JANUARY 11, 2013
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Credit Union Priorities
in the Legislative Sessions

The U.S. Congress is already in session and the Georgia Legislature will be soon. Here's a look at the legislative priorities for credit unions at the state and federal levels.

  Isakson Appointed to Key Committee
U.S. Sen. Johnny Isakson of Georgia, recently appointed to the Senate Committee on Finance, says his top priority on the panel will be reining in federal spending and restoring the country to fiscal soundness.

  Changes to GA Congressmen in the 113th Congress
As a result of the 2010 Census, Georgia gets an additional member of the U.S. House of Representatives, Rep. Doug Collins of the 9th District, who joins eight other Republicans and five Democrats in the state's House delegation.

  Mortgage Rules Among Early 2013 CFPB Actions
Many mortgage regulations that the Federal Reserve and the Consumer Financial Protection Bureau (CFPB) have proposed over the last two years are scheduled to be finalized in early 2013.

  101 Insights for Credit Unions
A new report from the Filene Research Institute contains potentially valuable information for all credit unions, on topics including strategy, marketing and overall profitability.

  The Big Money Question
The Wall Street Journal reported that some large banks have adopted "a la carte checking," giving customers the option to choose which features they want and charging fees accordingly.

  BoA to Pay $10 Billion in Settlement with Fannie Mae
The New York Times reported that Bank of America had agreed to pay Fannie Mae more than $10 billion to settle claims over bad mortgages, mostly issued by the bank's Countrywide Financial subsidiary.

  Banking Regulators Announce Foreclosure Settlement
Federal banking regulators announced an agreement under which 10 mortgage-servicing companies will pay borrowers more than $8.5 billion in cash and other assistance to settle claims of foreclosure abuse.

Credit Union Priorities in the Legislative Sessions

The new 113th Congress convened on January 3rd, and the Georgia Legislature will begin on January 14th. On a state and federal basis, credit union issues will be monitored with the mindset of protecting credit unions, easing the regulatory burden they face, and helping credit unions prepare for the future. But what is anticipated?

Freshmen in CongressCredit union priorities in Washington, D.C.:

Tax Exemption Preservation
On the federal level, protecting the credit union tax exemption tops the list, as it is widely expected that comprehensive tax reform will be on the legislative agenda in 2013. As part of that process, the credit union tax status is likely to be examined and could come under significant threat – particularly since the banks will continue their paid media and lobbying barrage urging for credit union taxation (calling it a "tax subsidy"). And, of course there is the Simpson-Bowles commission, the bipartisan panel that was created by President Obama in 2010 to study and propose ways to improve the nation’s fiscal health, which brought up the removal of the credit union tax exemption in its findings.

Reducing Regulatory Burden 
Addressing the "crisis of creeping complexity" with respect to regulatory burden is an area in which credit unions had a series of victories in 2012 and will be continued in 2013. Despite the gridlock that gripped Washington throughout the year, credit unions and their trade associations were able to secure a number of regulatory relief measures. Some examples include the credit union-supported bill that was signed into law December 21st that eliminated a duplicative and burdensome requirement that a fee notice be posted on an ATM machine, in addition to the electronic notice that appears on the screen prior to the transaction. The dual requirement had created legal burdens and financial expense for some credit unions and other financial institutions. On the same day signed into law was a credit union-backed measure (H.R. 4014) intended to ensure that groups or individuals that supply information to the Consumer Financial Protection Bureau (CFPB) would not waive their right to privacy protections. During the 113th Congress, opportunities will be sought to continue to reduce the regulatory burdens that credit unions face.

Housing Reform
Working with its Housing Finance Reform Task Force, CUNA and credit unions will be prepared to engage with Congress' efforts to reform Fannie Mae and Freddie Mac, expected to be a top priority of House Financial Services Committee Chairman Jeb Hensarling (R-TX). Hensarling has reportedly said that as the new chairman he would like to see legislation that phases out mortgage giants Fannie Mae and Freddie Mac, the government-sponsored enterprises. Fannie and Freddie currently guarantee 75 percent of all U.S. mortgages. The concern for credit unions is that with this type of legislation the end result would be a world in which the secondary mortgage market is occupied by a handful of large banks. Credit unions create much-needed competition in the secondary marketplace, which in turn, helps to keep rates low and allows more options for consumers. If this went away, credit unions would be hurt by the loss of a product line (and related services), members would be disadvantaged, and all consumers would be negatively impacted. As an aside, Hensarling served on the above mentioned Simpson-Bowles deficit commission, so the credit union taxation issue could arise even in these discussions.

Credit Union Charter Enhancements
Credit unions, leagues and CUNA will continue to pursue charter enhancements that improve the operating environment for credit unions, one of which is to continue progress of legislation in both the House and Senate that would increase the credit union member business lending cap to 27.5% of assets, up from 12.25%. MBL bills (H.R. 1418/S. 2231) enjoyed strong support in the past session in both chambers with 145 backers in the House and 22 in the Senate. And while we had hoped to see this issue addressed in the 212th Congress, the reality is that credit unions did not have the 60 votes needed in the Senate. If the bill had been taken up for a vote and failed, then the MBL issue would not be addressed for years. In 2013, CUNA intends to seek the reintroduction of legislation in both chambers to permit experienced credit unions to continue to lend to their small business members.

In addition, there should be a reintroduction of legislation that would modify the definition of credit union net worth to include supplemental forms of capital for credit unions. For this issue to have a chance of advancing, however, credit unions must continue to generate support for the issue not just with legislators but also within the credit union system. The strategy also includes for it to be raised in the context of Congress' consideration of bank capital issues (Basel III).

State CapitolCredit Union Priorities on the State Level:

The state legislature typically moves much more quickly than Congress, and as such issues of credit union interest ebb and flow depending on the power structure of the state Senate and House. However, the discussions with lawmakers in the past few weeks have alluded to the state’s potential need to "wait and see" what happens in Washington, D.C., as Georgia’s budget is impacted directly by what happens in the federal fiscal discussions in Congress. By law, Georgia is required to pass a balanced budget before the state legislators can end the session. Georgia lawmakers will be heading into the 2013 session facing the same problem they had in 2012 (and every year since about 2009): More people use state services, yet there is not enough revenue to pay for the services. The state budget for fiscal year 2013, which ends June 30, is $19.3 billion ($39 billion, if you include federal funds). And even though the economy and tax collections have been improving, the budget is still about $2 billion below the spending plan lawmakers passed in 2008. Credit unions must always be aware that someone in search of additional sources of revenue could advocate taxing entities that are currently tax exempt. As such, a priority in the credit union state legislative agenda is to monitor and mitigate any threats that may impact the tax exemption of credit unions.

Foreclosure Procedures
An area of much activity from a credit union perspective is to ensure that there are no substantive changes to Georgia nonjudicial foreclosure laws. Ever since the housing crisis and subsequent news stories about banks and their foreclosure practices, there have been multiple bills and hearings during the state sessions on the topic of foreclosures. These have ranged from the timing of the foreclosure notice, the treatment of renters in a foreclosure, how the property is handled pre- or post-foreclosure, and multiple attempts to change Georgia’s foreclosure process to that of a judicial system. The topic of foreclosures will once again come up during the state session, and will continue to be an issue as long as the economy and families are still struggling to recover.

Credit Union Operations
During the state session the media will likely focus on the "hot" issues such as the budget, the potential funding of a new Georgia Dome, ethics reform, and the state Medicaid program. However, credit union operations could easily be impacted by the less-media-attractive bills that are handled quietly at the state Capitol. Lending operations, financial products and offerings, consumer-focused issues and employment procedures are typical topics that arise in legislative attempts. Every bill is reviewed and then those that could impact (or could potentially be amended to impact) credit unions are lobbied throughout the state session. To monitor these bills as they arise, as well as any that address taxation or foreclosure topics, please click here for the Georgia Credit Union Legislative Tracking site. And of course, you can follow the GCUA Government Influence Team on Twitter at GCUAGov. Stay tuned!

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IsaksonIsakson Appointed to Key Committee

A new change in the 113th Congress is that U.S. Sen. Johnny Isakson (R-GA) has been named to the U.S. Senate Committee on Finance, which will play a key role in the upcoming critical debate on cutting spending and reducing our nation’s debt (along with bills of industry interest typically assigned to the committee!). It is thought that Isakson’s 30-plus years as a small businessman will serve him well on the Finance Committee, which has jurisdiction over tax policy that affects all American families and small businesses. Isakson reportedly has said that his "number one priority in the Senate is to rein in federal spending and restore fiscal soundness to our country so that our children’s and grandchildren’s futures are bright and prosperous. As a member of the Senate Finance Committee, I am committed to finding meaningful solutions and working with anyone who will sit down at the table to turn our country’s course to reduce our debt and deficits."

Of concern to credit unions is that during the committee debate over possible spending cuts, they might use the some of the reforms recommended by the National Commission on Fiscal Responsibility and Reform to reduce spending and make the Federal Government more efficient, which did mention credit unions.

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Georgia representatives
From left: Brian Akin, North Georgia CU; U.S. House Speaker John Boehner; Joe Foster, Hallco Community CU; Mike Mercer, GCUA; U.S. Rep. Doug Collins
Changes to GA Congressmen in the 113th Congress

On January 3rd all new members of the 113th U.S. Congress were sworn in, including Georgia’s newest Congressman Rep. Doug Collins (R-Gainesville) who represents the newly drawn 9th Congressional District. With a slight renumbering of districts, Rep. Tom Graves (R-Ranger) moved into Georgia's 14th District. This is the first congressional election since the 2010 census that added one new district to Georgia's lineup, and with Collins' election, the Georgia House delegation now has nine Republicans and five Democrats. In the House, Republicans hold a 234-201 majority while Democrats hold a 55-45 majority in the Senate, including two independents.

After President Barack Obama’s inauguration on January 21st, Congress will hold organizational meetings for its myriad of committees. The first regular meetings of those committees will likely take place in early February with the members of the 113th U.S. Congress preparing to take up many of the same tense issues faced by the last session.

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New rulesMortgage Rules Among Early 2013 CFPB Actions

Many mortgage regulations that the Federal Reserve and the Consumer Financial Protection Bureau (CFPB) have proposed over the last two years are scheduled to be finalized in early 2013, setting up a busy year for both regulators (and the regulated!). Among the biggest items on the CFPB's docket are ability-to-repay/qualified mortgage regulations, which will be finalized by January 21st. Under the Dodd-Frank Wall Street Reform Act, no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan. If the loan is a qualified mortgage, the creditor may presume that the ability-to-repay test has been met.

This rule has the ability to reshape the mortgage industry in the years to come, and many have argued that this is the most important rule under consideration by the CFPB at present. Other items that are scheduled to be finalized include:

  • Loan originator compensation regulations;
  • Home Owner's Equity Protection Act regulations;
  • Mortgage servicing rulemakings that impact Regulation Z and Regulation X; and
  • Higher-risk mortgage appraisal regulations.
New escrow disclosure and waiver requirements are also expected to be finalized by the CFPB early this year. A final version of integrated Truth in Lending Act/Real Estate Settlement and Procedures Act disclosures, and accompanying rules, should be finalized by mid-2013. Credit union interests continue to be at the forefront as CUNA continues to meet with the CFPB and urge improvements in all of these proposals and will keep credit unions posted as the new rules are issued. For an update on the regulatory issues being addressed on the federal level, please click here.
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Dalmatians101 Insights for Credit Unions

A new report, "101 Things: Credit Union Insights from the Filene Research Institute," contains highlights from 12 months of Filene reports – an easy way for credit unions to begin the new year armed with strategic insight. Seeking ideas on strategy? Marketing? Overall profitability? The report has something for ANY credit union. For quick insights on the go, here’s the report summed up into nine topics:

  1. Strategy and policy: Credit unions can improve organizational performance by diversifying their non-interest revenue streams, decreasing the variety of deposit products offered and questioning the effectiveness of a diversified loan product strategy.
  2. Credit unions as cooperatives: Patronage refunds are the necessary tool that demonstrates that the cooperative is socially and fiscally responsible with the members' money.
  3. Lending: The average American household lives in the same home for only seven years. That implies that most Americans, or a very large swath of Americans, could do better with a shorter-term fixed interest rate, which would result in lower monthly interest payments
  4. People: High-performing middle managers want to be given the vision and the mission, participate in goal development, and then be allowed to do their thing.
  5. Consumer behavior: Consumers, especially low-income consumers, are much more likely to cycle in and out of debit and credit cards and the institutions that issue them than to give up on cash.
  6. Marketing: Credit unions that dedicate eight or more hours per week to social media report the highest success rates.
  7. Credit union profitability: Research shows that the top 30% of members contribute 110% to the bottom line, while the bottom 10% don't merely fail to contribute, they actually destroy profits. On average, members who connect with the credit union through online channels are 35% more profitable than those who have only an offline relationship.
  8. Innovation: Only 27% of executives responding to a McKinsey Global Survey said that their companies are effective at holding leaders accountable for executing tactics that support innovation.
  9. Governance: Good governance in both corporations and credit unions is, in essence, the leadership structure and the complex system of incentives, checks and balances that makes sure that the organization creates long-term, sustainable value.
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Money questionsThe Big Money Question

On January 3rd The Wall Street Journal reported on a new trend with banks using "a la carte checking," citing that it is a kinder, gentler way for banks to charge fees for basic services. Consumers "opt in" to services and as such, the fees associated if selecting. By adopting this approach, banks are hoping to steer clear of the industry's fee-levying pitfalls, such as some rivals' abortive attempts to charge for debit card use, and to stake out a better PR situation.

None of the largest U.S. financial firms currently offer this build-your-own approach to checking accounts, but the American Bankers Association expects more banks to unbundle. Union Bank ($87 billion in assets, 23rd-largest bank in the U.S.) and Frost Bank ($20.9 billion in assets, 44th in U.S.) are the two banks currently offering the a la carte route.

Most banks currently charge fees on customers who fall below certain minimum-balance requirements or don't sign up for direct deposit. Banks have struggled for at least two decades with pricing on checking accounts, most of which lose money, analysts say. But the problem has taken on fresh urgency thanks to a soft economy, low interest rates and new regulations that squeeze bank profits. By unbundling, banks can offer consumers a choice of services now and add on new ones as they become available, potentially increasing revenue for years to come. Among the "extras" Union Bank already offers for a fee are:

  • unlimited check supply at $1 a month,
  • safe-deposit boxes at $2 a month, and
  • two waived fees per statement period for out-of-network ATM use for $3 a month.

And, they are currently considering adding consumer lending and financial advisory services to the menu of extras at a price!

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BoA to Pay $10 Billion in Settlement with Fannie Mae

Bank of AmericaOn January 7th The New York Times reported that Bank of America has agreed to pay more than $10 billion to Fannie Mae to settle claims over troubled mortgages that soured during the housing crash, mostly loans issued by the bank’s Countrywide Financial subsidiary. Under the terms of the pact, BoA will pay Fannie Mae $3.6 billion, and will also spend $6.75 billion to buy back mortgages from the housing finance giant at a discount to their original value. The settlement will resolve all of the lender’s disputes with Fannie Mae, removing a major impediment to BoA’s rehabilitation.

The bank had settled its fight with Freddie Mac in 2011. Both Fannie and Freddie, which have posted billions of dollars in losses in recent years, have argued that Countrywide misrepresented the quality of home loans that it sold to the two entities at the height of the mortgage bubble. BoA assumed those troubles when it bought Countrywide in 2008. By removing part of the bank’s mortgage albatross, BoA continues its retreat from home lending even as rivals including JPMorgan Chase and Wells Fargo compete for the profitable refinance business that has boomed with interest rates persistently low. Bank of America also agreed to sell the servicing rights on about $306 billion worth of home loans to other firms.

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Banking Regulators Announce Foreclosure Settlement

On January 7th, banking regulators announced an agreement under which 10 mortgage-servicing companies will pay more than $8.5 billion in cash and other assistance to borrowers to settle claims of foreclosure abuse. The settlement replaces a previous requirement – imposed as part of enforcement actions issued in April 2011 – that the servicers retain consultants to conduct Independent Foreclosure Reviews.

Case closedThe Office of the Comptroller of the Currency and the Federal Reserve, which reached the agreement with the servicers, explained that the settlement was a more effective means of compensating affected borrowers than the foreclosure reviews. More than 3.8 million borrowers had homes in foreclosure in 2009 and 2010 with the servicers covered by the agreement. Eligible borrowers are expected to receive compensation ranging from hundreds of dollars to up to $125,000 (but the average amount per borrower is less than $900), depending on the type of possible servicer error.

The announced deal includes the mortgage units of the three largest banks in metro Atlanta by deposits in SunTrust, Wells Fargo and Bank of America. The other servicers involved in the latest pact are: Aurora, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign and U.S. Bank. The agencies added that they are continuing to work to reach similar agreements with other servicers not covered by the agreement. Read the agencies' press release.

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