MAY 3, 2013
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Who are you Who Defines You?
A recent Hike at Home meeting offered a chance for credit unions to bring Georgia's newest U.S. Representative up to speed on what credit unions are all about.

 
     
  CU Relief Bill Is Good First Step
A U.S. Representative from Missouri introduced in the House a bill that would provide regulatory relief to community-based financial institutions, including credit unions and community banks. The bill has a co-sponsor from Georgia.

 
  Too Big to Fail Bill Introduced
Two U.S. Senators introduced a bill designed to strengthen capital requirements for large banks and restrict some of their activities, as well as providing regulatory relief to credit unions in several areas.

 
  Banks Targeting Credit Unions
A bank call to action opposing two bills favorable to credit unions is calling attention to the credit union tax exemption, claiming it gives credit unions an unfair advantage in their competition with banks.

 
  Similar Growth Patterns
An article published by the Federal Reserve Bank of St. Louis found "no sharp conclusions" about whether credit unions’ tax exemption and chartering rules have affected banking industry growth.

 
  Regulators Cast Their Eyes to Payday Loans
A Consumer Financial Protection Bureau white paper found that payday loans and deposit advance loans put many consumers at risk for a cycle of borrowing that becomes an expensive, long-term burden of debt.

 
  CFPB: Federal Law on Unclaimed Gift Cards
Pre-empts Tennessee's Statute, but Not Maine's

The CPFB concluded that federal law pre-empts a Tennessee law that lets issues decline to honor gift cards as soon as two years after issuance, but not a Maine law requiring gift cards to be honored indefinitely.

 
  CUs Creating Influence
Georgia Credit Union Affiliates' Annual Convention next week in Savannah will afford credit unions the chance to foster influence with newly announced U.S. Senate candidate Jack Kingston, currently a U.S. Representative from Georgia.

 
  Summer Intern Funds!
NCUA announced on April 26th it is offering up to $80,000 in grants to low-income credit unions to hire student interns this summer. Eligible credit unions may qualify for up to $4,000 each under the program.

 
  A Tale of Two Industries
An article in The Financial Brand, looking at the credit union and banking industries, concluded that credit unions could learn from banks' emphasis on selling products and services, and from making borrowing more convenient.

 
  Georgia Credit Unions Making Waves
The Wall Street Journal, citing the latest Member Benefits Index from Georgia Credit Union Affiliates, reported that Georgia credit unions' lower interest rates helped their members save more than $130 million last year.

 
  NOWaccount Named 'Next Big Idea'
NOWaccount, a CU Partner Link product that provides capital to businesses that sell to other businesses and government entities, was named the "Next Big Idea" by a national CU service organization group.

 
  Restitution for Overdraft Violations
RBS Citizens was ordered by the Office of the Comptroller of the Currency to pay $2.5 million in restitution to 265,000 customers for making misleading statements about several bank programs, including overdraft protection.

 
  Big Banks Targeted by Smaller Banks
Community banks, in print ads aimed at readers on Capitol Hill, are urging an end to the "too big to fail" philosophy that the smaller banks say is destroying the free banking market.

 
  Waking Up to a Nightmare
More than 100 Bank of North Georgia customers recently were victimized by thieves who gained access to their account numbers and debit-card PINs, and then created and used duplicate debit cards to steal more than $45,000.

 
 
 
Collins Hike at Home
From left: Cindy Connelly, GCUA; Roger Beam, Ethicon CU; Deborah Beam, Ethicon CU; Gay Bramlett, Ethicon CU; U.S. Rep. Doug Collins; Sherry Hutchinson, Hallco Community CU; Lindsey Exley, Hallco Community CU; Lorie McGovern, Habersham FCU; Brandee Bickle, GCUA
Who Defines You?

What makes credit unions unique? How are they structured? Who can access them? The answers to these questions are important for any member, employee and consumer to know the answer , but especially if that consumer is a legislator! On April 22nd credit union leaders shared this information with Georgia’s newest Congressman, Rep. Doug Collins (R-9), at his Gainesville district office. Sitting down with their U.S. Representative for a Hike at Home meeting, the group provided the background of credit unions, how they operate, and why the not-for-profit cooperative structure of credit unions is one that should be protected.

Our thanks to the credit unions that helped build a positive relationship and greater understanding of the industry: Ethicon CU, Habersham FCU and Hallco Community CU. It is extremely important that credit unions are the one to define the answers to the above questions (and not other industries). By taking the time to make the personal connection, these credit unions put a face on the industry and provided the necessary information that anyone would need in understanding what makes credit unions unique!


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U.S. CapitolCU Relief Bill Is Good First Step

On April 25th Rep. Blaine Luetkemeyer (R-MO) introduced H.R. 1750, legislation to address several regulatory burdens facing credit unions and community banks. Georgia already has one co-sponsor: Rep. Lynn Westmoreland (R-3).

The Luetkemeyer bill, called the "Community Lending Enhancement and Regulatory Relief Act (CLEAR Relief Act)," would aid community-based financial institutions – both credit unions and community banks – by:

  • providing regulatory relief in the mortgage area; and
  • eliminating a requirement that privacy notices be sent on an annual basis.
The CLEAR Relief Act would also eliminate a requirement that financial institutions verify that automated clearing house payments are not a prohibited transaction, if the financial institutions originating the transaction has warranted they have complied with Office of Foreign Assets Control regulations. To read CUNA’s letter of support of the legislation, please click here.
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Too big to failToo Big to Fail Bill Introduced

Sens. Sherrod Brown (D-OH) and David Vitter (R-LA) on April 24th introduced the Terminating Bailouts for Taxpayer Fairness Act (S. 798), which would:

  • impose stronger capital requirements on banks   it would take the U.S. out of the Basel III capital standards and require regional banks (those between $50 billion and $500 billion in assets) to hold 8 percent capital;
  • require the largest banks (those over $500 billion) to maintain a capital ratio of at least 15 percent;
  • have regulators determine capital levels for smaller banks with less than $50 billion in assets (to a threshold of between 8 and 10 percent); and
  •  add other restrictions on the activities of very large banks.

The Brown-Vitter bill, however, does contain some provisions that would apply to credit unions as well as banks:

  • The privacy notification bill – which would eliminate the requirement that the notices be sent annually – has been included in this bill.
  • It would create an examination ombudsman for all the federal financial institution regulators.
  • The bill would provide some relief with respect to the definition of a qualified mortgage.
  • It would also exempt financial institutions under $10 billion in assets from small business data collection requirements under the Equal Credit Opportunity Act.
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TargetBanks Targeting Credit Unions

Banks in Georgia and across the country have four separate calls to action on Congress, one of which is in opposition to pro-credit union bills on member business lending (H.R. 688) and supplemental capital (H.R. 719), stating credit unions are making an "aggressive play for increased lending and capital-raising powers that would take them further from their mission of serving people of modest means." The bank’s call to action is peppered with "tax dodging" language, stating that if credit unions "want bank-like powers, they should be willing to pay taxes like banks."

It is important that consumers understand the tax status of credit unions, as even here in Georgia the banking industry consistently espouses that "credit unions don’t pay taxes," often referring to the industry in the media as "subsidized" by taxpayers.

Does your board, your team, your membership understand this difference?

Credit unions are exempt from federal and most state income taxes because they are member-owned, democratically operated, not-for-profit cooperatives. The tax exempt status was first enacted in 1937 and has been reaffirmed by Congress several times since. And, although credit unions are exempt from income tax, they do pay other types of taxes. Just ask your CFO!

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TreesSimilar Growth Patterns

On April 29th, the Federal Reserve Bank of St. Louis published an article examining how various rules have sought to foster competition between credit unions and banks while seeking competitive balance. This competition is coupled with the existing competition between the two industries since enactment of the 1998 Credit Union Membership Access Act. It states that a look at bank and credit union advantages offer "no sharp conclusions" on whether credit unions’ tax exemption and chartering rules have affected banking industry growth. The report also found no evidence to support the bankers’ claim that credit unions have an unfair advantage because of their exemption from federal income tax. "Although the exemption reduces credit unions’ cost of capital by approximately 40 percent relative to a fully taxed environment, several thousand small and medium-size banks are organized for tax purposes as Subchapter S corporations and are similarly exempt," the report said. "Despite the often-heated rhetoric of competing advocates, both [banks and credit unions] have experienced similar trend growth since 1998."

The article presented data showing credit union and bank growth trends following similar paths during this period, though data related to the period marked by the financial crisis show banks were more sharply affected by the crisis than were credit unions. Since 1998:

  • The number of banks has fallen by 30 percent while total assets have increased by 140 percent.
  • The number of credit unions fell 36 percent while total assets increased 160 percent.

It also repeats findings from previous academic studies confirming that rates on deposits at credit unions and banks move together, credit union lending to small businesses partly displaces bank lending, and credit union lending has been steadier than bank lending through business cycles.

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BankerRegulators Cast Their Eyes to Payday Loans

Payday lending and payday loan products are back on center stage in the eyes of regulators, with the CFPB leading the charge, sharing that some payday- and deposit-advance loan products can trap borrowers, putting "many consumers at risk of turning what is supposed to be a short-term, emergency loan into a long-term, expensive debt burden," CFPB Director Richard Cordray said on April 24th. Cordray made his remarks as the Bureau released a white paper on payday loans. The CFPB study found that many borrowers face a harmful combination of loose lending standards, high costs and risky loan structures.

Credit unions provide a safe and affordable alternative to predatory payday lenders, and credit unions across the country have implemented various programs to provide individuals in their communities an alternative to high-priced payday lenders. Most credit unions offering payday loan alternatives limit fees, provide member financial counseling and encourage members to open savings accounts. In some cases, they also provide incentives for members who switch to longer-term and lower-cost lending products.

Many borrowers use payday loan products to pay off their existing debts, the CFPB study found. This practice, when coupled with the high cost of the payday loan or advance, may make it more difficult for borrowers to pay off those debts. The CFPB analysis of 15 million payday loans generated by storefronts in 33 states revealed:

  • A median loan amount of $350 and a mean loan size of $392;
  • A median loan term of 14 days and a mean loan term of 18.3 days; and
  • An average borrower income of $10,000 to $40,000 per year.
  • The study found 18 percent of payday loan applicants were paid some form of federal or state public assistance.
  • One quarter of payday loan borrowers paid $781 or more in fees over the course of a year, not counting the principal of the loan.

Agency action to address payday and loan advance issues may be forthcoming, and the CFPB said it is also looking into online payday lender practices. State and federal legislators are also seeking to address payday loans. On April 25th, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency released proposed guidelines to national banks and federal savings associations as well as FDIC- insured financial institutions that offer or may consider offering deposit advance products, which they say pose the same risks as high-interest payday loans. In issuing its guidance, the FDIC and the OCC found that deposit advances have high fees, are repaid before the customer’s other bills and often do not utilize “fundamental and prudent banking practices” to determine the customer’s ability to repay the loan. Under the proposed rules:

  • Banks should review whether a borrower can repay the loan without needing to incur additional deposit advance borrowing.
  • Banks should establish policies regarding underwriting of deposit advance loans. They should be approved by the bank’s board of directors.
  • Customers with any delinquent or adverse credit should be ineligible for these loans.
  • Banks should not offer more than one loan per monthly statement cycle and each loan should be paid off in full before extending more credit.
  • Banks should establish a "cooling off" period of at least one monthly statement cycle in between repayment and another deposit advance loan is approved.
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Gift cardsCFPB: Federal Law on Unclaimed Gift Cards
Pre-empts Tennessee's Statute, but Not Maine's

The Consumer Financial Protection Bureau recently found that Tennessee state law on gift cards is pre-empted by federal law, while a Maine law is not. The CFPB studied the Tennessee and Maine unclaimed-property laws to evaluate whether they are pre-empted by the Electronic Fund Transfer Act and Regulation E requirements that payment card balances remain available for at least five years.

In Maine, the law requires cards be honored indefinitely, even if considered unclaimed property, and is thus "more protective of consumers than federal law" and not pre-empted. Tennessee law, however, allows card issuers to decline to honor a card once it is considered unclaimed property – or as soon as two years after issuance – with the unclaimed balance being turned over to the state.

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Kingston
U.S. Rep. Jack Kingston
CUs Creating Influence

The long-thought rumor has been confirmed, as U.S. Rep. Jack Kingston (R-1) announced officially on May 1st he will be running for the U.S. Senate in 2014. One of the stops after his campaign kickoff will be with credit unions, as he will address the attendees of the GCUA Annual Convention next week. This timing provides credit unions the opportunity to "create influence" with one of the candidates for the U.S. Senate seat being vacated by U.S. Sen. Saxby Chambliss (R). Be sure to take the time to connect with him in Savannah when he discusses the issues impacting Georgians at the afternoon General Session on Friday, May 10th.

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Summer internsSummer Intern Funds!

NCUA announced on April 26th it is offering up to $80,000 in grants to low-income credit unions to hire student interns during the summer internship season. Credit unions interested in participating in the Student Internship Grant Initiative can apply online here.

NCUA will award up to $4,000 to each eligible credit union. To be eligible, a credit union must have a low-income designation and be financially viable. Low-income credit unions may only use these grants for a student internship. Credit unions that received a student internship award in 2012 are not eligible for funding this year. NCUA will accept applications from May 1–20. NCUA’s Office of Small Credit Union Initiatives will review applications immediately upon receipt and issue approvals on a first-come, first-served basis until all funds are exhausted.

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PeasA Tale of Two Industries

An April 23rd article in The Financial Brand highlighted credit unions and banks, and what the industries could possibly learn from each other. Highlighting that auto lending has been high with credit unions,  and that small-business lending has “caught the eye” of credit unions as an opportunity, the article posed the question of whether or not both industries "play nice" in the same marketplace. The answer to that question is still up for debate, but the article shared that credit unions could learn from banks by:

  • Automating the selling process and generating leads. Banks want to sell. Credit unions often shy away from selling, so create a sales culture. Credit union leadership teams need to incentivize sales and demonstrate to their employees how the credit union can help members by providing the right products and services at the right time.
  • Making lending convenient. Online applications. Mobile applications. Electronic signatures. There is an investment, but in the long run the institution will save on not having to provide these services through an expensive branch delivery model.
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WavesGeorgia Credit Unions Making Waves

The April 18th edition of The Wall Street Journal reported that in response to a rebounding economy, Georgia credit unions continue to aggressively lower interest rates, helping to save members more than $130 million last year. The article highlighted the latest Member Benefits Index (MBI), which states the average interest rate for 60-month new car loans in 2012 at Georgia credit unions was 3.06 percent, compared with 4.92 percent at the state's banking institutions. Based on these differences, members saved an average $252 per year if they financed a 60-month loan for a new $25,000 automobile through a credit union instead of a bank. The benefits of financing a used car purchase through a credit union were also substantial last year: The average interest rate at Georgia credit unions for a 48-month used car loan was 3.2 percent in 2012 – 2.23 points lower than the average used car loan interest at banks (5.43 percent).

On average, Georgia credit union members saved $69 more last year than bank customers, and the average member household saved $130. Motivated by these savings, Georgia consumers continued to join credit unions in 2012. Membership at Georgia credit unions increased 2.3 percent in 2012, following a 3.3 percent growth rate the year prior. "Credit unions consistently offer consumers better value than banks," said Mike Mercer, president and CEO of GCUA. "With back-to-back years of membership growth, Georgia credit unions continued to provide members with lower interest rates, higher savings rates and fewer fees than banks last year." To see the full MBI press release please click here.

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Light bulbNOWaccount Named 'Next Big Idea'

CU Partner Link, a collaboration of the Georgia, California, Iowa, Ohio and Texas credit union leagues, has been in the press with the "Next Big Idea"! The NOWaccount won the "Next Big Idea" competition at the 2013 National Association of Credit Union Service Organizations annual convention in Las Vegas on April 17th. CU Partner Link is the exclusive distributor of NOWaccount to credit unions; this innovative solution provides easy-to-access, cost-effective capital to businesses that sell products and services to other businesses and government entities.

"Being selected as the next big idea is affirmation that the NOWaccount can be a game changer in the way credit unions serve their business members, prospects and Select Employee Groups," said Eric Jenkins, chief operating officer, CU Partner Link. "It certainly enhances the value proposition credit unions offer to their small business members. We want to introduce NOWaccount to even more credit unions, so they’ll engage with us on further distribution and funding of NOWaccount." Jenkins, previously the senior vice president of growth services at GCUA, said CU Partner Link will be rolling out additional products and services in the near future, all with the goal of driving top-line revenue for credit unions."Our credit unions should be on the lookout for these new opportunities through CU Partner Link designed to spur new loan origination, create new fee income and increase membership," Jenkins explained. "Small businesses can be very profitable members if you have the right products and services to meet their needs. This is largely an untapped market for many credit unions."

Congratulations to CU Partner Link for being on the cutting-edge of ideas!

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Overdraft feesRestitution for Overdraft Violations

RBS Citizens has been ordered to pay $2.5 million in total restitution to 265,000 customers under an overdraft settlement announced April 30th by the Office of the Comptroller of the Currency. The OCC has also assessed a $5 million civil money penalty against the bank for alleged violations of section 5 of the Federal Trade Commission (FTC) Act. According to the OCC, RBS employees made inaccurate or misleading statements about:

  • overdraft protection programs;
  • the rebate qualification requirements of the bank's checking rewards program; and
  • the bank's ability to process stop payments requested by customers.
Customers who were wrongfully charged as a result of these practices will be reimbursed, with interest. RBS Citizens' state bank affiliate, Citizens Bank of Pennsylvania, has also been ordered to pay $1.4 million in restitution to more than 75,000 consumers for similar violations. The FDIC order also imposed $5 million in civil penalties.
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FishBig Banks Targeted by Smaller Banks

Big banks are getting it from all sides in recent days, as Capitol Hill lawmakers and community banks both call attention to the need to end the nation's vulnerability to "too big to fail" – or TBTF – banks.

Community banks have turned up the heat on their "bigger brothers" in print ads targeting Capitol Hill readership. "STOP TBTF NOW," urges one ad illustrated by two maps of the United States – one showing the devastating effects of allowing a "too big to fail banking market" to wipe out a "free banking market." 

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NightmareWaking Up to a Nightmare

On the morning of May 1st, the accounts of more than 100 Bank of North Georgia customers were drained by thieves who gained access to their bank accounts and PIN numbers. The customers had debit cards associated with their accounts at Bank of Coweta, which merged in early 2013 with the Bank of North Georgia, according to the Atlanta Business Chronicle. At least $45,000 has been reported stolen so far by 105 customers and it is believed there are more victims. Duplicates of the customers' debit cards were made and were used at ATMs in Florida, Texas and Louisiana.

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