APRIL 18, 2014
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Good news Positive News on UBIT (Issue 1 of 6)
IRS memo says income from almost all credit union products is not subject to unrelated business income tax, possibly clearing the way for refunds of UBIT already paid.

  Regulatory Relief Bill Introduced (Issue 2 of 6)
An Indiana senator introduced a bill that would reduce the regulatory burden on some credit unions and community banks, by changing the way the Consumer Financial Protection Bureau seeks information from them.

  Financial Coalition on Housing Finance Reform (Issue 3 of 6)
CUNA has joined a coalition that will allow small financial institutions, including credit unions and banks, to present a united front on changes needed in proposed legislation to reform housing finance.

  Tools to Get out the CU Vote (Issue 4 of 6)
GCUA's ElectionWatch website offers several tools to help credit unions engage their members in the political process and encourage them to vote in the upcoming elections.

  CFPB Hits BoA with $772 Million in Penalties for Card Marketing Practices (Issue 5 of 6)
The New York Times reported that the CFPB had ordered Bank of America to pay $772 million in refunds and fines for what CFPB said were deceptive marketing and billing practices involving credit card products.

  Small Business Credit Kabbage in Your Backyard (Issue 6 of 6)
The Atlanta Journal-Constitution reported that Kabbage, an Atlanta-based online company providing cash advances to small businesses, said it has closed on a $270 million credit facility that will enable it to serve more clients.

Scales and gavelPositive News on UBIT
(Issue 1 of 6)

On April 9th credit unions received a much welcomed interpretation by the Internal Revenue Service that clears nearly all credit union products from being subject to unrelated business income tax (UBIT). Finally bowing to the results of two federal court cases brought by credit unions, the IRS recently issued a memorandum that defines nearly all credit union products at stake in the litigation as "substantially related income"– not subject to UBIT. 
Larry Blanchard, chairman of a coalition of credit union groups that has supported the litigation, said of the IRS memo, "This is clearly a breakthrough with the agency. It signals that credit union tax refunds for past UBIT payments should now be processed." He also emphasized the IRS action bolsters credit union arguments that future payments to the IRS of UBIT on these same products may not be due: "Credit unions should talk this over with their tax advisers. In any event, this is a welcome development for credit unions." He added the IRS memo reflects the agency's appreciation for rulings of the courts: The credit union mission to serve members extends well beyond loans and savings accounts. 
The coalition, called the UBIT Steering Committee, is composed of representatives of CUNA, CUNA Mutual Group, the American Association of Credit Union Leagues (which includes GCUL), and the National Association of State Credit Union Supervisors. According to the "memorandum for all exempt organizations employees" (geared toward IRS examiners of exempt organizations, such as credit unions) revenue from the following income-producing activities is deemed by IRS "substantially related income" not subject to UBIT: 

  • Sale of checks/fees from a check-printing company;
  • Debit card program interchange fees;
  • Credit card program interchange fees;
  • Interest from credit card loans;
  • Sale of collateral protection insurance;
  • Credit life and credit disability insurance (not subject to UBIT if sold to members); and
  • Guaranteed asset protection (GAP) auto insurance (not subject to UBIT if sold to members).

Royalty income from the marketing of accidental death and dismemberment (AD&D) insurance to credit union members is also exempt. The IRS has also indicated it will incorporate the memo into its Examination Manual to guide future audits of credit unions.

As to the impact of the IRS guidance on future tax liabilities, neither the UBIT Steering Committee nor any of its members can provide tax advice to credit unions. The committee urges credit unions to consult with their tax advisers on whether the IRS pronouncement, combined with the previous court rulings, provide "substantial authority" to refrain from reporting the affected categories of income in the future. In the past, a law firm retained by the Steering Committee has provided a general opinion on the impact of the court cases on the "substantial authority" issue.

There are some remaining issues to be resolved related to the IRS memo. The memo pointed out that IRS examiners reviewing original or amended Forms 990-T or claims for refund should treat income from the marketing of the following insurance products as well as certain ATM fees as subject to UBIT:

  • Automobile warranties
  • Dental insurance
  • Cancer insurance
  • Accidental death and dismemberment insurance
  • Life insurance
  • Health insurance
  • ATM “per-transaction” fees from nonmembers
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Capitol with tulipsRegulatory Relief Bill Introduced
(Issue 2 of 6)

On April 10th the Community Financial Protection (S. 2242) act was introduced in Congress to give credit unions and community banks some relief from crippling financial regulations enacted in the wake of the 2008 financial crisis. Sen. Dan Coats (R-IN) said his bill would modify the way in which the Consumer Financial Protection Bureau (CFPB) requests information from financial institutions with less than $10 billion in assets. The CFPB would be required to use publicly available information or seek the requested information from existing banking regulators. This bill would be a good first step to bringing a measure of relief from some of the burdens created for credit unions and community banks by the Dodd-Frank Act and its creation of the CFPB.

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CoalitionFinancial Coalition on Housing Finance Reform (Issue 3 of 6)

As part of a coalition of small financial institutions – both credit unions and banks – CUNA has urged improvements to proposed housing finance reform legislation that would address the unique needs of those institutions in the housing market. The creation of the coalition enables CUNA, along with NAFCU and the Independent Community Bankers of America, to present a united front on key changes needed in proposed housing finance reform legislation. The changes address: 

  • The bill's regulatory burden on credit unions and community banks;
  • Issues to ensure that the housing finance market remains accessible to credit unions and other smaller institutions; and
  • Credit unions and community banks’ representation in governance of the new federal entities envisioned under the proposal.

The letter is addressed to Senate Banking Committee Chairman Tim Johnson (D-SD) and ranking member Sen. Mike Crapo (R-ID) and thanks the senators for introducing their Housing Finance Reform and Taxpayer Protection Act discussion draft. The coalition letter notes that the current secondary market structure works well for credit unions and community banks, and allows them to meet their borrowers' needs. It warns that restructuring the system is "unchartered and untested" territory and therefore raises numerous questions regarding fees and functionality when applied to the real-world marketplace. 
"We understand some of the specific details of the proposal are still to be established and we hope those changes will satisfy our ongoing concerns and address the uncertainty faced by our member institutions," the letter notes. "Any housing reform proposal must ensure equal and competitive access for community banks and credit unions, while avoiding further concentration of the primary and secondary mortgage markets to the largest of lenders and Wall Street firms," the three groups wrote.

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Georgia voting stickersTools to Get out the CU Vote (Issue 4 of 6)

Credit unions around the state are engaging in efforts to build awareness of the May 20th primary elections – in less than two weeks, advance voting begins in many areas! Has your credit union engaged? You can do so easily:

  1.  Add ElectionWatch to your website as a resource on voting and elections.
  2. Add a “get out the vote” article to your member newsletter.
  3. And/or take advantage of the various social media messaging resources, video for staff/board/members, and on-hold messages.

Curious where your legislators stand on credit union issues? Check out the “Credit Union Resources” page of ElectionWatch, where in addition to the above you can access the stance of your federal and state legislators on issues of importance to your credit union.

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Eye on moneyCFPB Hits BoA with $772 Million in Penalties for Card Marketing Practices
(Issue 5 of 6)

On April 9th, The New York Times reported that Bank of America has been ordered to pay roughly $772 million in refunds to customers and fines to federal regulators to settle allegations the bank used deceptive marketing and billing practices involving credit card products. The Consumer Financial Protection Bureau (CFPB) said Bank of America “illegally charged” its customers for credit monitoring and credit reporting services that were not received.

As part of a consent order with the agency, the bank was ordered to give refunds to more than a million customers who purchased these add-on products for their credit cards. The bank must also pay a $20 million fine to the CFPB and $25 million to the Office of the Comptroller of the Currency.

Bank of America telemarketers reportedly also misrepresented the sign-up process for these products, leading customers to believe there were more steps involved when, in fact, they had been signed up for the products during the calls, and being charged for them. The bank allegedly also told customers protections provided by the products would last longer than the duration stipulated under the contract, and promoted a $25,000 death benefit that was never provided. CFPB says Bank of America also:

  • Unfairly charged consumers for interest and fees, sometimes pushing those customers over their credit card account limits. This led to additional fees being charged; and
  • Failed to monitor consumer accounts for signs of fraud and identity theft, as promised.

Under the terms of the order, Bank of America will be prohibited from marketing any credit protection or credit monitoring add-on products until it submits a compliance plan and repays impacted consumers, the CFPB said. More actions are presumed to be brought against other banks that may have misled or overcharged credit customers.

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CabbageSmall Business Credit Kabbage in Your Backyard
(Issue 6 of 6)

The Atlanta Journal-Constitution reported on April 9th that Kabbage, an Atlanta-based online company providing cash advances to small businesses, said it has closed on a $270 million credit facility that will enable it to serve more clients. It is the largest credit facility Kabbage has opened since starting in 2011, and the second in the past year. Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners, is behind the latest agreement, while Victory Park Capital was behind a $75 million facility last April.

Chief Financial Officer Kevin Phillips said Kabbage now makes about 6,000 merchant cash advances a month, ranging from $500 to $100,000. Unlike traditional loans, the company’s clients draw on lines of credit based on daily needs. Interest rates range from 1.5 percent to 10 percent, depending on creditworthiness. Phillips said Kabbage helps fund a segment that routinely has difficulty getting loans from larger institutions, either because the business isn’t large enough, because it lacks a credit history or because the loan process is too time-consuming.

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