OCTOBER 5, 2012
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Clouds Clouds Gathering on Credit Card Interchange
With the proposed settlement over credit card interchange fees yet to be finalized, parties on both sides are making their views known, and credit union advocates need to stay involved.

  Measuring the Impact Crater
Debit-card interchange revenue fell by 5 percent in the first three months after the fee cap went into effect, a report from the Government Accountability Office said.

  Georgia Credit Union Advocates Spreading the Message
Representatives from several Georgia credit unions and the Affiliates traveled to Washington, D.C., in September to discuss credit union concerns with Georgia's legislative delegation.

  NCUA's Liquidity Proposal
GCUA, along with CUNA, has urged the National Credit Union Administration not to proceed with a final rule requiring small credit unions to maintain basic written emergency liquidity policies, saying the rule is redundant and costly.

  Credit Card Bait and Switch
The Consumer Financial Protection Bureau and other regulators announced an enforcement action against three American Express subsidiaries, saying they had discriminated against applicants and committed other illegal acts.

  Eye on Two Lawsuits
The judge in a suit brought by merchants over interchange-fee legislation heard oral arguments from both sides and from other parties, while NCUA is fighting an appeal of a favorable decision in a separate case over securities losses incurred by corporate CUs.

  Saving, or Scared on the Sidelines?
A Washington Post article questioned whether a recent trend toward increased savings means people, while avoiding risk, are missing out on potentially better returns from a rebounding stock market and real estate sector.

  So Many Options!
There are several ways to vote in the upcoming election, but the important thing is to cast a ballot and to encourage others to do so. ElectionWatch 2012 offers several resources to assist in the voting process.

  Senators Suggest a U.S. Interest Rate Standard
In the wake of a scandal involving manipulation of interest rates by London banks, two U.S. Senators have asked the Treasury secretary whether a U.S.- based interest rate index should be considered.

  What's Your Score? Well, That Depends
A Consumer Financial Protection Bureau study found that about one in five consumers buying their credit scores from a credit bureau is likely to get a different score than the one a lender would use to make a credit decision.

  One in Five Saddled with Student Loan Debt
Almost one in five U.S. households owed student loan debt in 2010, an increase of 15 percent from three years before, and the average amount owed was higher, the Pew Research Center said.

  While Banks Fight Credit Unions on MBL,
Another Player Is Creeping into the Marketplace

The Wall Street Journal reported that Amazon.com has begun helping sellers obtain credit in a range of amounts and interest rates, as an alternative to borrowing from traditional lenders.

  Largest Cyber-Attack Ever
Since mid-September, several large banks have experienced cyber-attacks that slowed their online operations and left customers unable to reach them, the Atlanta Business Chronicle reported.

U.S. CapitolClouds Gathering
on Credit Card Interchange

Dark clouds are gathering in Washington, D.C., on credit card interchange, readily apparent over the recent weeks with parties on both sides of the issue weighing in, multiple reports on debit interchange cap released, and thoughts from a particular senator who has been at the eye of the interchange storm. Sen. Richard Durbin (D-IL) shared that it would be a "serious mistake" to conclude that the July interchange fee litigation settlement between the card industry and retailers will put to rest congressional involvement in the issues surrounding the payments system. His remarks were in a letter to American Bankers Association CEO Frank Keating, in which Durbin was responding to ABA’s urging Congress to end the debate over interchange fees and financial support of the payments system by rejecting calls from some retail groups to impose even more government price controls that hurt consumers. This recent exchange is the byproduct of the retail industry’s lobbying of Congress to impose further price controls.

Durbin agrees with the retailers. "If this proposed settlement is finalized, millions ... whose interests were not represented in the secret settlement negotiations would be negatively impacted," he said. "Adoption of this proposed settlement would almost certainly guarantee that future congressional intervention will be necessary." Durbin added -- without citing any evidence -- that credit unions and small banks "have thrived" since his amendment took effect. Many consumers also have received discounts for buying products with their debit cards, and have benefited from merchants keeping prices down because of lower interchange costs, he said.

Of note to credit unions and with good timing are the GAO report (see related article below) and the Electronic Payments Coalition (EPC) study, which found that consumers actually have paid an average of 1.5% more for certain goods since the interchange fee cap implementation. Foreshadowing what appears to be another battle, The Hill reported on October 1st that retailers are pushing for changes to credit card interchange fees, putting credit unions and other financial institutions on alert for possibly when the new Congress convenes in January.

What can credit unions do now to combat this issue in the early stages? The key is for credit unions to be vigilant in telling our side of the story to Congress. And, while the fight over the debit card interchange was intense, with several senators on record both publically and privately that they are not interested in extending the same policy to credit cards, credit unions are THE ONLY ONES to speak up for our industry. Stay tuned!

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CraterMeasuring the Impact Crater

Debit-card interchange revenue at credit unions and community banks dipped by 5 percent in the first three months after the implementation of the Federal Reserve's rule to cap interchange fees as required by the Durbin Amendment in the Dodd-Frank Act, according to a September 13th Government Accountability Office (GAO) report. This report examined the variety of effects of this Act on small institutions, and the decline is notable because these institutions are technically "exempt" from the price caps. While none of this is shocking to credit unions, this GAO report validates concerns expressed during the legislative debate that market forces will push prices and revenues down for all institutions, regardless of the exemption.

The report also noted positive and potential negative effects. On the positive side, the report said changes to deposit insurance formulas, the permanent increase in coverage limits and the smaller-institution exemption from certain Sarbanes-Oxley requirements are helpful. However, other provisions such as the multitude of mortgage reforms could increase costs and curtail lending. It's too early to tell the impacts of those rules, and the full effects won't be known until the final rules are implemented, the report said.

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Georgia Credit Union Advocates Spreading the Message
Hike the Hilll September 2012

In the final week before Congress recessed for the election season, more than 20 Georgia credit union leaders took to the halls of Congress to discuss industry legislative concerns. Joining GCUA staff on the trip were representatives from around Georgia: Associated Credit Union, Augusta VAH FCU, Coosa Valley FCU, Delta Community CU, Family Savings FCU, GEMC FCU, Georgia United CU, Georgia’s Own CU, Gwinnett FCU, LGE Community CU, Robins FCU, TIC FCU, and United 1st FCU.

On the agenda for the group were briefing on the economy and its impact on credit unions, discussion with CUNA staff on the increasing regulatory burden , a primer on the political landscape and how that may impact credit unions, and of course an update on our legislative issues. While in D.C. the Hikers learned from Bill Hampel (CUNA’s chief economist) that the “fiscal cliff” will drop GDP by over 4 percent and lead us to another recession. This apparently would happen if Congress fails to extend the Bush tax cuts – and Democrats don’t believe that the federal deficit can be resolved, even partially, unless there are new taxes from the wealthy and corporations. From the sounds of things a game of "chicken" is expected in Congress as this plays out between now and Christmas – unless the elections push some sort of clarity on either side.

Hikers discussed with the Georgia legislative contingent a multitude of issues, ranging from member business lending to ATM fee disclosure legislation, exam fairness, regulatory burdens and the overall credit union benefits to consumers. Credit unions across the state will be pleased to know that the most consistent thing heard from our legislative delegation is their growing resentment toward regulators and regulations. From what the Hikers could tell, most of the Georgia elected officials dislike the CFPB and it appears they have been hearing complaints, many of which our Hikers confirmed after learning how the new CFPB requirements might affect credit unions. Sen. Johnny Isakson (R) told the group that that he expects to see anybody involved in selling real estate or financing it to pull back from the market due to the CFPB (a viewpoint shared by some Hikers after hearing the regulatory briefing about CFPB mortgage related regulatory proposals). What was evident to the Hikers is that we must continue to work with our elected officials to educate them on our issues, and back that up with statistics so they can find ways to help with our issues.

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LiquidNCUA’s Liquidity Proposal

While it is important for credit unions to address key operational issues, such as sources of emergency liquidity, GCUA has urged NCUA not to proceed with a final rule that would require credit unions with less than $10 million in assets to maintain basic written emergency liquidity policies. The NCUA proposal, which is opposed not just by GCUA but by CUNA in their recent comment letter, would require federally insured credit unions (FICUs) with assets of $10 million or more to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations. FICUs with assets of $100 million or more would be required to have access to a backup federal liquidity source for emergency situations. This backup liquidity could come from NCUA Central Liquidity Fund (CLF) membership or direct borrowing from the Federal Reserve's Discount Window.

Credit unions are already inundated with too many rules and any additional regulatory requirements should be imposed only if there is clear and convincing evidence that they are needed from a material safety and soundness standpoint or to meet statutory requirements. New NCUA liquidity regulations would be redundant in terms of safety and soundness results, while imposing significant and unnecessary compliance costs on credit unions. Moreover, NCUA and state examiners already have sufficient authority to direct credit unions to address any material deficiencies in their liquidity risk management policies and implementation. If the NCUA does move forward with the liquidity proposal, the GCUA comment letter suggested the agency change the proposal to:

  • Ensure the definition of smaller credit unions dovetails with the NCUA's revised definition of "small entity," which is now under review;
  • Use, for larger credit unions, indicators such as loan-to-share ratios (not just asset size only) in determining whether additional liquidity policy and federal liquidity source requirements should be imposed; and
Allow, under certain conditions, Federal Home Loan Banks (FHLBs) to be permissible sources of emergency liquidity.
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HookCredit Card Bait and Switch

 The Consumer Financial Protection Bureau announced on October 1st that it has taken an enforcement action against three subsidiaries of American Express for illegal practices. The companies will refund 250,000 customers a total of approximately $85 million and will pay an additional $27.5 million in civil penalties.

The enforcement action was taken jointly with three federal bank regulators – the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency, as well as with the Utah Department of Financial Institutions. The regulators found that at various times between 2003 and 2010, the companies deceived consumers about the benefits of signing up for the American Express "Blue Sky" credit card, discriminated against applicants on the basis of age, charged unlawful late fees, and engaged in other illegal practices.

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Eye on Two Lawsuits

Two lawsuits of industry interest have been active in the past week. On one side of the spectrum, retailers are fighting against the debit interchange fee cap set by the Federal Reserve in court, wanting to pay even less. On the other side of the spectrum, banks have a lawsuit of their own against the NCUA lawsuit seeking to recoup losses to credit unions. Here is how things stand presently on these two issues:

EyeInterchange: The October 2nd oral arguments by CUNA and other financial industry coalition partners said that the Federal Reserve's debit interchange fee cap regulation is fundamentally flawed, and imposes a cap that does not fully allow debit card issuers to cover their costs and make a reasonable rate of return on their investments. Attorneys representing merchants, the Federal Reserve and financial institutions all spoke out on the Fed's debit interchange fee cap regulations during oral arguments held in the U.S. District Court for the District of Columbia.

This is part of an ongoing debit interchange case brought by the National Retail Federation, the Food Marketing Institute, the National Association of Convenience Stores and two retailers in late 2011. That suit alleges that the Fed adopted an unreasonably high interchange cap on debit card transaction fees when it implemented provisions of the Dodd-Frank Act. CUNA and coalition partners added their voices to the case in an amicus brief filed this spring. The judge hearing the case, Richard J. Leon, said he could not give any indication of how or when he would rule.

NCUA: NCUA now has until October 17th to respond to petitions filed in an appellate court in Denver to appeal a lower-court decision that found in NCUA's favor in its lawsuit against Wall Street banks over losses from mortgage-backed securities (MBS) sold to corporate credit unions. Several defendants, including Wachovia Capital Markets LLC and Wachovia Mortgage Loan and Trust (now a unit of Wells Fargo) and Nomura Home Equity Loan Inc., filed a petition for permission to appeal Friday in the Tenth Circuit Court of Appeals in Denver on NCUA's lawsuit. On October 1st, another defendant, Novastar Mortgage Funding Corp., joined in the case.
They oppose a July 25 decision by the U.S. District Court for the District of Kansas that ruled NCUA's lawsuit could proceed and that certified certain controlling legal questions in the suit. NCUA's lawsuits against the banks allege they made numerous misrepresentations and omissions of material facts in the documents offered the failed corporates. The agency also alleges systemic disregard of underwriting guidelines stated in the offering documents and says the misrepresentations caused U.S. Central FCU and Western Corporate FCU to believe the risk of loss on the investments was minimal, when in fact, the risk was substantial.
In addition to Wachovia/Wells, NCUA has filed lawsuits against Barclay's Capital Inc., J.P. Morgan Securities LLC, RBS Securities, Goldman Sachs, and UBS Securities. The agency has already settled claims of more than $170 million with Citigroup, Deutsche Bank Securities and HSBC. NCUA is the first federal regulatory agency for depository institutions to recover losses from investments in faulty securities on behalf of the failed institutions.

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SidelinesSaving, or Scared on the Sidelines?

The Washington Post illustrated on October 1st how Americans have poured record amounts of money into savings accounts: $6.9 trillion as of spring 2012 (the highest level ever recorded). While saving ahead for the future is POSITIVE – especially as more than half of Georgian credit union members surveyed recently cannot cover essential expenses for more than three months if they lost their job -- the article asks is the focus on saving indicative of the average person missing out on a growing stock market and recovering real estate sector? But with the Federal Reserve’s recent announcement to reduce interest rates, the article highlights that this action is seen as only helping those who are willing to take financial risks, and fails to help average Americans who have lost their appetite for such. From a credit union perspective, this risk-adverse mode dominates the financial mindset of most Americans, with credit unions well poised as a safe place to save money, and a trusted resource for when they need access to credit.

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VoteSo Many Options!

For the November 6th General Election, you have so many options for voting. You can cast your ballot on Election Day, vote by mail, or vote early. Please click here to find your precinct, find an early voting location or download a ballot. But regardless of the route you choose, choose to vote and encourage your credit union family to do so as well. Remember, if credit union people don’t vote, credit union people don’t count. For a wide variety of election resources, visit ElectionWatch 2012, the credit union nonpartisan political program in Georgia.

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Interest ratesSenators Suggest a U.S. Interest Rate Standard

Senator Chuck Grassley (R-IA), ranking member of the Senate Judiciary Committee, along with Senator Mark Kirk (R-IL), are turning up the heat on Treasury Secretary Tim Geithner about what he knew and when he knew about the LIBOR manipulation scandal. They recently sent a letter to Geithner noting the many issues that manipulation of the London interbank offered rate (LIBOR) and other interest rates could create for borrowers and questioned if an American-based interest rate index should be considered. LIBOR is used by financial institutions to set interest rates on a variety of financial products, including mortgages, student loans and credit cards. LIBOR for the U.S. dollar is based on information provided by 18 global financial institutions, including several U.S. banks.

British bank Barclays PLC earlier this year admitted that some of its employees between 2005 and 2009 conspired with employees of other financial firms to manipulate LIBOR and the Euro Interbank Offered Rate to support their own financial positions. The firm was fined by the U.S. Department of Justice, the U.S. Commodity Futures Trading Commission, and the United Kingdom's Financial Services Authority, and LIBOR manipulation investigations are ongoing in several countries, including the U.S. "If U.S. investors and borrowers have suffered financial harm from our dependence on an index set in London, they have the right to expect the country's leaders to support better alternatives. Complacency in the wake of losses and lawsuits will diminish both investor and borrower confidence regarding debt securities issued in U.S. financial markets," the legislators said in the letter sent to Geithner.

U.S. Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler recently told Reuters that LIBOR alternatives do exist, but financial market participants must decide whether or not to replace the standard. Whatever form a new standard may take, the standard would need to be based on observable transactions to prevent any further misconduct, Gensler added. Read more here.

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PuzzledWhat’s Your Score? Well, That Depends

About one of five consumers buying a credit score from a credit bureau are likely to receive a meaningfully different score than the one a lender would use in making a credit decision, according to a Consumer Financial Protection Bureau study released on September 25th. The Dodd-Frank Act-mandated study analyzed credit scores from a total of 200,000 files at TransUnion, Equifax and Experian to compare scores sold to consumers with those sold to creditors. "A meaningful difference means that the consumer would be likely to qualify for different credit offers – either better or worse – than they would expect to get based on the score they purchased," the CFPB said in a press release.

The agency emphasized that there is no way consumers can know how the score they receive will compare with the score a creditor uses in making a lending decision. They therefore cannot rely exclusively on the credit score they receive to determine how lenders will view their creditworthiness.
The CFPB recommended that borrowers shop around for credit, check the credit report for accuracy, and dispute errors. The bureau will begin supervising consumer reporting agencies on Sept. 30.

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One in Five Saddled with Student Loan Debt

SaddleNearly one out of every five U.S. households (19 percent) owed some student debt as of 2010, an increase from 15 percent in 2007, just before the onset of the recession, the Pew Research Center said. Twenty years ago, only 11 percent of families were faced with paying off college loans. The age group struggling the most with this debt burden is households headed by someone younger than 35 years of age. Pew, using government data, also determined a record 40 percent of these families still have student loans. The relative burden of student debt is greatest for households in the bottom fifth of income, even though people in this group are less likely to attend college. Since the recession, student debt has increased in nearly every demographic and economic category. A few points:

  • The average outstanding student loan balance for those with the debt increased to $26,682 in 2010 from $23,349 in 2007.
  • In 2007, 10 percent of student debtors owed more than $54,238.
  • By 2010, 10 percent owed more than $61,894, adjusted for inflation.

One reason for the rise of student debt is that the number of students attending college continues to rise. In the fall of 2007, 18.2 million students were in college versus 21 million students three years later, which represents a 15 percent increase.

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While Banks Fight Credit Unions on MBL, Another Player Is Creeping into the Marketplace

CreepyThe October 3rd edition of The Wall Street Journal reported that many small businesses are finding an unlikely option for their credit needs: Amazon.com. Amazon offers to help sellers "obtain cash more quickly than they might otherwise" from traditional lenders. While the program is in the early stages (began at the end of 2011), the goal is to serve businesses of ALL sizes. Merchants had been offered loans ranging from $1,000 to $38,000, with interest rates anywhere from less than 1% to 13.9%. While those businesses who received loans characterized themselves as heavy sellers of goods through Amazon’s website, it is easy to see how this credit option could grow to other sectors. Frustrating when one considers the amount of time it takes to get Congress to move on increasing the member business lending cap on credit unions; however, the article quotes one small-business owner who states they would not go through Amazon, nor a bank for that matter. Rather, if he needed to borrow capital, "he would try his local credit union instead"!

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CybermatrixLargest Cyber Attack Ever

The Atlanta Business Chronicle reported on September 28th that the websites of Bank of America, JPMorgan Chase, Wells Fargo, U.S. Bank and PNC Bank have all suffered day-long slowdowns and been sporadically unreachable for many customers, reports CNN/Money. Bank of America and Chase were attacked on September 19. Wells Fargo and U.S. Bank were attacked September 26th, and PNC on the 27th.

The "denial of service" attacks occurred when huge amounts of traffic were directed at websites, making them crash, security expects told CNN/Money. "The volume of traffic sent to these sites is frankly unprecedented," said Dmitri Alperovitch, co-founder of CrowdStrike, a security firm that has been investigating the attacks. "It's 10 to 20 times the volume that we normally see, and twice the previous record for a denial of service attack." No personal information was stolen during the attacks, the news report said. 

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