JANUARY 24, 2014
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Target Breach Price Tag: $25M-$30M
(Issue 1 of 7)

A CUNA survey estimates that last year's Target data breach has so far cost credit unions nationwide between $25 million and $30 million. The survey has found that the cost to Georgia credit unions is at least $440,000.

  Session Off to a Rapid Start
as Gov. Deal Signs Year's First Bill (Issue 2 of 7)

In its second week, the Georgia Legislature kept up the fast pace dictated by this year's election schedule. The first bill signed into law was the one moving primary elections from July to May.

  Overdraft Legislation (Issue 3 of 7)
State Rep. Richard Smith drafted legislation asserting that overdraft fees are not considered interest and are not subject to Georgia's usury laws. The bill would help protect credit unions from legal issues involving overdraft programs.

  Patent Trolls (Issue 4 of 7)
State Rep. Bruce Williamson introduced legislation designed to draw attention to the threat posed by patent trolls to financial institutions, and to encourage Congress to act against them.

  Keep Your Team In the Know on Legislative Issues
(Issue 5 of 7)

Credit unions are encouraged to take advantage of the several channels the Affiliates offer to keep up with legislative issues, including this newsletter, Legislative Update, Twitter, legislative tracking and the Grassroots Academy.

  New Risk-Based Capital Proposal (Issue 6 of 7)
A proposed risk-based capital framework for credit unions, released at the Jan. 23 NCUA Board meeting, would maintain the current 7% leverage capital standard as the floor but subject credit unions of $50 million plus in assets to revised risk-based capital requirements.

  Appeals Court Examining Interchange Ruling (Issue 7 of 7)
The U.S. Court of Appeals for the D.C. Circuit is considering a lower-court ruling that struck down Federal Reserve regulations capping interchange fees; CUNA’s general counsel expressed optimism that it may result in more costs being taken into account in the setting of interchange fees than the previous decision would allow.
Target data breachTarget Breach Price Tag: $25M-$30M (Issue 1 of 7)

Credit unions have already incurred costs estimated to be in the $25 - $30 million range as a result of the Target stores data security breach, according to the CUNA survey of credit unions. In Georgia, the cost to the 31 credit unions responding to the survey (as of January 16th) is at least $440,000. As of press time, it appears that Georgia had about 86,000 total debit and credit cards affected. The actual costs could exceed the above estimate in the coming weeks if greater fraud losses are incurred, or if those already reporting add additional costs to their totals.

The results of the CUNA survey show on average the Target breach has cost credit unions about $5.10 per card affected by the security lapse. These costs most likely do not include any fraud losses, which are likely to occur later. Additionally, the cost/card figure is an average across all affected cards, not just cards that have been reissued.

The survey asks credit unions impacted by the Target data breach to outline the costs and burdens they have seen as a result. The breach resulted in the theft of 40 million debit and credit cards, encrypted PIN data, names, mailing and email addresses and phone numbers of up to 70 million individuals. The survey information will assist in conversations with lawmakers, regulators, the media and others.

There is no deadline for credit unions to respond to the survey, and credit unions that have not yet responded are encouraged to do so here. Credit unions that have responded can also update their totals if new costs are incurred.

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Georgia Capitol interiorSession Off to a Rapid Start
as Gov. Deal Signs Year's First Bill
(Issue 2 of 7)

This week the state Legislature showed no sign of slowing from its initial fast pace, meeting four days this week (as opposed to their normal “off week” to address the budget). The speed of the session has affected more than just the number of days they meet, but it has also impacted the stance the legislators have when working through legislative issues. Bills are introduced quickly and without much window for change. The reason for this fast pace is the election date, which is literally right around the corner. Gov. Nathan Deal has already signed the first bill of the session this week on January 21st, which is the legislation that moves this year’s primaries from July to May.

Why did the Legislature move the elections? This was made necessary by a federal court order requiring Georgia to wait at least 45 days between the primaries and any subsequent runoffs to give overseas military personnel time to cast absentee ballots. Under the legislation, the Republican and Democratic primaries will take place on May 20th. As members of the General Assembly cannot raise campaign funds while they are in Session, legislators will want to adjourn as quickly as possible (as many already have announced opponents who do not have the same “in session” fundraising ban) with early voting starting in 97 days. ┬áThis year’s session will move fast, and from a credit union perspective it will require constant monitoring to protect and promote the industry.

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Rep. Richard Smith
State Rep.
Richard Smith
Overdraft Legislation (Issue 3 of 7)

This week, legislation has been drafted by Rep. Richard Smith (R-Columbus) to bring clarity and consistency on overdraft fees; the bill is pending as of press time. The bill asserts that overdraft fees are not subject to usury laws and are not considered interest. This legislation is positive for credit unions as there have been legal challenges against Synovus Banks on overdraft, as well as a challenge to the constitutionality of the July 2013 Bank Overdraft Fee Declaratory Order issued by the Georgia Department of Banking and Finance. As you may remember, shortly after the bank ruling, the DBF issued a credit union Overdraft Fee Declaratory Order. The DBF orders declared parity of state institutions with federal credit unions and national banks, allowing that overdraft fees imposed by state-chartered institutions in connection with deposit accounts are not subject to Georgia's usury laws. However, legal challenges continue.

This legislation, which GCUA has worked with other industry interests to perfect before the bill’s introduction, would reinforce the Declaratory Order. It would help protect credit unions and other financial institutions from legal issues surrounding overdraft programs, and our thanks to Rep. Smith for his leadership and urgency with this legislation. As the session is slated to move quickly, GCUA will be working fast to help this bill navigate the legislative process. Stay tuned!

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State Rep. Bruce Williamson
Patent Trolls (Issue 4 of 7)

This week Rep. Bruce Williamson (R-Monroe) introduced HB 809, his anticipated legislation he discussed with GCUA to address patent troll threats. Patent trolls are those who use low-quality patents to try to extract money from settlements with credit unions, banks and others. Credit unions have been sued for the use of certain ATM technologies, check imaging applications, check cashing applications and mobile payment options. While this is a Congressional topic, this bill is intended to draw attention to the need for relief, encourage Congress to act, and make Georgia less attractive to patent troll attempts. Thank you to Rep. Williamson for the interest in pursuing this legislative issue!

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In the knowKeep Your Team In the Know on Legislative Issues
(Issue 5 of 7)

Each day of the state legislative session there are multiple bills introduced. Each bill is reviewed for potential impact, and addressed as warranted through the process to protect credit unions and the members they serve. GCUA is working with legislators and lobbying interests on a wide variety of topics including patent trolls, foreclosures, mortgage licensing processes, deficiency judgments, debt settlement and more. To keep your team up to date and “in the know” on legislative issues of note to credit unions, register them for this Creating Influence newsletter and Legislative Update; follow the activity at the state Capitol on Twitter, and access the bills monitored on behalf of credit unions here. And of course, an even closer perspective on the state Legislature is next week at the Grassroots Academy on Tuesday, January 28th. Click here for registration information and details.

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NCUA logoNew Risk-Based Capital Proposal (Issue 6 of 7)

A new risk-based capital framework for credit unions was released at the January 23rd NCUA board meeting. The proposed standard recognizes where credit unions are today, and looks forward, NCUA Chairman Debbie Matz said. The rule protects the vast majority of credit unions, she added, saying that 94% of credit unions are well-capitalized. Under the 198-page NCUA proposal, the current 7% 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 would be subject to revised risk-based capital requirements to better correlate required capital levels to risks the agency deems relevant.

The proposal would require calculation of Basel-style risk-based capital ratio, but the risk weights would be different from those applied to community banks. It would require higher minimum levels of risk-based capital for credit unions with concentrations of assets in real estate loans, member business loans, or high levels of delinquent loans. However, some other weights - current consumer loans - would have lower weights than under the community bank requirement.

The agency has said the risk-based net worth proposal would 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. Approximately 200 credit unions would have their capital classifications reduced if the proposal were adopted without modifications.

Credit unions will have 90 days to comment on the proposal after it is published in the Federal Register. Matz said the final rule will have a phase-in period of one year.

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Appeals Court Examining Interchange Ruling (Issue 7 of 7)

Judges of the U.S. Court of Appeals for the District of Columbia Circuit posed questions at oral arguments on January 17th casting uncertainty about whether they will fall in line with a lower court ruling that sought to overturn the Federal Reserve's debit interchange fee cap regulations. "We are very encouraged by today's hearing, as it shows that the court will be taking a hard look at U.S. District Court Judge Richard Leon's decision striking down the Federal Reserve's interchange rules. We are optimistic that this will result in more costs being taken into account in the setting of interchange fees than Judge Leon's decision would allow," CUNA General Counsel Eric Richard said.

Wallet with cardsLeon last year put a stay on his decision, pending the outcome of the case. They heard from the Federal Reserve, a coalition of financial services groups, including CUNA on behalf of credit unions, and merchants. The merchants have argued the Fed overstepped its bounds, allowed too many costs to be considered and set too high of a cap. The three judges seemed to dismiss out of hand the position merchants took in District Court earlier this year. "They seemed to recognize that additional costs can be properly considered under the statute," Richard said.

Merchants brought the case against the Fed in 2012, alleging the Fed made errors in implementing a final rule that caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents, and allows certain other charges to cover fraud losses and fraud prevention. CUNA and the coalition in the past have argued that the Fed cap is too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments. The coalition has underscored that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services. Lawyers who spoke on behalf of the financial services coalition articulately presented credit union concerns, Richard said. However, he added, nothing is certain until the court actually issues its opinion. The appeals court will rule on the case before its term ends in August, and a decision could come as soon as this spring.

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