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WASHINGTON-The House Financial Institutions and Consumer Credit Subcommittee, chaired by Rep. Spencer Bachus (R-Ala.) heard from all types of financial institutions about how Congress can help them aid victims of Hurricane Katrina. Mississippi Credit Union Association President and CEO Charles Elliott, representing CUNA, outlined CUNA’s efforts under the group’s new “Relief Effort and Support for Credit Unions” (R.E.S.C.U.) program (See related story page 6), which was established to coordinate fundraising and funds distribution to the affected credit unions, including mobilization of financial resources; soliciting and collecting offers of assistance; the Adopt-A-Credit Union Program; identifying credit union needs including employees and volunteers; and emergency needs coordination. Within two weeks, the National Credit Union Foundation-part of the R.E.S.C.U. effort-has raised more than $1.5 million but the needs are expected to be much greater, Elliot explained in his written remarks to the subcommittee. CUNA has also solicited donations from the National Credit Union Roundtable, a group of the largest credit unions. Likewise, NAFCU’s witness, E Federal Credit Union President and CEO Ken Bordelon of Baton Rouge, La., explained that the group had met with NCUA Chairman JoAnn Johnson Aug. 31 to offer any help necessary and is “following the agency’s lead.NAFCU has been supporting all reasonable and prudent efforts to provide relief for the victims of Hurricane Katrina that continue to protect the safety and soundness of credit unions.” “The challenge for credit unions in the wake of Hurricane Katrina has been great. Unfortunately, some may not survive,” Bordelon admitted. “Yet, the response from the credit union community has been tremendous, as credit unions from across the nation have been stepping up to assist those in need. It will be important that Congress and the regulators.recognize the flexibility within safety and soundness considerations that many institutions have had to make in order to effectively assist hurricane victims. It would be unfair to penalize them tomorrow, for their efforts to help those in need today.” Rising to the Challenge CUNA has initiated a number of efforts to help organize the chaos in the Gulf Coast region, Elliott told lawmakers. Under the Adopt-A-Credit Union program, credit unions are provided with “critical human resources and financial support to help them return to the important job of serving their members.” Adopting a credit union requires significant efforts such as addressing the all-emerging needs of the credit union directly, committing to participation for as long as two years or until the credit union is fully operational without assistance, and providing significant financial assistance to the adopted credit union based on needs-including salaries, providing temporary jobs for displaced staff, paying for staff and their families’ housing and transportation, etc., among other things. CUNA and NAFCU representatives both listed out a number of individual credit unions that are making extraordinary efforts to help the impacted credit unions get back on their feet and serve their members through the crisis. Elliott told the subcommittee that many credit unions are not following through on some of the typical safeguards, restrictions, and fees in order to help their members; many credit unions are waiving principal and/or interest on loans and ATM fees and getting creative with identity verification, among other things. Legislative proposals circulating on Capitol Hill to provide relief to those affected include encouraging the waiver of fees for wire transfers; providing indemnity for financial institutions that accept checks with limited identification; permitting financial institutions to capitalize the interest on loans to businesses; increasing the deposit insurance coverage; developing pooling mechanisms for businesses and institutions to rebuild and meet salary demands; and relaxing Prompt Corrective Action standards. “The NCUA has done an excellent job in working with impacted institutions, but those of us who are exercising flexibility within safety and soundness limits want to be sure that we are not penalized tomorrow for meeting the financial needs of the victims today,” Bordelon emphasized. “Any action that Congress can take to signal this message to the regulators would be important.” Key to the relief and rebuilding process will be PCA relief, the witnesses said. Elliott explained that financial institutions will face losses themselves and loans secured by property that may not exist anymore, which could put credit unions under Prompt Corrective Action. “Considerable PCA concerns may be faced by a number of credit unions in the path of Hurricane Katrina, due in part to the relocation of their membership, as well as to the uncertain future of their communities. Issues such as non-performing loans will exacerbate the situation,” said Elliott. “Many credit unions themselves were destroyed, as were the assets of many of their members. Also, growth concerns will arise once members begin receiving insurance checks and depositing them in their credit unions.” NCUA does not have as much flexibility with PCA as the banking regulators, he said, and may be required to impose net worth restoration plans on some credit unions in the affected areas. “Such plans also would provide the agency and the credit unions very few options in addressing extraordinary situations that have been spawned by Katrina,” he added. Additionally, credit unions looking to help by purchasing affected credit unions’ loans will be deterred by PCA as well. Elliott recommended that Congress at least temporarily approve NCUA’s PCA reform plan included in the Credit Union Regulatory Improvements Act (H.R. 2317) for credit unions in the affected areas and those trying to help, though CUNA is still interested in making the change permanent for all credit unions. Bordelon suggested that passage of CURIA and H.R. 3505, the Financial Services Regulatory Relief Act, would help credit unions in long-term recovery. Both would give NCUA the authority to allow credit unions to continue to serve and add members from their select employee groups after converting to a community charter, which would extend service to those in need and help credit unions survive. Title I of CURIA would provide NCUA with greater flexibility under PCA. Ideas such as indemnification for bad checks and waiving some Federal Reserve fees “have merit and promise,” Elliott said. Regarding deposit insurance coverage, CUNA was concerned over how an increase would be funded, but said that should be secondary to helping affected members. NAFCU objected to funding this proposal through the deposit insurance funds and noted that the opportunity for fraud will be great. Long-term, Elliott recognized, credit unions’ biggest issue will be trying to rebuild the communities that many will not want to return to and, ultimately, losing their membership base. “Fresh start” programs for smaller businesses, as have been proposed, could be helpful. Regarding immediate needs, Bordelon asked that the federal government set up computer centers for victims to check on their accounts online; credit unions that cannot get their lines re-routed out of New Orleans is causing distrust among the membership. Bordelon expressed concern for increased identity theft because of financial documents lost in the mail strewn about the debris. He also raised the issue of providing cash to members and establishing new accounts under PATRIOT Act requirements. In addition, Elliott pointed out, the next big and basic challenge for credit unions is to find temporary housing for employees. He also asked for financial relief for victims with damage to their homes who were not in the flood zones and, therefore, without coverage. -

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