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CUNA Advocacy Report: May 7

The latest CUNA Regulatory Advocacy Report is now available and covers:

  • First NCUA Listening Session in Boston
  • CUNA Summary on Federal Reserve Board’s Debit Interchange Fees Survey
  • Follow-up Request for Participation in CUNA’s Survey on Overdraft Protection
  • CUNA Files Comments on IRS “FATCA” Proposal
  • CUNA Summary of Federal Reserve Survey on Interchange Fees
  • CUNA Comments to FinCEN on Customer Due Diligence ANPR
  • Payment Card Industry Data Security Standards (PCI DSS)
By:  Bill Cheney, CUNA President/CEO

FIRST NCUA LISTENING SESSION IN BOSTON
The initial NCUA listening session planned by Chairman Debbie Matz was held earlier this week in Boston. Dan Egan, President and CEO of the MA/NH/RI Credit Union Leagues attended the session along with New York Credit Union League President Bill Mellin, MA/NH/RI Credit Union Leagues SVP and General Counsel Mary Ann Clancy and about 90 other credit union officials, mostly from NCUA’s Region I. NCUA Board Members Gigi Hyland and Michael Fryzel, along with senior NCUA staff, also attended. Deputy General Counsel Mary Mitchell Dunn participated for CUNA.

At the outset, Chairman Matz acknowledged that there are concerns about regulatory burdens that are shared by many credit unions and encouraged credit unions to raise those issues at the session. “We can talk about anything except a specific credit union’s supervisory issues,” she told the group and said the agency’s presentations had been minimized to give credit unions more time to raise their issues.

A number of concerns were brought up at the meeting by credit union officials. One credit union representative urged that NCUA examiners not simply focus on the negative aspects of a credit union’s operations during their examination and indicated that the examination report should reflect positive developments at the credit unions as well as any less favorable ones. NCUA agreed this should be part of the process and NCUA Director of Examination and Insurance Larry Fazio indicated that during agency training, such as the recent conferences in Florida, examiners are being encouraged to look at the whole picture at the credit union.

Another credit union official raised the issue of the credit union regulatory model and questioned whether NCUA is taking any role in standing up to other agencies, including the Consumer Financial Protection Bureau on issues that may mean more regulations for credit unions such as the regulation of overdraft protection programs. The Chairman said that the agency does discuss concerns with other agencies and that she recognizes credit unions have raised legitimate issues about their overdraft protection plans.

Whether NCUA is planning to assess NCUSIF premiums based on risk was another question and the agency clarified that such a move would require a statutory amendment, which NCUA is not pursuing at this time. The agency is looking at risk management and ways to improve prompt corrective action. CUNA will be monitoring those efforts very closely.

Problems that credit unions have had getting approvals from NCUA was another matter, including when there is a waiver of a regulatory provision involved. The agency encouraged the participants to submit recommendations for improvements in the waiver process as well as consider applying for blanket waivers rather than on a case by case basis.

NCUA should seek more guidance from credit unions on how to solve problems, one participant recommended. Another participant questioned an NCUA examiner’s limiting definition of the word “direct” as it relates to the experience requirement for those engaging in member business lending. When might Nevada and California return to Region V was another question; Nevada may return next year although that is not certain and NCUA did not indicate when California may return to its former region. During the financial crisis, NCUA shifted these states to NCUA Region II, which has a number of more experienced examiners.

A discussion of the impact of credit union mergers and the consolidation that is ongoing in the system was also discussed, including what constitutes “a failed credit union” for purposes of agency takeover. Currently, the agency must “prove that by the numbers the credit union will fail” before NCUA can treat the institution as one that will not revive.

Yet another credit union official asked about prepayment penalties as they relate to member business loans and the agency is looking into that. Whether NCUA would consider returning to an 18 month examination cycle was also raised. The agency was not positive about that recommendation but CUNA and the leagues plan to continue that discussion with the agency, particularly for well-managed credit unions.

NCUA’s Fazio echoed the chairman’s remarks that, overall, communication between credit unions and examiners needs to be improved. “We need to do more to listen to credit unions” during the examination process, Fazio said. A dialogue between credit unions and examiners should occur before, during, and after examinations, to avoid any surprises he added. When examiners do find issues at a credit union, they should give credit union management a chance to explain how they would deal with the issue, and should accept the credit union’s solution, if it is reasonable, he said.

He also emphasized that examiners are being instructed to cite the specific legal authority for their directives. This has been a major concern for number of credit unions who have felt that the examiner was being arbitrary in ordering certain directives and not able to provide any legal basis for their directives.

Chairman Matz during the session also acknowledged CUNA’s work with the Consumer Financial Protection Bureau and its efforts to bring together accounting experts to discuss issues regarding troubled debt restructuring that led to the development of NCUA’s recent Troubled Debt Restructuring (TDR) proposal. The proposal may be on the agency’s monthly meeting agenda May 24th.
Other listening sessions have been planned for:

  • May 9 in Alexandria, Va.;
  • June 5 in St. Louis, Mo.;
  • June 13 in Orlando, Fla.;
  • July 10 in San Diego, Calif.; and 
  • July 31 in Denver, Colo.

League and/or CUNA officials are planning to attend all these sessions to hear what credit unions raise as well as NCUA’s response, and will follow up with its Examination and Supervision Subcommittee and NCUA on key issues raised during the sessions. For more on the sessions, use the resource link. CUNA will also be providing more information to Leagues and credit unions on NCUA’s appeals process, waiver request process and other issues.

CUNA SUMMARY ON FEDERAL RESERVE BOARD’S DEBIT INTERCHANGE FEES SURVEY
On Tuesday, the Federal Reserve Board released a survey on the debit card interchange fees paid to card issuers in 2011. The survey is required by the Dodd- Frank Act, and the Federal Reserve announced it will be conducting this study annually. Among the findings are that the average interchange fee received by credit unions and other debit card issuers that are exempt from the Federal Reserve’s debit interchange fee cap was 45 cents per transaction in the first three months of 2011, dropping a bit to 43 cents in the last three months. The average interchange fee charged by financial institutions that are subject to the cap was 50 cents in the first three quarters of 2011 before falling to 24 cents in the fourth quarter after the cap took effect. Additional details are in the one-page summary from CUNA Chief Economist Bill Hampel. Our view is that the jury is still out on this issue and until we have more experience with the new rules and their effects on debit interchange fees, credit union concerns about the efficacy of a two-tier system remain valid.

FOLLOW-UP REQUEST FOR PARTICIPATION IN CUNA’S SURVEY ON OVERDRAFT PROTECTION
Just a quick update on our overdraft protection survey in response to the CFPB’s data collection on overdraft protection programs and practices.  We greatly appreciate your continued input and participation in our survey; so far, we have received around 500 responses.  However, we urge those of you who have not yet completed the survey to please do so on this very important issue by May 25.

CUNA FILES COMMENTS ON IRS “FATCA” PROPOSAL
Earlier this week, we filed a comment letter with the IRS in response to its proposal to implement provisions of the Foreign Account Tax Compliance Act (FATCA), which is intended to make it harder for U.S. taxpayers to avoid income tax by placing funds in overseas accounts.  Specifically, the proposed regulation would require information reporting by foreign financial institutions (FFIs) and withholding on certain payments to FFIs and other foreign entities.  In addition to the comments contained in our letter, we associate CUNA with the comments provided in the World Council of Credit Unions’ comment letter.  As noted in our letter, we ask the IRS to approve the World Council’s request to represent the interests of credit unions at a May 15 hearing on the implementation of FATCA.

While we believe that circumstances triggering actual reporting and withholding at credit unions may be limited under the IRS’s proposed regulation, credit unions will nonetheless have to establish procedures and practices, including staff training, for ongoing identification of covered entities and transactions.  We urge the IRS to weigh the minimal benefits related to reporting and withholding that might be obtained from applying these requirements to U.S. credit unions and to exempt domestic financial institutions from requirements under the FATCA regulations as withholding agents.

CUNA SUMMARY OF FEDERAL RESERVE SURVEY ON INTERCHANGE FEES
Earlier this week, we made available this summary prepared by Bill Hampel.  We have gotten a few questions about the survey and are including the summary to address them.

On May 1, 2012 the Federal Reserve released the results of a survey on debit card interchange fees paid to card issuers by various networks in 2011.  With the report, the Fed included results of a previous survey it conducted in 2009.  Data is therefore available for the following three time periods:  2009, before enactment of the “Durbin Amendment;” the first nine months of 2011, before the rule capping fees to large issuers took effect; and the last three months of 2011, after the rule took effect.

For “non-exempt” issuers (those with assets over $10 billion) average interchange fees rose from 43 cents in 2009 to 50 cents in the first three quarters of 2011 before falling to 24 cents in the last quarter of 2011, after the cap was imposed.  The capped rate is 21 cents per transaction plus 0.05% of the value of the transaction, plus 1 cent for fraud prevention. 

The following table shows the Fed’s findings for exempt issuers, those with assets below $10 billion.  That currently covers all but three credit unions.

Average Debit Card Interchange Fees for Exempt Issuers

Period PIN Signature Overall
2009* $0.23 $0.55 $0.43
1/2011 to 9/2011 $0.32 $0.54 $0.45
10/2011 to 12/2011 $0.31 $0.51 $0.43

*  2009 data is for issuers of all sizes.

Based on this information, we can make the following observations about average interchange fees paid to most credit unions in the last quarter of 2011:

• Average PIN interchange fees were up considerably from 2009, but off very slightly from earlier in the year.
• Average signature interchange fees were down about 5% from earlier in the year.
• Overall interchange fees rose a bit from 2009 to early 2011 before falling back to around the 2009 levels.
• How each credit union has been affected depends on its mix of PIN vs. signature.

The Fed has announced that it will repeat this survey annually.  Next year’s survey will cover a much longer time, including the period after the April implementation of network exclusivity provisions.
 
The Fed’s release provides further explanations and data for each network, and is available at the Fed’s website.

CUNA COMMENTS TO FINCEN ON CUSTOMER DUE DILIGENCE ANPR
Today, CUNA submitted a comment letter to the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) on its customer (member) due diligence advance notice of proposed rulemaking (ANPR).  In our letter, while CUNA supports the objective to improve the tracking of money laundering and terrorist financing, we strongly urge FinCEN not to proceed with the customer due diligence ANPR.  We are concerned that the increased regulatory burdens and costs on credit unions would far outweigh the purported benefits to FinCEN.  We are especially concerned about the potential expansion of the “beneficial ownership” requirements.  Credit unions currently face significant challenges to obtain such information under the current rules.  These difficulties would only be exacerbated if FinCEN proceeds to a final rule.  Instead, we recommend that FinCEN work with the federal financial regulators to issue specific guidance to address specific problem areas and to clarify the current Bank Secrecy Act (BSA) and anti-money laundering (AML) rules.  We continue to advocate to minimize regulatory burdens on credit unions and monitor developments regarding BSA/AML issues. 

As we were ready to hit send on this report, FinCEN let us know that it has extended the comment period on the ANPR until 30 days after the Federal Register publishes the notice linked below. The notice will be published early next week.

PAYMENT CARD INDUSTRY DATA SECURITY STANDARDS (PCI DSS)
In response to some questions we have received, we want to remind credit unions that all entities that store, process, or transmit payment card data, including credit union and other financial institution issuers and third-party vendors, must comply with the Payment Card Industry Data Security Standards (PCI DSS).  The PCI DSS standards are technical and operational requirements set by the PCI Security Standards Council (Council) to protect payment card data.  The Council is responsible for managing the security standards, while compliance with the PCI DSS is enforced by the payment card networks (e.g., Visa, MasterCard, etc.).  For further information, the PCI Security Standards Council website provides additional details, including a guide for financial institutions and technical documents regarding compliance with the standards.  CUNA’s Due Diligence Task Force's Third-Party Vendor Management Guide also describes how to best meet credit unions’ due diligence responsibilities involving third-party vendors, including with PCI DSS.

Conclusion
As we look forward to the new week, we will continue to press regulators for a better environment with fewer regulatory burdens imposed on credit unions.  Our highest regulatory advocacy priority is to minimize the rules credit unions have to follow and to improve the examination process to the greatest extent possible.  We will cover these and other issues in our next report.

 

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