JUNE 28, 2013
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  Flag Happy Independence Day from Georgia Credit Union Affiliates! Fireworks  
Growing Georgia Awareness
Tax-reform option papers in both houses of Congress include the idea of eliminating the credit union tax exemption – so it's crucial that as many credit union people as possible GET INVOLVED in advocating for keeping this important provision in place.

  Bankers Work to Remove Credit Union Tax Exemption
The head of the American Bankers Association wrote to President Obama to urge abolition of the credit union tax exemption, prompting a quick response from CUNA rebutting the bankers' arguments.

  Credit Union Relief Bill on the Horizon
A high-ranking member of the House Financial Services Committee plans soon to introduce legislation to provide regulatory relief for credit unions and community banks.

  Seeking Relief from CFPB
An Alaska credit union lending officer testified in a House Financial Services hearing that the Consumer Financial Protection Bureau's Qualified Mortgage rule will make it much harder for credit unions to make non-QM loans.

  Senate Banking Hearing on Potential NCUA Board Member
The Senate Banking Committee took up the nomination of Rick Metsger, a former Oregon state senator and former CU board member, to a seat on the National Credit Union Administration board.

  World of Uncertainty: The Supreme Court and the CFPB
The U.S. Supreme Court agreed to hear a case involving presidential recess appointments to government posts; the case could affect the status of CFPB Director Richard Cordray, who was appointed through the same process.

  Bumping Up Against the Ceiling
A Bloomberg Business Week article noted credit unions' role in lending to small businesses during the recent recession, and warned that the current cap on member business lending may be constraining CUs' ability to continue lending.

  Positive U-Turn: Freddie Fee Reversal for Credit Unions
Freddie Mac said it would refrain from imposing previously announced fees on mortage servicers and sellers, including credit unions, that don't meet minimum thresholds for such activities.

  More Georgians Support Exam Fairness Bill
Three more U.S. Representatives from Georgia agreed to co-sponsor H.R. 1553, the Financial Institutions Examination Fairness and Reform Act, bringing to five the number of Georgia legislators supporting the bill.

  Time for MBL Increase Is Now
NCUA Board Member Michael Fryzel wrote that now that the financial crisis of the past few years is easing, it's time for Congress to get serious about raising the CU business-lending cap and expand access to secondary capital.

  SBA Raises the Bar
The U.S. Small Business Administration approved a rule raising the "small business" standard for credit unions to $500 million in assets, from $175 million, which will allow more CUs to benefit from lower regulatory costs.

  Mobile Opportunity?
A study found that mobile-banking users are becoming less resistant to fees, presenting an opportunity for credit unions to position themselves as low- or no-cost providers of such in-demand services.

  Bad News for Patent Trolls
The Federal Trade Commission plans to launch an inquiry into "patent troll" companies that buy technology patents and then sue users, including financial institutions, that may use processes similar to those covered by the patents.

ForestGrowing Georgia Awareness

Georgia credit unions are growing their involvement in the nationwide “Don’t Tax My Credit Union” campaign with almost 5,000 messages from individuals in this state sent to members of Congress, urging them to preserve the credit union federal income tax exemption (to see the full activity as of June 25th please click here). Congress is in the midst of formulating tax reform plans, and action is needed by all credit unions: Both the House and the Senate both have put forth option papers that include dismantling the credit union tax exemption in the process of tax reform. To protect credit unions from being swept up into a tax plan is an effort that takes all of us, and the credit unions in Georgia are utilizing a wide variety of methods to educate both their members and Congress on the credit union structure. Social media, direct e-mails to members, involvement in branches or at member-focused events – the avenues to engage in the call to action are as unique as the credit unions in this state. But the key is to GET INVOLVED. Seeking ideas? There are tools available to assist your credit union HERE.

In the past week some of the member involvement ideas shared by credit unions were:

  • United Methodist Connectional FCU forwarded the call to action update e-mail with their board to educate them on the campaign, and placed the call to action on their website and social media.
  • Georgia United CU educated staff this week on the call to action at a team meeting, rolling out an ambitious credit union-wide goal of 50,000 contacts through a social media, lobby postcards, and web campaign to engage members.
  • Georgia Heritage FCU recently sent multiple e-mails to its members asking them to get engaged, and is changing its web banner to promote the campaign.
  • Emory Alliance CU has promoted the campaign on its website, and with flyers and take-aways in their branches.
  • MidSouth Community FCU sent out an e-letter blast from the CEO asking all credit union members to take action.
  • Richmond Community FCU is engaging its membership via social media.
  • First Reliance FCU is planning a member drive with a PC station in the lobby to provide immediate access to the call to action on a payday to maximize involvement.

And the above involvement adds to what more than 45 credit unions in the state are already doing to protect the tax status of all credit unions. Keep up the positive efforts; it will take all of us working together!

On June 27th, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) sent a letter to their colleagues announcing the next step of tax reform. The letter tells Senators that the Finance Committee is beginning to draft a comprehensive tax reform bill and that they are starting with a blank sheet of paper with respect to tax expenditures. As you know, this approach has been suggested to GCUA and CUNA staff several weeks ago as the likely course of action. CUNA has also received word from senior House Republicans on the Ways and Means Committee that the House intends to take a very similar approach in constructing their bill although we haven't received word on the timing of House activity.

This means every tax expenditure – including the credit union tax exemption – is out of the initial draft of the Senate tax reform bill, and Senators have been invited to submit proposals for expenditures that should be included in their bill by July 26, 2013.

This announcement confirms what we have been saying for several months: to preserve the credit union tax status, we will not simply have to defend it, but we will have to advocate for it. It is critical that our voice be louder than the others fighting to preserve their tax exemption.

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Bankers Work to Remove Credit Union Tax Exemption

BankerAmerican Bankers Association CEO Frank Keating on June 21st wrote to President Obama urging the administration to end the credit union tax exemption, which he called “a Depression-era tax break that has outlived its purpose. The time has come to abolish this exemption." He went on, "[I]t would be a fiscally sound way to help reduce the U.S. debt and eliminate distortions in the financial services industry.” He argued that ending the exemption could save almost $10 billion over the next five years. To read the banker’s letter click here.

On June 26th CUNA responded in its own letters to the President, Senate Finance, and House Ways and Means leaders, calling it "offensive" that representatives of banks and thrifts, "which time and time again have needed taxpayer funded bailouts," have gone to top policy makers to say that "the government can no longer afford the credit union tax status." The letters also refuted incorrect banker assertions regarding credit union structure and membership. "Other than the banking trade associations' tired efforts, there is absolutely no evidence to suggest that the credit union tax status is controversial. What is controversial is the bankers' suggestion that credit unions ought to be taxed, which would in effect raise taxes on 96 million Americans."

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BankerCredit Union Relief Bill on the Horizon

House Financial Services Committee Vice Chairman Gary Miller (R-CA) will soon unveil anticipated legislation that will open formal discussions in the U.S. House about possible regulatory relief measures for credit unions and community banks. Miller's bill will focus on credit unions and topics discussed within its section range from enhancements to NCUA authority, to improved capital standards for credit unions, to a cost-benefit analysis of rules, past and present. Miller's bill will join other credit union supported regulatory relief legislative initiatives already introduced in the House of Representatives:

Miller's credit union bill will likely be joined by other regulatory relief legislative initiatives coming out of the financial services panel this year. And, other committee members are said to be preparing to offer bipartisan regulatory relief bills to find for areas where credit union and community bank interests may intersect in a bill. One such area is examination fairness legislation.

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U.S. CapitolSeeking Relief from CFPB

Credit union witness Jerry Reed testified on June 18th that credit unions worry that the Consumer Financial Protection Bureau's Qualified Mortgage (QM) rule will make it all but impossible for credit unions to write non-QM loans. Reed, who is chief lending officer at Alaska USA FCU, said that the QM standard "designed to be an instrument of consumer protection, may serve as an instrument of prudential regulation, effectively setting a bureaucratic standard for loan quality."

Reed represented credit unions and CUNA at a House Financial Services subcommittee on financial institutions and consumer credit hearing on "Examining How the Dodd-Frank Act Hampers Home Ownership."  Reed told lawmakers that credit unions commend the CFPB for listening to their concerns and for incorporating many of their concerns into amendments to the mortgage rules. However, he underscored that credit unions continue to have serious apprehensions about how the QM rule will be implemented and believe that it could have the unintended effect of reducing credit union members' access to credit. In the testimony, Reed shared that credit unions are primarily portfolio lenders, typically selling less than a third of their new originations. The fact that most of the loans they make will be held in their own portfolios is further incentive for them to be particularly attentive to the applicant's potential ability to repay.

Opening her subcommittee's hearing, Rep. Shelly Moore Capito (R-WV) said it could be the very consumers meant to be protected by the CFPB who could be harmed by unintended consequences of the rule. She said low-income consumers and those in rural areas with low property values could find the ability-to-repay rule eliminates mortgage lenders' ability to engage in "relationship lending." She said "case-by-case, local lending" could disappear because of "rigid mortgage lending rules" proposed by the CFPB.

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U.S. CapitolSenate Banking Hearing on Potential
NCUA Board Member

The nomination of former Oregon State Sen. Rick Metsger (D) to become the third member of the NCUA was considered by the Senate Banking Committee on June 27. Metsger was member of the board of directors at Portland Teachers CU from 1993 to 2001. He was named by the White House in May as a candidate to fill the vacant seat on the NCUA board, a position left open since former member Gigi Hyland exited late last year. If confirmed, Metsger will join NCUA Chair Debbie Matz and board member Michael Fryzel. Conventional wisdom suggests that a full vote on Metsger’s nomination may be on the fast track, and could happen as early as July given its non-controversial nature.

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ThinkerWorld of Uncertainty:
The Supreme Court and the CFPB

The Consumer Financial Protection Bureau will be closely watching the highest court in the land this fall. On June 24th the Supreme Court is set to hear a case about whether the White House violated the constitution and did not have the power to make certain recess appointments last year to fill vacancies to the National Labor Relations Board. The court’s decision on the case will also impact the appointment of Richard Cordray, who directs the CFPB, since he was installed at the bureau in the same controversial way as the NLRB nominees were approved for the labor board. All this means the consumer bureau’s existing rules for mortgages and future rules could be in trouble. Without Cordray, the bureau would not be able to write or enforce rules on many mortgage lenders, payday lenders, credit-reporting bureaus and debt collectors. However, it could still enforce existing consumer laws on many banks, credit unions and credit card companies.

The litigation battle comes after Cordray and the NLRB board nominees could not win the filibuster-proof 60 votes needed to be approved by the Senate in efforts over the past couple of years. The White House is permitted to bypass the Senate approval process and appoint senior federal officials and agency directors for a restricted period of time while the Senate is in recess, or on vacation. To read more click here.

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Bumping Up Against the Ceiling

A Bloomberg Business Week article on June 13th cites the strong support credit unions provided small businesses during the Great Recession, and credited them with picking up the slack created as banks clamped down on credit to small business owners. But the article notes that the statutory member business lending (MBL) cap is constraining credit unions' ability to keep lending. The article warned that a new Biz2Credit Small Business Lending Index shows some decline in that activity by credit unions. The 12.25%-of-assets member business lending cap is one of the top reasons for this funding squeeze, Bloomberg noted. Bloomberg reported that credit unions are working hard to convince the U.S. Congress to ease the lending restrictions.

CeilingCUNA Chief Economist Bill Hampel explained in the article that the Biz2Credit statistics are different from figures from NCUA, whose data for the first quarter of 2013 shows that credit unions made $3.9 billion in business loans early this year, an increase from the $3.1 billion total reported in the first quarter of 2012. "A lot of small business lending is relationship-based and requires local knowledge," Hampel told Bloomberg. Biz2Credit's surveying method may not create an accurate representation of credit union loan application volume.

Work continues to lobby Congress to help credit unions help small businesses by approving MBL cap increase legislation. U.S. House (H.R. 688) and Senate (S. 968) bills would increase the credit union MBL cap from 12.25% of assets to 27.5%. S. 968, which was introduced by Sen. Mark Udall (D-CO) in mid-May, currently has 16 co-sponsors. H.R. 688, introduced by Reps. Ed Royce (R-CA) and Carolyn McCarthy (D-NY), has 106 co-sponsors including four from Georgia:

Thank you to these Georgia Congressmen for co-sponsoring the pro-credit union piece of legislation!

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U-turnPositive U-Turn: Freddie Fee Reversal
for Credit Unions

Positive news: Freddie Mac will reverse course and refrain from imposing fees on mortgage sellers and servicers -- including credit unions -- that do not meet minimum activity thresholds. The government-sponsored enterprise had announced back on May 15th that effective January 1, 2014, sellers and servicers that did not meet minimum activity thresholds for the prior calendar year would have been assessed a fee of $7,500 for low activity. Sellers and servicers would have had to sell loans with an aggregate unpaid principal balance of $5 million, or service or act as servicing agent for loans with an aggregate unpaid principal balance of $25 million in the prior calendar year to avoid the fees.

Now Freddie Mac has changed course, stating that the fee will only apply to lenders that have Freddie Mac approval but do not sell or service any of the company's mortgages. As long as a lender handles or writes at least one Freddie Mac loan over a three-year period, it will be able to avoid the fee. This is the positive result of work; earlier CUNA requested that the decision imposing these fees be revisited in a letter sent to Federal Housing Finance Agency Acting Director Ed DeMarco last week. And, it also was a topic of the testimony given by CUNA witness Jerry Reed of Alaska USA FCU to the House Financial Services subcommittee on financial institutions and consumer credit (see related article above).

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More Georgians Support Exam Fairness Bill

Thumbs upRecently three more Georgians added their names to the growing ranks of legislators supporting the bi-partisan legislation designed to address concerns about financial institution examinations. The Financial Institutions Examination Fairness and Reform Act (H.R. 1553) was introduced by House Committee on Financial Services Chair Shelley Moore Capito (R-WV) on April 15th. The bill would ensure that financial institutions receive timely examination reports, and would provide new standards for exams, would make the information examiners use to make decisions in their exam available to credit unions. The bill would also establish an Independent Office of Examination Ombudsman and would create a timely, independent and fair process for financial institutions to appeal exam decisions.

Special thanks to Reps. Jack Kingston (R-1), Austin Scott (R-8) and John Barrow (D-12) for agreeing to co-sponsor H.R. 1553. It is great to see them join their fellow Georgians Reps. Lynn Westmoreland (R-3) and Tom Graves (R-14) on the growing list of legislators supporting the bill.

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NowTime for MBL Increase Is Now

"It's time for Congress to act" and pass legislation that would increase the credit union member business lending (MBL) cap, and give credit unions greater authority to access secondary capital sources, NCUA Board Member Michael Fryzel wrote in the June edition of The NCUA Report. "For the almost five years that I have sat on the NCUA board, national trade organizations, credit unions across the country and NCUA have tried to convince Congress to pass enabling legislation to increase the [MBL] cap and provide all credit unions with access to supplemental capital," Fryzel wrote. While the aftermath of the financial crisis meant less time to address these credit union priorities, "things are better now.”

"It's time Congress got serious" and reached a consensus on these two issues. Doing so "would enable credit unions to become stronger financial institutions, spur small business formation and growth, and help thousands of people across this country to get a job as a result of a credit union [MBL], or to join a credit union." The Capital Access for Small Businesses and Jobs Act (H.R. 719) would allow well-capitalized credit unions to match a growing deposit base from a growing membership with capital from sources other than retained earnings – which currently is the only type of capital that counts toward capital ratio. It was introduced in February by Rep. Pete King (R-NY) and has 31 co-sponsors, including Rep. Spencer Bachus (R-AL), the immediate past chair of the House Financial Services Committee.

The MBL bills (H.R. 688 and S. 968) were also introduced earlier this year (see related article above). Both bills would increase the MBL cap from 12.25% of assets to 27.5%. Each year that passes without passage of these bills "is another year of disappointment," Fryzel said. "Congress must provide the tools that can help create new jobs, build new businesses, improve the financial futures of our citizens and make credit unions stronger."

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Raise the barSBA Raises the Bar

A rule to raise the "small business" size standard for credit unions from $175 million in assets to $500 million was approved on June 20th by the U.S. Small Business Administration. It goes into effect July 22. The new size standard permits a greater number of credit unions, though still a relatively small number, to benefit from provisions that require federal agencies to assess and minimize regulatory costs for smaller entities, including those associated with the Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement Fairness Act (SBREFA).

While the higher standard is welcomed, the impact of the change will be relatively small. The change from $175 million to $500 million would increase the percent of total credit union and bank assets under the threshold from 3.5% today to still only 8.6%.

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MobileMobile Opportunity?

Users of mobile banking devices are becoming less resistant to fees, according to the 2013 ath Power Mobile Banking Study Power from ath Power Consulting, a Boston-based financial services research and strategy firm. Banks trolling for fee opportunities will see one here, but that also will present an opportunity for credit unions to beat the banks on yet another range of products by extending these as low-cost or no-fee, affordable services to members. Banks also will be use mobile banking services to try to shore up sagging customer loyalty. That won't happen if credit unions reach their members and potential members first with sophisticated mobile banking services that members want. The ath Power study also revealed that remote deposit capture continues to be the most sought-after mobile banking feature, and that next-generation capabilities such as voice authentication and mobile photo bill pay would encourage more consumers to adopt mobile banking.

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TrollBad News for Patent Trolls

The Hill reported on June 20th that the Federal Trade Commission will launch an inquiry into the business practices of "patent troll" companies that buy technology patents and then file lawsuits against software designers, product manufacturers and even financial institutions that may use processes similar to the patent. Credit unions, banks, and check processors have been sued by companies over their remote-capture-image services by companies claiming to have a patent for that process and for internet security technology used to provide identification authentication for mobile transactions on devices such as smartphones and tablets in the so-called "smartphone wars."

FTC Chairwoman Edith Ramirez said she would ask the commission to enable the FTC to issue subpoenas to patent-assertion entities (PAEs), often dubbed "patent trolls." And it is a large issue: PAEs accounted for more than 60% of about 4,000 patent lawsuits filed last year. The agency will monitor for possible anticompetitive lawsuits and take antitrust enforcement action against the PAEs if warranted; many businesses find themselves victims of nuisance lawsuits that are far cheaper to settle than litigate, Ramirez said.

Credit unions, banks and entities such as PNC Financial Services Group, Electronic Data Systems Corp., Diebold, and First Data Corp. have been among the businesses that have entered settlements with companies trolling their patents. In one case, Catalyst Corporate FCU filed a preemptory lawsuit seeking a judgment it had not infringed on any process patents after it received such a demand letter from IP Navigation Group.

The FTC does not plan to single out any particular company in its investigation, but indicated it would focus on companies that are small, legal shell companies that gather patents and cite them in demand letters sent to businesses, and on large companies that snap up intellectual property rights portfolios from technology innovators such as Microsoft and Nokia.

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