FEBRUARY 22, 2013
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Statewide News Coverage
Busy Valentine’s Day for CUs: MBL and Supplemental Capital Bills Introduced
Two bills of interest to credit unions – one dealing with supplemental capital, the other with member business lending – were introduced in the U.S. Congress on Valentine's Day.

  Privacy Notice Bill Would Curb Consumer Confusion
A Georgia Congressman was among the co-sponsors of a bill, introduced in the U.S. House, that would eliminate the requirement that financial institutions send annual privacy notices to consumers.

  Group Focused on Tax Code Overhaul
U.S Rep. John Lewis of Georgia was named vice chair of one of 11 groups set up by the House Ways and Means Committee to work on an overhaul of the U.S. tax code.

  Senate Banking Eyes Mortgages, Appraisals, Exams and More
The U.S. Senate Banking Committee plans to study several topics of interest to credit unions in the current session of Congress; the topics include mortgage originations, appraisals, examinations and others.

  CU Issues Part of Financial Services Oversight Plan
The U.S. House Financial Services Committee included in its draft oversight plan "the goal of reducing unnecessary, duplicative, or overly burdensome regulations" for financial institutions, including credit unions.

  Dueling Positions on the CFPB in the Senate
In a letter to President Barack Obama, 52 Democratic senators and two independents voiced their support for Consumer Financial Protection Bureau Director Richard Cordray and their opposition to structural changes in the CFPB.

  Flash Flood of Legislation
Just past the halfway point of the state Legislature's session, legislators are considering a number of issues relevant to credit unions, including foreclosures, tax liens, vehicle title fees and others.

  Room for Debate? Banking Committee Meetings
State Legislature committees dealing with banking issues met to take up issues including debtors, additional fees for credit verification, and the rights of homeowners' associations to recoup unpaid assessments.

  Georgia to Challenge Provisions of Dodd-Frank
Georgia and seven other states asked a federal court to allow them to join in a lawsuit challenging the constitutionality of the Dodd-Frank Wall Street Reform Act, and particularly the authority of the government to liquidate large banks.

  Auto Loans Hit Four-Year High
Balances on outstanding auto loans hit a four-year high at the end of January, while the number of existing loans stood at a 42-month high, according to a consumer credit report by Equifax.

Busy Valentine’s Day for CUs: MBL and Supplemental Capital Bills Introduced

HeartsOn Thursday, February 14th, two bills of credit union interest were introduced amongst the other “Valentines” of the day. U.S. Reps. Pete King (R-NY) and Brad Sherman (D-CA) reintroduced legislation that would permit NCUA to allow credit unions to accept additional forms of capital. The capital access bill (H.R. 719) recognizes that "capital is king" at financial institutions, and allows well-capitalized credit unions to match a growing deposit base from a growing membership with capital from sources other than retained earnings ─ currently the only type of capital that counts at a credit union. The legislation would require such capital to be uninsured and subordinate to other claims against a credit union. The measure also would authorize the NCUA to set maturity limits on it. It is substantially similar to H.R. 3993, which was introduced in the previous 112th Congress and gained 45 co-sponsors.

The bill is the second piece of credit union charter improving legislation to be unveiled on Valentine’s Day. Earlier that day was the release of MBL legislation (H.R. 688) that would increase the credit union member business lending cap to 27.5 percent of assets, from the current level of 12.25 percent of assets. That bill, as we previously reported, started its legislative path with three Georgians as part of the 35 co-sponsors: U.S. Reps. John Lewis (D-5), Hank Johnson (D-4) and Sanford Bishop (D-2).

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Privacy Notice Bill Would Curb Consumer Confusion
U.S. Rep. Lynn Westmoreland

On February 15th a bill that would make significant improvements in privacy notices for consumers was reintroduced in the U.S. House of Representatives. Reps. Blaine Luetkemeyer (R-Mo.) and Brad Sherman (D-Calif.) introduced "The Eliminate Privacy Notice Confusion Act” (H.R. 749). One of the 18 original co-sponsors of the legislation is U.S. Rep. Lynn Westmoreland (R-3) of Georgia. This bill would be beneficial to credit unions and consumers alike, as it would eliminate repetitive privacy notices that are often ignored by the consumers upon receipt. By eliminating the requirement for blanket annual notices, and only requiring them when the privacy policy of a financial institution has changed, the notices become more meaningful for consumers. Credit union leaders will recall the House unanimously passed an identical bill before the 112th Congress adjourned, but the Senate did not act on the legislation. Therefore, the bill must be re-introduced for consideration in both chambers this year.

Credit unions agree consumers are rightfully concerned about the protection of their personal financial information, and it is important for them to understand how their financial institutions handle this information. However, with the current process of annual notices, most consumers are not paying attention to what the current policies are, or are aware if there is a change. This bill would be a win-win, as under the current rules credit unions alone have sent an estimated 1 billion annual privacy notifications to members since 2001. That’s a lot of paper for such little impact!

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U.S. Rep. John Lewis
Group Focused on Tax Code Overhaul

Credit union leaders will be pleased to know the membership of the 11 bipartisan groups set up by the House Ways and Means Committee to craft separate areas of a tax code overhaul has good representation of lawmakers with a positive understanding of credit unions, and has a vice-chair who is a strong credit union supporter from Georgia: U.S. Rep. John Lewis (D-5).

Those who understand our industry, and understand the public policy reasons for the credit union tax exemption, also know it is something to protect for the sake of consumers. Preserving the tax status of credit unions is a top priority; under the Federal Credit Union Act, federal and state-chartered credit unions are exempt from federal income tax because they are cooperatives operated for and by their members, and because credit union shares are essentially members' deposits. The tax status has been reaffirmed periodically by the U.S. Congress and is supported by many lawmakers.

The Ways and Means working groups each will be led by a Republican House member with a Democrat as vice chair. They will focus on the following areas:

  • charitable and exempt organizations;
  • debt, equity and capital;
  • education and family benefits;
  • energy;
  • financial services;
  • income and tax distribution;
  • international;
  • manufacturing;
  • pensions/retirement;
  • real estate; and
  • small business and pass throughs.

The groups on financial services and on exempt organizations are the two most likely to study the credit union tax status. The financial services group will be led by U.S. Rep. Adrian Smith (R-NB) and vice chaired by U.S. Rep. John Larson (D-CT). The charitable and exempt organizations group is headed by U.S. Rep. David Reichert (R-WA) with U.S. Rep. John Lewis (D-GA) as vice chair.

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Senate Banking Eyes Mortgages, Appraisals, Exams and More

U.S. CapitolMortgage origination, appraisals, examinations, interactions with the Consumer Financial Protection Bureau and risk management will be among the issues of interest to credit unions that will be examined by the Senate Banking Committee in the 113th U.S. Congress. The committee would also continue to review the examination policies of federal financial regulators, ensuring examinations are balanced in a manner that does not discourage prudent lending while promoting consumer protection and safety and soundness. Financial data security, Wall Street reform oversight and housing finance and consumer protection issues will also be high on the committee's list of priorities. The committee plans to monitor and potentially address consumer financial services, including:

  • credit cards;
  • private student loans;
  • prepaid cards;
  • mobile payments;
  • consumer credit reporting and scoring;
  • payday loans;
  • overdraft coverage programs; and
  • deposit advance programs.

Financial protection issues that impact the military community will also be discussed. Reauthorizing certain expiring programs and quickly considering President Barack Obama's nominees will also be priorities. The Native American Housing and Self-Determination Act, the Defense Production Act, Export Import Bank authorization, public transportation and roadway spending authorizations and terrorism risk insurance provisions are among the items that will expire in 2013 or 2014. The committee held the first hearing of 2013 when federal banking regulators testified on Wall Street reforms, financial stability oversight and consumer and investor protections on Feb. 14th.

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CU Issues Part of Financial Services Oversight Plan

D.C. skylineIn the House, credit unions' regulatory treatment and the safety and soundness of the credit union industry are among the items the House Financial Services Committee plans to address during the 113th session of the U.S. Congress. The committee's draft oversight plan also lists NCUA activities and National Credit Union Share Insurance Fund solvency as two oversight objectives. "The committee will continue to review the current regulatory burden on banks, thrifts, and credit unions with the goal of reducing unnecessary, duplicative, or overly burdensome regulations, consistent with consumer protection and safe and sound banking practices," the oversight plan adds.

Ensuring regulators carefully and transparently assess the costs and benefits of regulations called for by the Dodd-Frank Act to strike an appropriate balance between prudent regulation and economic growth will be another goal of the committee. The Consumer Financial Protection Bureau will also receive close attention, as the committee seeks to "ensure that the CFPB's regulatory, supervisory and enforcement initiatives protect consumers against unfair and deceptive practices without stifling economic growth, job creation, or reasonable access to credit." CFPB enforcement actions, the agency's work with other federal regulators, and how CFPB actions impact small businesses and financial institutions of all sizes, particularly "those with fewer than $10 billion of assets," will also be areas of emphasis, according to the plan. Other oversight priorities addressed in the plan include:

  • global financial reform coordination;
  • international accounting standards;
  • the U.S. Treasury's Troubled Asset Relief Program; and
  • Capital Standards and Basel III.
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DuelDueling Positions on the CFPB in the Senate

In the February 8th edition of Creating Influence we shared how 43 Senate Republicans wrote to President Barack Obama stating they will continue to block the confirmation of any nominee for Consumer Financial Protection Bureau director until the bureau’s structure is reformed. On February 14th, 52 Democratic senators and two independents told President Obama they strongly support Richard Cordray’s re-nomination as Consumer Financial Protection Bureau director, and they oppose the CFPB structural changes Republican are demanding as the price for his confirmation.

“As supporters of strong and effective consumer protection, we oppose efforts to weaken the CFPB through structural changes, including as the price for Senate approval of Director Cordray’s nomination,” senators said in a letter. “Never before has a president’s nominee to lead an agency been blocked because a minority of senators do not support the existence of the agency.” President Obama made Cordray the CFPB director through a recess appointment in January 2012, after Republican senators threatened for months to block his confirmation if structural reforms weren’t made to the agency. A federal appeals court, however, ruled last month that similar recess appointments the president made to the National Labor Relations Board were unconstitutional, casting doubt on the validity of Cordray’s appointment. Read the letter.

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Flood warningFlash Flood of Legislation

The state Legislature is now past the halfway point of the session, reaching day 22 of the 40-day schedule as of Friday, February 22nd. Even though the press has highlighted that there are fewer bills introduced this year, for those in the financial industry it has been a deluge of activity. There is a strong undercurrent of “anti-big bank” permeating many legislative initiatives, and this resonates with many legislators. While this is not an “anti-credit union” attitude, unfortunately credit unions ARE wrapped up in the legislative attempts and lobbying efforts of other industries attempting to alter otherwise innocuous bills to address “issues of big bank mentality.”

This combination of activity and the quick session schedule has created a sense of urgency at the Capitol. The fast pace has generated numerous committee meetings as legislators frantically work to move forward pieces of legislation, including the Banking Committees (see related article below). In the committees this week, there were multiple hearings of interest to credit union leaders:

  • On Wednesday, February 20th a House Ways and Means Subcommittee met to hear testimony on HB 159 by Rep. Brett Harrell (R-Snellville). This bill seeks to limit property tax bills from including extraneous fees. Rep. Harrell has stated the purpose for the bill is to strip away additional fees from property tax in the event the home is to be foreclosed upon in a tax sale.
  • In the same hearing on the above HB 159, the subcommittee heard testimony on HB 69 by Rep. Tommie Benton (R-Jefferson). This bill seeks to alter the tax lien process on real property, and would require the purchaser to pay all unpaid property association fees. While it appears the above HB 159 garnered interest in the committee, HB 69 prompted much discussion and it has not received a vote as of press time.
  • The Senate Finance Committee met multiple times during the week to address HB 80 by Rep. Tom Rice (R-Norcross). Credit union leaders will recall that this bill seeks to make technical corrections to the overhaul of the title fee/tag process in Georgia that the Legislature passed in 2012. While the majority of the changes reference the logistical process with auto dealers and car leasing companies, the bill contains a provision exempting an entity from paying the title fee if the auto was acquired through repossession. This bill has been altered at every committee meeting, sometimes within minutes before it begins, and is being monitored closely as it moves through the legislative process.
  • SB 118 by Sen. Judson Hill (R-Marietta) was addressed by the Senate Insurance and Labor subcommittee on Thursday, February 21st. This bill seeks to provide an avenue for electronic verification of auto insurance, and financial institutions are among the entities that would be permitted access (for a possible fee). While we are not pushing for passage of this legislation, the Government Influence Team has been working with Sen. Hill to expand the definition to afford affiliates and subsidiaries of financial institutions the same access.
  • The full House this week moved forward HB 160 by Rep. Mike Jacobs (R-Brookhaven), which amends the state’s foreclosure registry standard for language consistency, and also seeks to ban recurring recording fees that run indefinitely with the land (recurring fees paid every time owners change hands). This bill now moves to the Senate for consideration; however, the Government Influence Team has heard there are entities that seek to negatively amend the bill so it is monitored closely.

Next week the Legislature will be in session five days, and at this stage bills are moving even more quickly through the committee process. Privately legislators remark they are happy that the 40-day time frame is disappearing fast, as it provides fewer opportunities for “mischief” with bills. However, it is a challenge for legislators and lobbyists alike to navigate through the bills that are constantly in flux. Stay tuned!

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State Rep. Earl Ehrhart
Room for Debate? Banking Committee Meetings

On Thursday, February 21st the House Banks and Banking Committee met to address HB 82 by Rep. Earl Ehrhart (R-Powder Springs). This legislation is one of the many bills introduced regarding the topic of debtors (as in the issue of deficiency judgments), and would require a successor creditor to provide notice to a guarantor to allow the guarantor 90 days to purchase the debt obligation. The bill states it only applies to a successor creditor who is not a depository institution, or an affiliate that is federally insured. Testifying in favor of the bill was former Governor Roy Barnes, who urged the Legislature to rein in negative practices by some management companies in the marketplace who buy up large distressed-asset pools of foreclosed properties with the intent of only going after the debtors.

The issue of regulating deficiency judgments is one of interest to many legislators, and has generated several different bills seeking to alter the process introduced in both the House and Senate separately. From a credit union perspective, this issue is one that is monitored and addressed to ensure access to the secondary market is protected.

The Senate Banking and Financial Institutions Committee is scheduled to meet on Friday, February 22nd, after the session adjourns for the day, to address SB 139 by Sen. Butch Miller (R-Gainesville), which is legislation supported by loan-center businesses falling under the Georgia Industrial Loan Act. This bill seeks to allow an additional $50 fee to cover credit verification, and this bill was amended to apply only to the industrial loan industry and not to credit unions or banks. It is a prime example of how unintended consequences can have a drastic impact; if it was not amended it could have set a $50 cap on any closing fee.

The Senate Banking Committee met last week on February 13th to hear testimony on SB 56 by Sen. Jesse Stone (R-Waynesboro). This bill is an attempt prompted by property association interests (HOAs) to supersede the priority lien status of financial institutions (so as to recoup some of the unpaid assessment fees by previous owners). This bill has been assigned to a subcommittee chaired by Sen. Don Balfour (R-Snellville), and the Government Influence Team continues to work to mitigate this issue.

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Georgia to Challenge Provisions of Dodd-Frank

Georgia, along with seven other states, filed a motion asking a federal district court to allow them to join a lawsuit challenging the constitutionality of the Dodd-Frank Wall Street Reform Act, particularly the formation of the Consumer Financial Protection Bureau (CFPB) and Financial Stability Oversight Council (FSOC) and the establishment of their Orderly Liquidation Authority, which allows the government to liquidate the largest banks if they fail. The addition will bring the total number of states involved in the lawsuit to 11. On Feb. 20, the judge approved the motion, so joining the original states, Michigan, Oklahoma and South Carolina, will be: Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia. Also suing are three private entities: the State National Bank of Big Spring, Texas; the 60 Plus Association Inc., a seniors’ advocacy group in Alexandria, Va.; and the Competitive Enterprise Institute, a public interest organization in Washington, D.C.

Law bookThe states are challenging only Title II of Dodd-Frank, which sets up the government's liquidation authority. The proposed amended complaint for declaratory and injunctive relief, which was filed Wednesday in the U.S. District Court for the District of Columbia, claims the formation of CFPB, the appointment of CFPB Director Richard Cordray, and the formation of the FSOC violate the U.S. Constitution, specifically its provisions for separation of power. "Title X of the Dodd-Frank Act delegates effectively unbounded power to the CFPB, and couples that power with provisions insulating the CFPB against meaningful checks by the Legislative, Executive and Judicial Branches," the complaint said.

The FSOC, it added, violates the separation of powers with "sweeping and unprecedented discretion to choose which nonbank financial companies to designate as 'systemically important' (or, 'too big to fail'). That designation signals the selected companies have the implicit backing of the federal government ─ and an unfair advantage over competitors in attracting scarce, fungible investment capital." The act's provision "empowers the Treasury Secretary to order the liquidation of a financial company with little or no advance warning, under cover of mandatory secrecy, and without either useful statutory guidance or meaningful legislative, executive or judicial oversight." The suit claims the liquidation authority also violates the Fifth Amendment's due process clause and a requirement that bankruptcy laws throughout the U.S. be "uniform." The states maintain they have pension funds with investments in institutions that would qualify as falling under the liquidation authority. The suit names as defendants a number of federal agencies, including NCUA.

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DogAuto Loans Hit Four-Year High

Auto loans in January were the highest in years on a number of levels, according to Equifax's National Consumer Credit Trends Report. Balances on outstanding auto loans at the end of January totaled $782 billion, the highest in 48 months, while the number of existing loans totaled 59 million, a 42-month high, said the report. Loans funded through credit unions, banks, and savings and loans totaled more than $372 billion, a 60-month high that raised their loans back to pre-recession levels, said Equifax. That compares with auto finance companies' loans totaling more than $409 billion, the highest level in 46 months. Delinquency rates on auto loans decreased nearly 11% from January 2011, and auto loan and lease losses for the period dropped nearly 10%, said Equifax. Its report includes both loan and lease auto financing.

Sales of new cars and light trucks are rising steadily but are still below pre-recession levels of about 17 million units. "Yet auto lending, including leases, is now back to pre-recession levels, driven in part by the very attractive interest rates being offered on these loans and a gradual increase in willingness to lend to less-than-perfect credit borrowers," said Amy Crews Cutts, Equifax's chief economist. Other data highlights from January through November 2012:

  • During the period, auto loans totaled $387.7 billion, a six-year high and representing nearly 46 percent of the $825 billion total consumer credit originated during that time.
  • Total number of new auto loans originated was 19.9 million, up more than 11 percent from the same period in 2011, also matching a six-year high.
  • New auto loans funded in November 2012 by credit unions and savings and loans increased nearly 13 percent to 857,300 from the previous November's 749,800.
  • Auto lending to subprime borrowers with origination risk scores of less than 640 increased more than 18 percent year-over-year, from 5.1 million to 6.1 million.
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