Congress, NCUA Tackled Corporates, Credit Cards and Consumer Protection
After the NCUA placed U.S. Central Corporate FCU and Western Corporate FCU into conservatorship in March, the credit union community took to Capitol Hill (see story, page 1).
In less than two months, Congress enacted legislation to create the Temporary Corporate Stabilization Fund, financed by a line of credit from the Treasury Department that will be paid back over seven years. Natural person credit unions will pay an additional premium to the NCUSIF over that time period. The measure also extended insurance coverage of accounts up to $250,000 through 2013.
The NCUA has estimated that shoring up the corporates could cost credit unions an assessment of between eight and 20 basis points a year-with an average of 14 basis points-over seven years.
The funds are necessary because of the costs incurred from injecting $1 billion into U.S. Central and guaranteeing the deposits of natural person credit unions in the corporates.
NCUA received $6 billion in borrowing authority (up from $100 million) and $30 billion in emergency borrowing authority. The bill gave the NCUA eight years to replenish the NCUSIF if its equity ratio falls below 1.2%.
In September, the NCUA approved a 0.15% premium for federally insured credit unions to replenish the NCUSIF and help the Corporate Stabilization Fund repay the loan from the Treasury. The premium will ensure that the NCUSIF's equity ratio is 1.3% and enable the stabilization fund to repay $310 million of the funds it borrowed from the Treasury.
To further deal with the problems of the corporates, the NCUA in November issued proposed rules. Under the proposals, which are subject to public comment, corporates would have higher capital requirements, more limits on the type of investments they can make and more disclosure requirements for the executive and board compensation.
The NCUA has scheduled two town hall meetings and one online session and is expected to issue final regulations some time in 2010.
Credit unions also face new compliance requirements as a result of the legislation passed in May to overhaul credit card rules. The measure requires card issuers to reassess customers' interest rates every six months if the issuer raises the rate, bans raising rates unless a consumer is more than 60 days late paying a bill, and bans both interest rate hikes on existing balances and double-cycle billing.
However, credit unions avoided a provision to regulate interchange fees, a key source of revenue for credit card issuers. Lobbyists for CUNA and NAFCU predicted that Congress may revisit the issue in 2010.
In October, lawmakers passed a legislative fix so credit unions and other financial institutions aren't required to send out statements on all open-end accounts 21 days before they are due.
Credit unions could have an additional source of government regulations to worry about. Earlier this month, the House passed legislation that would create a Consumer Financial Protection Agency, which has the power to regulate financial products. All credit unions would have to comply with the CFPA-issued regulations, but only the three credit unions with assets of $10 billion or more would be subject to an additional examination by the CFPA. However, the agency could delegate the examination of those credit unions on consumer issues to the NCUA. The measure also exempts financial institutions with $50 billion or less in assets-which encompasses all credit unions-from having to contribute to a fund aimed at rescuing companies deemed too big to fail.
Lawmakers defeated an amendment to the legislation that would have allowed bankruptcy judges to rewrite the terms of mortgages. That provision was strongly opposed by CUNA and NAFCU.
The Senate Banking Committee had just begun considering comparable legislation on regulatory restructuring in December and plans to resume its work on it when it returns from recess next month.
Lawmakers may also take up legislation that would place additional restrictions on the kind of overdraft protection programs that credit unions and other financial institutions can offer. There may also be an effort to revamp the Community Reinvestment Act to make credit unions comply with its provisions.