DECEMBER 20, 2013
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Happy Holidays!

Creating Influence will resume publication
with the January 10, 2014 issue.

Gearshift 2014: Keeping the Credit Union Message in Gear
The "Don't Tax My Credit Union" campaign has been successful so far in keeping the credit union tax exemption off the tax-reform table, but advocates need to keep pushing the message in the new year.

  Credit Union Testimony on Patent Trolls
The head of a Vermont credit union gave the CU perspective on patent trolls, who sue financial institutions in hopes of winning settlements, in a Dec. 17 hearing before the Senate Judiciary Committee.

  Senators Seek to Halt Pre-Employment Credit Checks
A group of Democratic U.S. Senators introduced legislation to prohibit companies from using credit checks to weed out job applicants, with exemptions for jobs requiring a national security clearance.

  Grassroots Academy: Opportunity for Credit Union Leaders
Make your plans to attend the January 28 Grassroots Academy, an annual Affiliates-sponsored event that provides better understanding of the legislative issues facing credit unions and of the people involved in those issues.

  NCUA: Is Seven Enough?
A proposed rule on risk-based net worth, which NCUA may consider as soon as next month, could result in higher capital requirements for credit unions with high concentrations of risky assets.

  McWatters Selected for NCUA Board Nomination
President Obama has nominated Mark McWatters, a tax attorney and assistant law school dean, to fill the NCUA Board seat formerly held by Michael Fryzel, whose term has expired.

  Changes at NCUA Regional Office
Myra Toeppe will take over as director of the NCUA Region III office in January upon the retirement of current Director Herb Yolles, while Joseph Ostrowidzki has been chosen as the office's Associate Regional Director for Operations.

  Credit Interchange Settlement
A U.S. District Court judge in New York approved a $5.7 billion settlement of a lawsuit in which merchants claimed Visa and MasterCard had set artificially high credit card interchange fees.

  Target Breach
The New York Times reported that a data breach at Target had given criminals access to 40 million customers' credit and debit card information, including names, card numbers and security codes.

Gearshift2014: Keeping the Credit Union Message in Gear

The year is coming to a close, and credit union leaders have spent more than half of 2013 working hard to educate Congress on the importance of retaining the credit union income tax exemption. In Georgia alone there have been more than 98,000 messages (click here for totals) sent to Congress asking them to Don’t Tax My Credit Union, and more sent every day. These messages have made a difference; credit unions were not included in the initial tax reform proposals released, or in the bi-partisan budget compromise. However, more tax reform proposals are anticipated in 2014, and it will be important for credit unions to keep Congress aware that the credit union income tax exemption is one that should be preserved for members and all consumers.

What will 2014 bring? The Washington Post reported on December 15th that after Congress reconvenes in January, it is unlikely it will have significant legislative action in the Senate, which is deeply divided over the recent elimination of filibusters on most Presidential nominations. This budget deal is likely to be one of the final pieces of significant legislation with the elections looming.

Can credit unions put it in “neutral” then? The simple answer is no. Credit unions must continue to be proactive and be out in front of the tax issue. In doing so, they help shape the future as opposed to reacting to it: It is much easier to protect credit union members by keeping our industry out of any proposed legislation, as opposed to fighting to get language removed. The Chairman of the House Ways and Means Committee, Dave Camp (R-MI), will be in his final year as chair and he has said tax reform or at least laying the groundwork for future tax reform is one of his major priorities before he has to give up his chairmanship.  In addition, there are parties hard at work to try to get credit unions taxed; on December 13th the Georgia Bankers Association cited that credit unions have “extra income” because of their tax-exempt status, and “all bankers can help GBA’s advocacy efforts to limit credit union powers.” By being proactive in credit union advocacy efforts, the industry is farther down the road in protecting the members you serve. Please do not lose sight of that in 2014; reaching out to Congress to help protect credit unions and the members you serve is important in propelling our industry further!

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Patent trollCredit Union Testimony on Patent Trolls

Credit unions urged Congress to help eliminate the growing threat of patent trolls when John Dwyer, president/CEO of New England FCU (VT) discussed credit union patent troll concerns in a December 17th Senate Judiciary Committee hearing on "Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse."  Dwyer was the only individual testifying on behalf of financial institutions. The Innovation Act of 2013 (H.R. 3309), which would remove some of the financial incentives sought by firms that assert low-quality patents in the hope of quick settlements, was approved by the U.S. House on December 5th and is anticipated to move forward in 2014.

So-called "patent trolls" use low-quality patents to try to obtain settlements from credit unions and others. Credit unions have been sued for the use of certain ATM technologies, check-imaging applications, check-cashing applications, and through mobile payment options. Credit unions and others have also received vague demand letters from patent trolls. Dwyer is a member of CUNA's Federal Credit Union Subcommittee and is one of four credit union representatives on the 12-member Federal Reserve Bank of Boston First District Community Depository Institution Advisory Council.

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ApplicationSenators Seek to Halt Pre-Employment
Credit Checks

On December 17th The Washington Post reported on legislation that was introduced by a group of Senate Democrats to bar companies from using credit checks to weed out job applicants. The bill, which exempts jobs requiring a national security clearance, aims to stop employers from disqualifying would-be hires based on poor credit. In the face of stubbornly high unemployment, lawmakers say the continued use of credit reports could stymie economic growth. Lawmakers say the practice contributes to long-term unemployment and disproportionately affects women and minorities whose credit was damaged during the financial crisis. “No one should be denied the chance to compete for a job because of a credit report that bears no relationship to job performance,” Sen. Elizabeth Warren (D-MA) , one of seven lawmakers sponsoring the Equal Employment for All Act, said during a call with reporters. “For millions of working families, a hard personal blow translates into a hard financial blow that will show up for years in a credit report.”

Companies, including credit unions, can legally check a credit history under the Fair Credit Reporting Act, which requires a job applicant’s consent. Credit unions are definitely not alone in this practice; 47 percent of employers use credit checks in their hiring decisions, according to a 2012 survey by the Society for Human Resource Management. Companies have long used credit reports to gauge whether applicants who would be responsible for handling money can manage their own finances, said Elizabeth Milito, senior executive counsel at the National Federation of Independent Business. “A credit check can serve an important function in certain jobs, especially in the financial services industry,” she said. “A blanket prohibition would disadvantage many businesses that use credit as one component of a background check.” Advocates and the lawmakers argue there is no evidence that credit history is an indication of an ability to deliver packages or manage a stockroom — jobs that now require credit checks. Stay tuned!

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Grassroots Academy: Opportunity for Credit Union Leaders

Grassroots AcademyThe Georgia state Legislature will begin the second half of a two-year session in January, and leaders of both parties have shared with the Government Influence Team that 2014 will likely be one of the fastest moving on recent record. During this quick-paced session, it will be imperative for credit unions to have a strong presence at the state Capitol to lobby on the issues to support and protect our industry. Credit unions engage in advocacy efforts collectively and individually to build influence with legislators. To be truly influential as an industry, it takes being involved on a local level - but where does one begin? At the Grassroots Academy!

Be a part of a unique event for credit union leaders, the Grassroots Academy on Tuesday, January 28th. The Grassroots Academy is an opportunity to hear firsthand from state leaders on what to anticipate in the legislative arena, hear insider perspective on the political environment, and obtain tools to grow your credit union’s legislative influence! Participants in the 2014 Academy will gain insight from:

  • Governor Nathan Deal
  • Secretary of State Brian Kemp
  • Department of Banking and Finance Commissioner Kevin Hagler
  • Walter Jones, Morris News Service
  • Credit union discussion featuring Anna Foote - The Coca-Cola Company Family FCU, Michelle Shelton - Georgia United CU, and Brian Akin - North Georgia CU.

Each year is different, and this year participants will walk away with an understanding of the legislative issues facing credit unions, the changes in the 2014 elections (and insight into the races) and be equipped to shape the future for the industry. Make plans to attend; please click here for details and to secure your spot today.

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SevenNCUA: Is Seven Enough?

A proposed rule on risk-based net worth could be considered by NCUA as soon as next month. The agency has said the developing risk-based capital framework will protect credit unions and consumers from losses, and replace the "outdated and insufficient" one-size-fits-all capital requirement. The NCUA plan could result in higher capital levels for credit unions with high concentrations of risky assets. The current 7 percent leverage capital standard, which is required by the Federal Credit Union Act, would remain the floor. However, the agency has said credit unions with assets of $50 million and above could be subject to improved risk-based capital requirements to better correlate required capital levels to risk.

Bill Cheney, CEO of CUNA, shared his thoughts in his recent report: "Particularly since no one outside of NCUA has seen the proposal, it remains of great concern to us. In our view, the current system for net worth standards is flawed, but credit unions have adjusted accordingly and are doing well. In short: If it ain't broke, don't fix it," Cheney said. NCUA Chairman Debbie Matz has said the risk-based capital rule, if adopted, is unlikely to impact many credit unions.

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McWattersMcWatters Selected for NCUA Board Nomination

Mark McWatters will be President Barack Obama's pick to fill the NCUA board seat when it is vacated by board member Michael Fryzel, whose term ended Aug. 2 this year.  The president announced his intent to nominate McWatters on December 18th. To achieve the NCUA slot, McWatters will go through a process that includes a nomination hearing by the Senate Banking Committee and a confirmation vote by the full U.S. Senate.

McWatters was a member of the TARP Congressional Oversight Panel in Washington, D.C., from December 2009 to April 2011. TARP – or the Troubled Asset Relief Program – refers to the $700 billion fund established in 2008 to help stabilize the economy after the downturn caused by a burst housing market bubble. McWatters served in 2009 as counsel for Rep. Jeb Hensarling (R-TX), who has been the chairman of the House Financial Services Committee since January 2013. McWatters is currently assistant dean for graduate programs at Southern Methodist University's School of Law in Dallas, Texas.

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NCUA logoChanges at NCUA Regional Office

With the new year, Georgia’s federally chartered credit unions will see some new but familiar faces at the NCUA regional office and GCUA has already scheduled its first meeting with the new leadership in early January.  Herb Yolles is retiring from NCUA at the end of the year and Myra Toeppe will become the Region III Director.  Toeppe is the NCUA's current acting director of supervision in the Office of Examination and Insurance.  She joined the NCUA in 2011 as associate regional director for operations in Region III. She has also served at the Office of Thrift Supervision and the Federal Home Loan Bank of Atlanta during her 25-year government career.

And this week NCUA Board Chairman Debbie Matz announced the selection of Joseph Ostrowidzki as Associate Regional Director for Operations in the Region III office.  Ostrowidzki, who currently serves as one of Region III’s supervisory examiners, is succeeding Toeppe. Joe will begin his new duties Dec. 29.  Ostrowidzki has more than 26 years’ experience in regulating credit unions, joining NCUA as an examiner in 1987. Prior to becoming a supervisory examiner in 2010, Ostrowidzki served as Director of Insurance in Region III.

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CardsCredit Interchange Settlement

A $5.7 billion settlement of a class action interchange suit was approved on December 13th by U.S. District Court Judge John Gleeson in the Eastern District of New York, Brooklyn. The settlement is the largest private antitrust damages recovery in U.S. history. The approved settlement follows a 2008 suit in which merchants alleged MasterCard and Visa set artificially high credit card interchange fees.

The settlement requires a reduced interchange rate fee (IRF) of 10 basis points for an eight-month period. The reduced fee will apply to all card issuers, including credit unions. If the total credit IRF reduction is $1.2 billion, credit unions with credit card programs would lose about $50 million in total revenues, or about 0.5 basis points on their total assets according to CUNA. The loss would be concentrated among a relatively small number of credit unions with very active credit card programs.

The approved settlement also calls for Visa, MasterCard and the banks to create a fund to repay retailers for past fees charged and says retailers would be permitted to assess "check out" fees or surcharges on credit card purchases, which has previously been prohibited by Visa and MasterCard rules. Some merchants have indicated they will opt out of the approved settlement. About 216 merchants in August filed a separate antitrust lawsuit in a Marshall, Texas, U.S. District Court against Visa and MasterCard, claiming the card companies' policies force them to pay hundreds of millions of dollars in excess interchange fees. That suit seeks unspecified damages, along with punitive damages and attorneys' fees.

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TargetTarget Breach

The New York Times reported the Target data breach in which credit and debit card information was stolen to the tune of 40 million retail customers. Target confirmed the breach on December 19th and said that criminals gained access to its customer information on November 27th and maintained access through December 15th. This breach appears to be isolated to the point-of-sale system in Target retail stores.  The information stolen includes customer names, card numbers, expiration dates and the three-digit security codes.

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