RegWatch - CUNA CFO Council

CUNA Regulatory Affairs (edited by the CFO Council Regulatory Committee)
April 15, 2008 | COMMENTS

Regulatory Issues of Interest to CUNA CFO Council Members

In This Issue:

• CUNA Responds to Treasury “Blueprint” for Restructuring Financial Regulatory System
• House Financial Services Chairman Frank and Member Ron Paul Introduce Bill to Repeal Unlawful Internet Gambling Enforcement Act
• NCUA Board Meeting this Thursday – Agenda Includes “Low-Income” Definition Proposal
• MasterCard and TJX Reach Settlement Agreement

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CUNA RESPONDS TO TREASURY “BLUEPRINT” FOR RESTRUCTURING FINANCIAL REGULATORY SYSTEM

CUNA President and CEO Dan Mica has sent two letter to the U.S. Department of the Treasury (Treasury) strongly opposing the recently released blueprint for the restructuring of financial markets that includes long-term recommendations detrimental to the credit union system. The report calls for federally insured institutions to be regulated by a “prudential financial regulator” and that separate charters for these institutions should be replaced with a single charter. This would result ultimately in the elimination of credit union charters as well as the demise of separate credit union regulation.

CUNA wrote to Treasury Secretary Paulson at the time the report was released, expressing outrage regarding the recommendations affecting credit unions and the flawed process the agency used to develop its strategy. We sent a second follow-up letter addressing the specific details of the report as they relate to credit unions. CUNA has been and will continue to work with NCUA and Capitol Hill to oppose as vigorously as possible the advancement of the report's apparent treatment of credit unions.

While there is virtually no possibility that these recommendations will be advanced in Congress, CUNA felt it is very important to set the record straight so that the report will not get any traction now or in the future with Congress or the subsequent administrations. CUNA has received a number of letters and comments of support from key policymakers on Capitol Hill, including from House Financial Services Barney Frank (D-MA).

Treasury began its review of the U.S. regulatory structure in 2007, with a conference that only included some of the biggest players in the capital markets. Treasury did seek comments from the entire financial sector and others but only on general issues, not on specific proposals. CUNA filed a lengthy comment letter detailing the significance of the unique characteristics of credit unions, defending credit unions' tax exempt status, and supporting the continuation of NCUA and the National Credit Union Share Insurance Fund. Click here for a copy of the letter.

While Treasury acknowledges that historically the current framework has served the country well, this may no longer be adequate, due to global pressures from markets that are more efficient and due to institutions domestically that continue to evolve.

The report also cites inter-agency disputes regarding capital requirements; whether a product is a security or a futures' contract; and the scope of banks' insurance sales—none of which involved credit unions—as reasons to consider consolidation among the financial institution regulators. The report also concludes that there is duplication of activities among regulators.

The report makes a number of recommendations to address its concerns, which are divided into groups based on how soon Treasury feels the recommendations should be implemented. The credit union issues are all treated as longer-term goals.

- Mary Dunn, SVP and Deputy General Counsel

HOUSE FINANCIAL SERVICES CHAIRMAN FRANK AND MEMBER RON PAUL INTRODUCE BILL TO REPEAL UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT

Following a recent House hearing on the Unlawful Internet Gambling Enforcement Act of 2006, House Financial Services Committee Chairman Barney Frank (D-MA) and Member Ron Paul (I-TX) have introduced legislation to repeal the Unlawful Internet Gambling Enforcement Act.

The House Financial Services Committee's recent hearing on the Act provided to be beneficial to credit unions on multiple fronts. First, Chairman Frank's opening statement to CUNA witness Harriet May emphasized that he does not support the Treasury Department's plan for financial restructuring as it relates to credit unions.

Second, the hearing, which was held by House Financial Services Subcommittee on Domestic and International Monetary Policy, Trade and Technology focused on the problems of compliance with the Act. Chairman Frank and others have opposed the law and criticized the proposed regulations issued by the Fed and Treasury in October to implement it.

The regulatory proposal issued last fall under the Act would have created an enormous regulatory burden on credit unions and other financial institutions. CUNA filed a strongly worded letter opposing the proposal to Committee Chairman Barney Frank. As a result, CUNA was invited as the only credit union group to participate in the hearing along with the American Bankers Association, the Financial Services Roundtable, and Wells Fargo Bank. The Fed and Treasury also testified.

Our witness, CUNA Board Secretary Harriet May , emphasized that CUNA does not condone illegal Internet gambling but stressed that the proposal is unworkable in a number of areas. For example, credit unions and other financial institutions would be required to identify and block transactions that fund illegal Internet gambling activities, but no mechanism exists to verify when a payment is intended for such purposes.

Harriet May indicated support for a bill introduced by Chairman Frank and others, HR 2046, the Internet Gambling Regulation and Enforcement Act, that would be far less onerous for financial institutions. It would require Internet gambling businesses to be licensed and pay user fees to the Financial Crimes Enforcement Network. Such an approach would allow a list of businesses or individuals involved in illegal Internet gambling activities to be developed, facilitating compliance for financial institutions.

Much of the hearing was conducted by Chairman Frank, who welcomed Ms. May by referencing the Treasury's blueprint issued earlier that week that would result in the elimination of NCUA and the credit union charter. “Please tell my good friend and former colleague Dan Mica not to worry about the Treasury proposal to eliminate credit unions. We would never do that,” Chairman Frank stated. He also supported CUNA's testimony, which was consistent with the Chairman's and other Members' alternative legislation.

In summary, the hearing provided another opportunity for CUNA to advocate for credit unions by opposing new, burdensome rules and to receive assurances from the Chairman regarding his opposition to Treasury's plan as it relates to credit unions.

-  Mary Dunn, SVP and Deputy General Counsel

NCUA BOARD MEETING THIS THURSDAY – AGENDA INCLUDES “LOW-INCOME” DEFINITION PROPOSAL

The National Credit Union Administration (NCUA) Board will meet this Thursday, with an agenda that includes four proposed rules, including one that addresses the definition of “low-income.”

The definition of low-income is one of the four categories into which the twelve recommendations of the NCUA Outreach Task Force were compiled. The task force was created in November 2006 to review recommendations from the Member Service Assessment Pilot Program (MSAP) on the mission of credit unions. The NCUA task force recommendation appears to make NCUA's definition of the term more in line with that of the other federal financial institution regulators. No other task force recommendations are slated for NCUA Board consideration at this time.

Other items on the agenda include a proposed rule that addresses the official advertising statement that credit unions must provide in advertisements, which states the following: “This credit union is federally insured by the National Credit Union Administration.” As an alternative, the credit union may use the statement “federally insured by NCUA,” along with the official sign.

The other proposed rules for consideration include revisions to the credit union service organization (CUSO) rules and revisions to the Freedom of Information Act and Privacy Act regulations. The NCUA Board will also address the Quarterly Insurance Fund Report.

- Mary Dunn, SVP and Deputy General Counsel

MASTERCARD AND TJX REACH SETTLEMENT AGREEMENT

MasterCard Worldwide and TJX Companies Inc. (TJX) reached an agreement in which TJX will support an Alternative Recovery Program to settle claims made by principal MasterCard issuers, including credit unions, to recover certain costs and losses they incurred in connection with the TJX data breach.

CUNA held a conference call, which included MasterCard representatives, to review the Alternative Recovery Offer (ARO) in an effort to provide the necessary information so that credit unions can decide what is appropriate for them regarding the agreement.

As agreed on in the settlement, MasterCard will provide to each eligible MasterCard principal issuer a specific offer as an alternative to any recovery available under MasterCard's Operating Rules. To be eligible, an issuer (or the parent/sponsoring issuer) would had to have made a claim during the open claims process, which was between November 2, 2007 and January 2, 2008. As mentioned, the amount of the ARO will be specific to each issuer.

Each credit union that is an eligible MasterCard issuer and filed a claim during the claims process should have received a copy of its ARO and acceptance forms by hard copy and PDF format via email.

Eligible MasterCard issuers, including credit unions, wishing to accept their AROs, must accurately complete the “Acceptance of Alternative Recovery Offer” form on or before May 2, 2008.

Due to the fact that incorrectly completed forms will be considered non-acceptance of the ARO, CUNA asked MasterCard to review the forms for accuracy and communicate any oversights or errors to the affected credit union so that the forms could be revised and resubmitted before the deadline.

MasterCard has asked that the forms be submitted by April 29 or as soon as possible so that MasterCard has sufficient time to examine the forms, determine if the threshold is met, and prepare its reports by the May 2 deadline.

The agreement is contingent on the acceptance of issuing financial institutions representing at least 90% of the “claimed-on MasterCard accounts.” This means that only issuers that made a claim or filed a compliance case as required through the security alert process would be eligible for this ARO.

Credit union issuers that accept the offer should expect to receive their settlement around late May or June.

Some credit unions expressed concern regarding the requirement that issuers must have filed a claim in order to be eligible for the ARO. There are situations in which credit unions were not notified by MasterCard of breached accounts and received no communications from either MasterCard directly or their principal institutions. Additionally, some credit unions have a policy to simply re-issue breached cards and not file claims for fraud. This may put them at a disadvantage since they will not be eligible under the ARO.

MasterCard encouraged credit unions that were affected by the TJX breach but are not direct MasterCard customers to contact their principal financial institutions. Credit unions whose relationship with MasterCard is through a principal financial institution were offered an opportunity to add their names to MasterCard's list of “affiliated institutions.” This would enable MasterCard to directly communicate with those credit unions in addition to corresponding with them through their principal financial institutions. Credit unions wishing to do so should email MasterCard at datasecurity@mastercard.com.

Credit unions can email datasecurity@mastercard.com or LThomas@cuna.com with any questions they have about the agreement.

Meanwhile, CUNA is working with MasterCard to offer credit unions training on its Operating Rules, so that credit unions will be more familiar with the procedural requirements regarding MasterCard's Security Alert Process. We will be providing more information to credit unions and leagues about this very soon.

- Mary Dunn, SVP and Deputy General Counsel & Lilly Thomas, Assistant General Counsel