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CUNA Advocacy Report: June 11

The latest CUNA Advocacy Report is now available and covers:

By: Bill Cheney, CUNA President/CEO

CUNA TO MEET WITH TOP CFPB REGULATORY STAFF
Top CFPB regulatory staff have agreed to meet with CUNA regulatory advocacy staff Monday, June 25th.  This meeting is part of ongoing contacts and communications CUNA has been undertaking to educate CFPB officials about credit unions and achieve reduced regulatory burdens for our members.  While there is a range of issues on the horizon that could be discussed, we want this meeting to be highly focused and targeted to significant concerns a number of credit unions have raised. 

The issues we will be discussing are:

  • Concerns about upcoming proposals on mortgage originators and servicing. 
  • The 'safe harbor' proposal regarding remittances.
  • The extent to which the agency is considering using its authority under various provisions of the Dodd-Frank Act to exempt entities from new or developing regulatory CFPB provisions.
  • A possible regulatory solution to duplicate ATM disclosures that would in essence move the notice that is now on the outside of the machine to the screen.
  • Update on the regulation of multi-featured open end lending.

We will provide details of the meeting in our June 29th Regulatory Advocacy Report.  Those attending for CUNA will be Senior Vice President and Deputy General Counsel, Mary Dunn, Senior Assistant Deputy General Counsel, Jared Ihrig, Assistant Deputy General Counsel, Luke Martone and Senior Regulatory Counsel, Dennis Tsang.

NCUA HOLDS ANOTHER LISTENING SESSION
On Tuesday of this week, NCUA Board Chairman Debbie Matz held another listening session to allow participating credit unions and leagues to share their thoughts and concerns with her and her staff.  She was accompanied by NCUA Executive Director Dave Marquis, Director of Examination and Insurance Larry Fazio, Director of the Office of Small Credit Union Initiatives Bill Meyers, Associate General Counsel Frank Kressman, and Director of Region IV Keith Morton.

In addition to a number of remarks regarding small credit unions, as covered in Wednesday’s News Now, Chairman Matz and her staff took questions on regulatory burden, examinations, MBLs, and other topics.  With regard to regulatory burden, Chairman Matz mentioned her modernization initiative that involves staff’s review of the agency’s regulations to see if they can be streamlined.  While such a review is positive, a participant at the session asked the agency to consider establishing a process by which it conducts a post-implementation review of each new and amended regulation to assess any unintended consequences.  This is a request CUNA has made previously to NCUA.

Chairman Matz mentioned the agency is reallocating examination hours from smaller credit unions that pose minimal risk to the insurance fund to larger, potentially  “riskier” (according to NCUA), credit unions.  Matz reiterated from a previous listening session her commitment to address the definition of “small credit union,” which we have urged the agency to update to reflect an increase in the asset size of all financial institutions.

In regard to non-interest income, Director of Examination and Insurance Larry Fazio noted that the agency will be revising call reports in the “not too distant future” to capture credit unions’ non-interest income.  We will be following up on this and other developments and updating you in future Regulatory Advocacy Reports.

Click here for additional information on attending an upcoming listening session.

AFFIRMATIVE ACTION:  DOES  NATIONAL CREDIT UNION SHARE INSURANCE FUND COVERAGE CONSTITUTE A FEDERAL CONTRACT?
Recently, we have been hearing from credit unions and leagues regarding this question, so we wanted to provide some additional information on the subject.  Val Moss, CUNA Director of Compliance Information, posted the following CompBlog article in August of 2011, and we thank her for sharing her expertise in this area.

Credit unions that participate in federal government programs, such as holding Treasury tax-and-loan accounts or acting as issuing or paying agents for U.S. savings bonds, are considered federal contractors under the Department of Labor’s non-discrimination and affirmative action rules.  But, is federal share insurance issued by the NCUSIF considered a federal contract, as well?

Whether you get a “yes” or “no” answer to this question will depend on who you ask:  NCUA will tell you that the long-standing answer to this question is no.  Federal share insurance is not a federal contract triggering affirmative action obligations. However, if you ask the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), the answer is yes. 

According to the OFCCP’s website FAQ's:  “Financial institutions with federal share and deposit insurance are considered to be government contractors within the meaning of the regulations implementing Executive Order 11246, as amended, the Vietnam Era Veteran’s Readjustment Assistance Act of 1974 (VEVRAA), as amended, 38 U.S.C. 4212 and Section 503 of the Rehabilitation Act of 1973 (Section 503), as amended.  These three programs enforced by the OFCCP require equal employment opportunity by government contractors.”

However, NCUA and the FDIC still maintain that federal share/deposit insurance is NOT a federal contract triggering the DOL’s jurisdiction.  And NCUA asserts that the DOL is without any authority to require compliance on that basis or impose any sanctions against a federally insured credit union.  So, if your credit union ever receives  an audit letter based on your institution’s federal contract status solely as a federally insured institution, contact NCUA immediately.  NCUA will intervene on your institution’s behalf, because this is a jurisdictional matter that the agencies will ultimately have to settle in a federal court.  For more information, visit CUNA’s e-Guide Affirmative Action section.

CUNA’s Regulatory Advocacy Group will be pursing this with NCUA to determine the agency’s willingness to work with us to achieve a more favorable interpretation from DOL.

CFPB MORTGAGE LOAN ORIGINATION RULEMAKING UPDATE
Earlier this week, CUNA staff, along with Lisa Brown, President and CEO of Tallahassee-Leon FCU, participated on multiple conference calls held by the CFPB as a follow-up to the recently held SBREFA panel convened to discuss the mortgage loan origination rulemaking efforts.  Ms. Brown was selected by the CFPB to participate on this particular SBREFA panel, which was convened in May.  As discussed earlier this Spring in our Regulatory Advocacy Reports, the CFPB is required under the Dodd-Frank Act to implement new requirements relating to the compensation and qualification of mortgage loan originators (separate from the Federal Reserve Board’s final regulation on mortgage loan originator compensation which became effective in April, 2011).  For more on the proposals under consideration by the CFPB, click here

Specifically, these calls focused on a proposal that CFPB is considering that would require that, in creditor-paid compensation transactions, consumers would be allowed to pay upfront origination fees (except compensation to the mortgage loan originator (MLO), which is prohibited by statute), provided that the origination fees are “flat” and thus do not vary with the size of the loan.  This subject was discussed thoroughly, and several in the industry were vocal concerning opposition to this proposal.  CUNA will be working with its Consumer Protection Subcommittee, the CFPB and others this summer as we prepare for a proposed rule which the CFPB has indicated it will issue sometime in July.  For the CFPB’s fact sheet on the mortgage loan origination compensation proposals under consideration, please click here.

FEDERAL RESERVE BOARD FILES ITS RESPONSE IN DEBIT CARD INTERCHANGE FEE REGULATION CHALLENGE
Here are more details regarding the response to the Federal Reserve Board in the litigation in which the coalition of merchants are challenging the Board’s debit card interchange fee rule, which became effective on October 1, 2011.  The case, NACS, et al. v. Board of Governors of the Federal Reserve, was brought in November 2011 by a coalition of merchants, including NACS, National Retail Federation, Food Marketing Institute, Miller Oil Co., Inc., Boscov’s Department Store, LLC and the National Restaurant Association.  The merchants are asking the court to invalidate the Board’s interchange rule, claiming the 21 cent cap is too high and the Board exceeded its authority in promulgating the rule.  The Dodd-Frank Act required the Board to implement a rule imposing an interchange fee cap  and addressing network exclusivity issues. 

In response to the merchants’ arguments, the Board argued that it interpreted the underlying statute reasonably, and is therefore entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) – the pivotal case addressing when administrative deference is appropriate.  Specifically, the Board claims that it properly implemented Congress’ directive to consider incremental authorization, clearance or settlement (ACS) costs in determining a standard for debit card interchange fees that are reasonable and proportional to costs, and not to consider costs specific to a particular electronic debit transaction. The Board argued that the statute was ambiguous with respect to how to treat costs that are  not specifically prohibited by statute, but that are outside of ACS costs.  Additionally, the Board argued that it reasonably construed the statute to exclude consideration of costs not specific to any debit card transaction, and that it reasonably considered the four specific costs opposed by the merchants – fixed costs of ACS, transaction monitoring costs, fraud losses, network processing fees.  Finally, the Board claims that its Final Rule addressing network exclusivity reflects a reasonable and permissible interpretation of the statute.

Additionally, on May 22, 2012, a group of retailers filed an amicus brief supporting the merchants’ position.  The retailers signing onto the brief included 7-Eleven Inc.; Auntie Anne's Inc.; Burger King Corp.; CKE Restaurants Inc., which owns Carl's Jr. and Hardee's; Jack in the Box Inc., which owns Jack in the Box and Qdoba Mexican Grill; Starbucks Corp., and The Wendy's Co.  Their brief focuses on the impact of the Board’s interchange fee cap on small ticket retailers. They claim that their interchange costs have risen since the rule went into effect, particularly for transactions under $12, which before the cap, were subject to lower interchange fees than transactions above $12.  Now, the retailers claim, these transactions are subject to higher interchange fees, drastically increasing the retailers’ costs.  The Board addressed this argument in their June 1 brief, arguing that its final rule did not require networks to raise interchange fees on small transactions – rather, this was an independent business decision made by the networks.

CUNA and eight other major financial trade associations filed an amicus brief on March 15, arguing that the Board’s Final Rule is deeply flawed as a statutory matter but for reasons contrary to those stated by the merchants.  We pointed out that the rule has drastically reduced the debit interchange fees issuers may receive because the Board failed to allow all the costs to be counted that pertain to a debit transaction – not because it allowed too many costs to be counted.  Thus, CUNA and the coalition made it clear in the brief we are not supporting the arguments made by either side in favor of or against the final rule, and that we submitted the brief to help the court understand the full spectrum of views from all affected parties.  We will keep you updated on further developments in this litigation.

PEW CHARITABLE TRUSTS RELEASES REPORT ON CHECKING ACCOUNTS
The Consumer Financial Protection Bureau pays a lot of attention to the views of the PEW Charitable Trusts. That is why whenever that organization issues a report on financial institutions, we want to make sure we review it carefully and share our summary with you.

PEW released a new report on checking accounts this week.  This report updates a similar study conducted last year and examines the information on the checking account terms of the 12 largest banks and 12 largest credit unions.

The report includes information on the types of overdraft programs offered by these banks and credit unions, as well as the associated fees for such programs.  We are still reviewing the report and will summarize it in next week’s CUNA Regulatory Advocacy Report. 

Our initial reaction is that while the report appears to recognize the differences between the banks and credit unions examined, such as with regard to overdraft fees, the report could be misinterpreted by some in the marketplace as it relates to credit unions.  

CUNA continues to engage with officials at the CFPB as the agency continues to gather data relating to overdraft practices.

CUNA does not expect the CFPB to issue any rules before the end of this year with respect to overdraft protection, but the CFPB does have statutory authority under the Dodd-Frank Act to promulgate such regulations.  We will continue to work closely with both the CFPB and CUNA’s Consumer Protection Subcommittee in this and other consumer protection regulatory areas to protect credit unions and their members.

CONCLUSION
As the new week emerges, we will renew our efforts to achieve a better regulatory environment for credit unions, particularly as the CFPB develops regulations it is required to implement under the Dodd-Frank Act.   While credit unions may not be able to escape certain statutory requirements, we will continue to push for the most favorable treatment possible for credit unions.

Vocab Legislation: 
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