e-Weekly
November 18, 2009
Matz to AACUL: NCUA to help CUs manage higher risk
Speaking before the American Association of Credit Union Leagues (AACUL) annual meeting, National Credit Union Administration (NCUA) Chairman Debbie Matz said that agency is "strengthening supervision to help credit unions manage areas of heightened risk."
One way this is being accomplished, Matz said, is increased reviews of call reports. Examiners are reviewing these reports for potential red flags, including concentrations of fixed-rate mortgages, and increased delinquencies in indirect lending portfolios, member business lending, and loan participations, according to an NCUA release.
Examiners will also focus on fixed-rate mortgages, indirect lending, loan participations, and member business lending, Matz added.
NCUA examiners will be taking public administrative actions to ensure compliance, and examiners may follow up with public letters of understanding and agreement or cease and desist orders if a credit union has not followed NCUA recommendations, Matz said.
These administrative actions are not meant to discourage lending, Matz said, but are meant to "ensure that credit unions lend in a prudent, safe and sound manner."
Matz also previewed the corporate credit union proposal during the meeting. According to Matz, the new corporate rule will prevent the over-concentration of assets in any one type of investment, will modify capital standards to make them more consistent with Basel 1, and will establish new limits on cash flow mismatches to ensure that any asset/liability gap does not pose an excessive risk. The corporate rule, which will also prohibit so-called "golden parachutes" for high-ranking executives and recommend that corporate credit unions provide annual disclosures of the total compensation packages of all senior staff members, will be released for a 90-day comment period.
The NCUA has planned a pair of town hall meetings and an online webinar to solicit feedback on the proposal.
Opt-in Featured in Fed Overdraft Rules
The Federal Reserve Board recently released a final rule on overdraft protection plans, which would require the consent of consumers before they could be charged overdraft fees for ATM and one-time debit transactions.
According to the Fed, the overdraft rule also prohibits credit unions and other financial institutions from "discriminating against consumers who do not opt in" to overdraft plans by requiring them to provide those consumers with identical account terms, conditions, and pricing to those given to customers that have opted in to overdraft plans.
The final rules, which are issued under Regulation E, would require credit unions and other financial institutions to fully disclose the details and fee structure of the overdraft service. Financial institutions also may not require that a consumer opt-in to ATM and one-time debit card overdrafts in exchange for having overdrafts paid on checks under the terms of the new rule.
Members and customers that have elected to accept the overdraft service will also have the right to cancel that service in the future under the Fed rule.
Fed Governor Elizabeth Duke in a release said the Fed rule would "help consumers better understand the terms and conditions of overdraft services" and help them to "avoid fees when these services do not meet their needs."
The rule does not cover check transactions, and will apply to all consumers, including existing account holders.
The Credit Union National Association (CUNA) had supported an opt-in feature if it was limited to debit and ATM transactions. However, CUNA said it would only back this feature if it was limited to new members, due to the potential operational difficulties of applying such a requirement retroactively to existing member relationships. The rule will come into effect on July 1, 2010.
Both the House and Senate have been working to address overdraft fees through separate pieces of legislation. Senate Banking Committee Chair Senator Chris Dodd (D-Conn.) recently introduced legislation that would force financial institutions to provide customers with the ability to choose whether or not they wish to participate in an overdraft program. Representative Carolyn Maloney, (D-N.Y.) has also recently offered similar legislation. Commenting on the Fed rule, Dodd said that legislators "need to do far more to protect customers from abusive bank products." While Maloney said that the Fed rule was a "good, solid step forward," she said in a statement that there is still a "need for Congressional action on this issue."
CUNA President/CEO Dan Mica, however, indicated that further legislative action on overdraft fees may not be prudent.
CUNA's Hampel: Economic freefall has ended
The economic "freefall" has ended, and the economy should likely grow at a rate of 2% during the upcoming year, Credit Union National Association chief economist Bill Hampel told attendees of the American Association of Credit Union Leagues (AACUL) recent annual meeting. While these are relatively positive developments, Hampel said that it will be "a long and slow recovery because the household sector's balance sheet is still in lousy shape."
Unemployment will likely get close to 11% in the first half of 2010 before backing down, Hampel predicted. "It's a lagging indicator; people won't accept that the recession is over until they see lower unemployment, which means credit union members will act like they are in a recession till then," he added.
The bottom line, Hampel said, is to expect a "fragile, low-growth economy," with the possibility of a fall back into recession not out of the question if there is another economic shock. As a result, credit unions should expect to experience faster savings growth and weaker loan growth. However, Hampel sees lending opportunities for credit unions, as most of them currently "have a fairly low share of their members' loan business."
"The competition—other lenders—are hurting more than we are. There are opportunities for credit unions to pick up share." Hampel forecasted a 7% credit union loan growth next year and a delinquency rate of 1.5%. He also expects an inflation rate of 1.5% to 2% in the year ahead and no appreciable increase in short-term interest rates until after the unemployment rate begins to fall in the second half of 2010.
| 
