscov's Department Store LLC, and the National Restaurant Association) is seeking a summary judgment ruling declaring the interchange rule and network non-exclusivity regulation invalid.

The merchants' motion claimed the Fed's interchange rule exceeds the authority granted to it by Congress, arguing that the final rule is "arbitrary, capricious" and "an abuse of process." In its April 13 legal brief, the Fed argued that its final interchange fee regulation "complies in all respects" with the authority granted to the Fed by the U.S. Congress "to promulgate regulations regarding interchange transaction fees in debit card transactions and network exclusivity and routing." The Fed also argued that Congress granted the Fed the authority to "consider other costs specific to a particular electronic debit transaction" as it developed the interchange fee regulation.

The merchant representatives are scheduled to reply to the Fed's request for summary judgment on May 11. The Fed is then scheduled to reply to that merchants' brief on June 1. CUNA this year joined the Financial Services Roundtable, the Clearing House Association, the National Association of Federal Credit Unions, the Midsize Bank Coalition of America, the Independent Community Bankers of America, the Consumer Bankers Association, the National Bankers Association and the American Bankers Association to file a friend of the court brief asking the court to dismiss the merchants' case. The friend of the court brief maintains that the final interchange fee is too low, as it does not allow debit card issuers to cover their costs and receive a reasonable rate of return on their investments. The joint brief also described how small and large financial institutions are harmed by the Fed's tight fee ceiling, and underscores that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services. Stay tuned!

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Subprime Lending Attractive to Big Banks Again

The April 11th edition of The New York Times reported that banks are moving back toward lending in the subprime market. The article states that during the financial crisis, this type of lending was almost entirely shut out by traditional lenders, but the tide is slowly turning. As financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy (including Capital One and GM Financial), are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.  The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below. Some points:   

  • Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier.
  • These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009.

ApprovedConsumer advocates and lawyers worry that the financial institutions are preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.  The banks, for their part, are seen as looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business – the high and the low ends – industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis. “It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner.  The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call "fallen angels," those who had good payment histories before falling behind as the economy foundered. However, regulators with the Office of the Comptroller of the Currency (which oversees the nation’s largest banks) said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people. 

Opportunity for Credit Unions? In addition to the above positive numbers on credit cards and auto loans in the subprime area, an increase in lending is a sign that the economy is improving, economists say.  Although unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. Increasing lending in this segment may be attractive to some credit union balance sheets. The article stated that the bank’s push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.
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Yes or no'Say on Pay' on Wall Street to Be Tested as Shareholders Reject Citigroup Executive Pay Package

The first group of shareholders at a bank finally decided to test the "say on pay" regulations in the Dodd-Frank Wall Street bank reform legislation. Shareholders at Citigroup on April 17th voted against giving CEO Vikram Pandit a $15 million raise for 2011. He had made $1 the year before. It's the first time shareholders have rejected the executive pay packages of a major bank since Dodd-Frank made the votes mandatory a year ago. The vote came at Citigroup's annual shareholder meeting, which was held in Dallas. The question is: What happens next?

While Dodd-Frank mandates that shareholders at all public companies, not just banks, get a vote on executive compensation each year, companies don't have to comply with those votes. In other industries so-called "say on pay" votes have been effective at reducing executive pay packages. Wall Street, though, has been historically unresponsive to critics that say bank pay is too high.  Citigroup's failed "say on pay" measure is also the latest signal that shareholders are turning up the pressure on top executives who have failed to deliver improved performance. Stockholders are more discontent with execs being paid when they are not being paid. Goldman Sachs Group Inc. struck a compromise with shareholder activists last month to avoid a similar showdown over board leadership at its annual meeting.  To read more on this click here.

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