e-Weekly

January 26, 2011

Credit union concerns regarding interchange rule get press airing
During a national press call Thursday, January 20, Jim Blake, president/CEO of HarborOne Credit Union, Brockton, MA, reiterated the credit union call to scrap the Federal Reserve Board's plan to implement government restrictions on interchange fees.

Blake, who also serves as a Massachusetts League director, underscored that the practical ramifications for consumers of the plan to limit interchange fees could be numerous and dire. The press teleconference was organized by the Electronic Payments Coalition (EPC). The Credit Union National Association (CUNA) is an EPC member, and tapped Blake to give the credit union perspective.

Blake said that already, even before any implementation rule has been finalized, there is broad talk about the possibility that interchange fee limits could drive up consumers' check costs, eliminate some card rewards programs, force limits on the number of card swipes allowed per month--or a lower limit on what size charges can be applied to debit cards.

The Fed plan, which seeks to implement provisions enacted by the Dodd-Frank financial regulatory reform package, offers a dual framework for determining what the law calls "reasonable" interchange fees. One plan would provide issuers with a safe harbor of seven cents per transaction, and set a maximum interchange fee cap of 12 cents per transaction. An alternative framework would simply cap the maximum interchange fee at 12 cents per transaction. These safe harbors and/or caps would be reevaluated by the Fed every two years.

CUNA has estimated that up to 67% of credit unions would lose money on their debit card programs if the interchange regulations reduced interchange-related revenues by 40%.

Under the Dodd-Frank Act, card issuers with under $10 billion in assets would be exempt from the proposed rule changes. The exemption covers most, but not all, credit unions. However, CUNA remains concerned that a two-tiered pricing system could lead merchants to set incentives for consumers to use only big-issuers' cards, which would have a lower per transaction cost for the merchant.

In a related story, Bloomberg News reported Thursday (Jan. 20) that Representative Barney Frank (D-Mass.) said he was ready to work with House Republicans, now in the majority, to force changes in the Fed's interchange fee proposal. Frank, along with former Senator Christopher Dodd (D-Conn.), were the key architects of the Dodd-Frank Wall Street reform bill requiring the Fed to set the fee limits.

The Fed is accepting public comment on its proposal until February 22, and the agency has said that it is unlikely that a final plan would be ready by April. CUNA is asking credit unions to send their comments to the association by February 1. Use the resource link to view CUNA's Comment Call: CUNA Comment Call.

Foreclosure management for credit unions covered in NCUA letter
Pending National Credit Union Administration (NCUA) examination standards will address the need for appropriate due diligence when dealing with outside vendors, quality control reviews on foreclosure processes, and stress event analysis and reporting, the NCUA said in a recent letter to credit unions.

The NCUA in that letter also urged federal credit union directors to perform their own in-depth reviews of their mortgage documentation and foreclosure management processes. Specifically, credit unions should be aware of issues related to the Mortgage Electronic Registration System (MERS), missing or defective loan documents, and documentation deficiencies related to so-called "robo-signing."

Credit unions should also monitor for contractual buy-back risks associated with serviced mortgages, the NCUA said.

To properly deal with these and other mortgage-related issues, credit unions should ensure that their credit union has established appropriate policies and procedures for all aspects of the foreclosure process.

A credit union's staff should be qualified to properly handle foreclosures, and its internal controls should be able to adequately deal with the foreclosure process.

Credit unions should also ensure that their oversight, due diligence, and controls related to third-party servicers that perform foreclosures on behalf of the credit union are adequate.

Any foreclosure action should be accompanied by the required legal documentation, and information on the number and volume of foreclosure actions, as well as the financial impact of those foreclosure actions, should be disclosed to a credit union's board of directors, the NCUA added.

For the full NCUA letter, use this link: NCUA Letter to Credit Unions.

Discover survey shows members and consumers overall less optimistic on finances
Although it noted that credit unions did not engage in the practices that contributed to today's economic mess, a new study indicates that even credit union members--"a typically confident group of consumers"--are feeling the economy's effects on their finances.

Data recently released by Discover Financial Services in its U.S. Spending Monitor for December found that 47% of credit union members surveyed--as well as 47% of nonmembers--said their finances are getting worse. Six months ago, credit union members were five percentage points more optimistic than nonmembers, reported Dow Jones Newswires which was published in The Wall Street Journal (Jan. 18).

In November, there was nearly a four-point difference between the two groups, with just over 43% of credit union members saying finances are becoming worse, compared with 46.8% of nonmembers.

The decline in confidence may indicate a shared pessimism about personal finances and the economy that transcends where consumers choose to bank, Kevin O'Donnell, a Discover executive, told Dow Jones. He also noted the lower confidence could stem from post-holiday bills and noted credit union members appear to anticipate higher household expenses than nonmember counterparts and are adjusting their spending intentions accordingly.

Other findings:

• 56.5% of credit union members surveyed rated the economy "poor," compared with 54.9% in November and compared with 57.2% of nonmembers in December.
• 43.7% of members ranked the economy "worse," compared with 44.9% of members saying so in November and compared with 44.3% of nonmembers.
• 38.2% of credit union members said they spent more in December than in November. That was an increase from 30.6% saying the same thing in November. Roughly 35.9% of nonmembers said they spent more in December.
• When asked how many months they could hold their lifestyle if their income was lost, 22.9% of members and 21% of nonmembers said they could go more than six months, while 28.8% of members and 29.5% of nonmembers said they could go no months.

Confidence ratings, overall, reached a three-year high in November but slid in December. The survey polls 8,200 consumers, including 2,500 credit union members.