Capital Perspective 2010 and Beyond

Document Sample
Capital Perspective 2010 and Beyond Powered By Docstoc
					   2010 AND BEYOND:
A CAPITOL PERSPECTIVE
OVERVIEW
Defense Credit Union Issues
DEFENSE CREDIT UNION ISSUES




      Payday Lending
   An industry worth $48 Billion with over
          22,000 outlets in 2008
        DEFENSE CREDIT UNION ISSUES

                 National Consumer Law Center
          Letter to NCUA Chairman Fryzel, January 27, 2009

NCUA should

       “Direct federal credit unions that they may have no involvement, directly
      or indirectly through credit union services organizations (CUSOs) or other
      third parties, with payday loans that have rates above 18% and more than
      a single, annual application or participation fee that merely covers
      origination costs and does not multiply or substitute for the cost of credit.”

       “Issue a stern warning to all federally insured credit unions that it will
      examine closely, and may charge an extra examination fee to, any credit
      union and CUSO involved directly or indirectly in payday lending in light of
      the significant compliance, reputation and other risks, and that the better
      course is to avoid those risks completely.”
              DEFENSE CREDIT UNION ISSUES

                        National Consumer Law Center
                Letter to NCUA Chairman Fryzel, January 27, 2009

            Areas of Problematic Credit Union Participation in Payday Lending

A. Manipulations of the APR to Avoid the 18% Usury Cap
    1. Excessive Application Fee
    2. Excessive Participation Fee

B. Federal Credit Unions Investing in/Owning CUSOs That Do Payday Lending (possibly
   without complying with state law)

C. Federal and State Credit Unions Earning a Finders Fee for a Payday Loan Made by a
   State CUSO

D. State Credit Unions Directly Making Triple Digit Payday Loans

E. Credit Unions Funding and/or Selling Triple-Digit CUSO Payday Loans, Possibly for the Purpose of
   Evading State Laws
            DEFENSE CREDIT UNION ISSUES

              National Consumer Law Center Report
Stopping the Payday Loan Trap Alternatives that Work, Ones that Don’t

Four Myths

•   That any alternative that is slightly cheaper than a traditional payday loan is a
    good alternative;

•   That any loan that does not give the lender an excessive profit is a responsible
    loan;

•   That a payday loan alternative needs to look like a payday loan; and

•   That expensive loans must be tolerated because there is demand for them and
    we should not restrict access to credit.
         DEFENSE CREDIT UNION ISSUES

              National Consumer Law Center Report
Stopping the Payday Loan Trap Alternatives that Work, Ones that Don’t
          •   Payday Loan Alternatives That Come Close To Stopping
              The Payday Loan Trap
                    11 Banks
                    15 Federally Chartered Credit Unions
                    19 State Chartered Credit Unions
          •   Better Than a Payday Loan but Still Problematic
                    3 Banks
                    6 Federally Chartered Credit Unions
                    7 State Chartered Credit Unions
          •   A Payday Loan By Any Other Name
                    10 Banks
                    24 Federally Chartered Credit Unions
                    19 State Chartered Credit Unions
DEFENSE CREDIT UNION ISSUES



                The Scarlet Letter
 Utah CUs Blasted For 'Sinful' Payday Loan Programs
        Credit Union Journal, July 5, 2010


 Local consumer advocacy group camps out on credit
 union steps, assailing it and several other Utah credit
             unions as predatory lenders.
            DEFENSE CREDIT UNION ISSUES

                    NCUA Proposal for Small Dollar,
                      Short Term Loans (STLs)
•   Allow credit unions to charge an APR up to 28% with a $20 application fee or a
    36% APR with no application fee.
•   Loans must be for at least $200 and no more than $1,000.
•   Credit unions may only make one STL loan at a time to a member and no more
    than three loans in a six month period may be made to the same member.
•   Prohibits “rolling over” the loan.
•   Include in written lending policies a cap on both the total number and total dollar
    amount of STS loans.
•   Includes best practices that the NCUA encourages credit unions to adopt, but
    which are not required.
             DEFENSE CREDIT UNION ISSUES

             NAFCU Recommendations on STL’s

•   Do not prohibit balloon payments:
     – Some loans are so small that a large payment may be more beneficial to the
        member.
     – A blanket prohibition on a balloon payment only serves to encourage members and
        prospective members to seek loans from other lenders who are subject to little if any
        regulatory oversight

•   Clarification that the rule’s best practices provisions are suggestions, not requirements.

•   Elimination of any length of membership requirement.

•   NCUA work with DoD to ensure against conflicts with the DoD’s rule on consumer credit
    protecting service members from loans with an APR exceeding 36 percent.
            DEFENSE CREDIT UNION ISSUES

NAFCU Recommendations to NCUA on STL’s (Continued)

 •   Set a 28 percent APR with a $20 application fee, since the higher 36 percent
     APR, inclusive of all fees, may not be enough to encourage credit union
     participation, or permit credit unions to choose between the two options proposed.

 •   Ensure, for clarity, that the this rule specifies that existing programs will not have
     to be changed.

 •   Rather than a hard dollar cap, set any loan limit based on a percentage of credit
     union assets.

 •   Do not require use of payroll deduction or direct deposit, as this violates a
     Regulation E prohibition affecting extensions of credit and would be unfair where
     the borrower’s employer doesn’t offer such arrangements.
             DEFENSE CREDIT UNION ISSUES

                              A Look Back (2007)
                              The Talent Amendment

•   Applies heightened consumer protection to three categories of loans:
     – Payday Loans – less than 92 days and amount financed is less than $2,000;
     – Vehicle Title Loans – less than 182 days which use the applicant’s motor
       vehicle title as collateral; and
     – Tax Refund Anticipation Loans (RALs) – expressly designed to use tax
       return proceeds as collateral.

•   Credit unions offering these products to service members or their dependents
    must provide additional disclosures and adhere to a special 36% “Military” APR
    calculation.

•   Many creditors altered loan products to escape the rule’s reach.
           DEFENSE CREDIT UNION ISSUES

                                     USAA


•   NAFCU working with DoD to stop the promotion of their financial services
    products aboard military installations.

•   They have been advertising by sponsoring MWR events.

•   If you spot them, we need you to forward us the financial services marketing
    material with the date and place where the material was being distributed on
    base.
DEFENSE CREDIT UNION ISSUES

  USAA Financial Service Centers
  A New Way To Experience USAA
        DEFENSE CREDIT UNION ISSUES

               USAA Financial Service Centers


                Helping you build a strong financial future



Our Financial Centers can help navigate you through your financial needs —
from everyday transactions like ATM deposits, to life's more complex financial
decisions like choosing a life insurance policy or planning for your retirement.
DEFENSE CREDIT UNION ISSUES

       USAA Financial Service Centers

•   Ranch Shopping Center, San Antonio, TX
•   The Shops of Killeen, Killeen, TX
•   Voyager Pkwy & Research Pkwy, Colorado Springs, CO

•   Coming Soon
    - Northeast San Antonio, TX
             DEFENSE CREDIT UNION ISSUES

                     USAA Financial Service Centers

•   Innovative service and convenience.
•   At the Financial Centers, our world-class member service representatives will help you.
•   Make transactions like opening a checking account or starting an auto insurance policy.
•   Set up real-time, face-to-face videoconferences with a USAA member service
    representative for in-depth financial discussions or complex services like mortgages and
    life insurance.
•   Access secure computer workstations to manage your accounts online — even deposit
    checks with on-site scanners.
•   Deposit cash and checks and make withdrawals with on-site ATMs.
•   In addition, Wealth Management advisors will be on site (by appointment only) to help you
    with your wealth management needs.
           DEFENSE CREDIT UNION ISSUES

                   JP Morgan Chase/AAFES Card



•   NAFCU requested information pertaining to the contract pursuant to the Freedom
    of Information Act (FOIA).

•   NAFCU received redacted documents.

•   JP Morgan will pay AAFES approximately $35 Million on a 5 year contract that
    expires in 2011.
                 On-Base Newspaper Clips
                         If you’re looking to buy a new car, and you need to finance some or all of the purchase price, this
                          quiz may help you save money in the long run.
 Quick Quiz
                         1.    When a manufacturer offers an incredibly low finance rate, that rate is available to all
 Car Loan Costs
                               customers. True or False?
                               Answer: False. These low rates are generally available to those with the best credit records.

                         2.    It can be cheaper to take the dealer rebate and finance at a higher percentage rate, rather
                               than have a lower rate and no rebate. True or False?

                               Answer: True. By reducing the amount you’re financing through a rebate, you may end up
                               paying less each month – even at a higher interest rate.

                         3.    Financing with a credit union instead of the dealer can save you money. True or False.

                               Answer: True. Credit unions don’t charge application fees or prepayment penalties, and only
You might be able to           charge simple interest.
lower your monthly car
payments be seeking      Credit unions offer a safe, convenient place to save and borrow at reasonable rates. To learn more,
alternative financing    visit www.nafcu.org.
             On-Base Newspaper Clips
                          There are a number of ways you can protect yourself from
                          identity theft - a crime that has affected more than 27 million
                          Americans. A good first step is to cancel any credit cards
                          that you haven’t used is a long time and get in the habit of
                          shredding personal financial information before throwing it
Avoiding Identity Theft   out.
                             • Do not give out financial information to people you do
                               not know.
                            • Report lost of stolen checks immediately
                            • Check credit union, bank and credit card statements
                               regularly.
                             • Closely guard your PIN and ATM receipts.
                             • Only put outgoing mail in secure, U.S. Post Office
                               mailboxes.
                             • Carefully check your credit reports regularly.

                              For more information visit www.nafcu.org.
          THE FUTURE



―I never think of the future….
      it comes soon enough.‖


                           Albert Einstein
            Worst Predictions About 2009
                          Business Week December 2009



“Let’s not mince words: This looks an awful lot like the beginning of a second Great
   Depression.” Princeton Economist Paul Krugman, NY Times, Jan 2009
 Too pessimistic. Congress wasn’t as bold as Krugman wanted, but the economy
   was growing by the third quarter anyway.

The unemployment rate will top out at 8% in the third quarter of 2009 if the Obama
   stimulus plan is approved.
   Chart of projection by Christine Romer and Jared Bernstein, economic advisors
   to President-Elect Obama
 Too optimistic. The jobless rate hit 10.2% in October despite approval of the
   Obama plan.

“Tiger never does anything that would make him look ridiculous.”
   Golf Digest, January 2010
 Sponsors yanked ads featuring Woods after he crashed his car and admitted to
   adultery.
                     THE FUTURE



“Political, regulatory and economic forces…put pressure on every
facet of…(operations). …(simultaneous) changes in credit
card…practices, stricter overdraft rules, overall scrutiny and political
pressure regarding fees, merchants’ lobbying for interchange
legislation, (and) the prospect of sustained high
unemployment…converging pressures resulting in a very different
banking landscape.”



                                               -Aite Group 2010 Report on Banking Trends
Credit Union Asset Growth
                                          How Many FICUs are Growing?
                              10,000
                                       8,837
                               9,000
                                                     7,936
                               8,000                               7,550
          Credit Unions (#)




                               7,000
                                                                                                                                                        6,114
                                                                                 5,711                                                    5,852
                               6,000

                               5,000                                                               4,611         4,548      4,665
                                                                                               4,075
                                                                                                             3,803
                               4,000                                                                                            3,432
                                                                                    3,299
                               3,000
                                                                                                                                              1,946
                               2,000                    1,745         1,803
                                                                                                                                                           1,417
                                          1,137
                               1,000                                       335
                                               342           302                         358           328            344           265           303           275
                                  0
                                       2000-         2001-         2002-         2003-           2004-         2005-        2006-         2007-         2008-
                                       2001          2002          2003          2004            2005          2006         2007          2008          2009

                                                                    No Change            Grew        Shrank          Disappeared

Source: NCUA 5300 Call Report
                                     Which Asset Sizes are Growing?
                                           # of FICUs in 2009
                                 2,400
                                                                   2,149
                                 2,100


                                 1,800
                                                     1,555
              Credit Union (#)




                                 1,500


                                 1,200


                                  900                                                             840
                                                                                  673
                                         619
                                  600       479
                                                         448
                                                                       279                                      278
                                  300
                                               100           73            68        63                 101
                                                                                          17              13       47
                                                                                                                        4
                                    0
                                         < $2 M      $2-$10 M     $10-$50 M     $50-$100 M     $100-$500 M     > $500 M

                                                      No Change      Grew       Shrank     Disappeared
Source: NCUA 5300 Call Report
Credit Union Asset Quality
                                                   Delinquency Ratio
                                                          Flash Participants     All FICUs
                                 2.0%
                                          1.82%
                                 1.8%                                          1.76%
Delinquent Loans / Total Loans




                                 1.6%

                                 1.4%
                                                  1.24%       1.21%
                                        1.18%
                                 1.2%                                   1.13%          1.09%    1.11%    1.11%

                                 1.0%

                                 0.8%

                                 0.6%

                                 0.4%
                                        Dec-09    Jan-10       Feb-10    Mar-10        Apr-10   May-10   Jun-10

Source: NAFCU’s August 2010 Flash Survey & NCUA Call Report
                                                 Net Charge-Off Ratio
                                                     Flash Participants     All FICUs
                                1.4%             1.36%
                                                            1.31%    1.31%
                                       1.27%                                       1.29%      1.28%
                                1.3%                                                                   1.25%
                                           1.20%                             1.19%
Net Charge-Offs / Total Loans




                                1.2%
                                1.1%
                                1.0%
                                0.9%
                                0.8%

                                0.7%
                                0.6%

                                0.5%
                                0.4%
                                        Dec-09     Jan-10   Feb-10        Mar-10     Apr-10   May-10   Jun-10

Source: NAFCU’s August 2010 Flash Survey & NCUA Call Report
                                                             Charge-Offs Due to Bankruptcy
                                                                                Flash Participants   All FICUs
                                                    29%
Charge-Offs due to Bankruptcy / Total Charge-Offs




                                                                    28.23%
                                                                                                                                 27.60%
                                                                                  26.83%                               27.11%
                                                    27%                                       26.33%     26.14%
                                                          25.99%

                                                    25%


                                                    23%
                                                                                                     21.48%
                                                              20.76%
                                                    21%


                                                    19%


                                                    17%


                                                    15%
                                                           Dec-09      Jan-10       Feb-10      Mar-10        Apr-10    May-10    Jun-10

Source: NAFCU’s August 2010 Flash Survey & NCUA Call Report
                                                   Delinquency Ratio*
                                                                                                   5.37%   5.45%
                                  5.5%                     All FICUs     FDIC-Insured
                                                                                           4.94%
 Delinquent Loans / Total Loans




                                  5.0%
                                  4.5%                                             4.35%

                                  4.0%                                     3.76%
                                  3.5%
                                                                  2.93%
                                  3.0%
                                  2.5%                   2.31%
                                                 2.04%
                                  2.0%   1.71%                                            1.68%   1.82%   1.76%
                                                                         1.44%    1.58%
                                  1.5%                          1.37%
                                                        1.13%
                                             0.97%
                                  1.0% 0.91%
                                  0.5%
                                          Q1      Q2      Q3       Q4       Q1      Q2      Q3      Q4      Q1
                                         2008    2008    2008     2008     2009    2009    2009    2009    2010
*Note: Credit union delinquencies are reported as 2 months or more past due,
       while FDIC delinquencies are reported 90 days or more past due.
Source: NCUA Call Report & FDIC Quarterly Banking Profile
                                                     Delinquency Ratios*
                                                                As of March 31, 2010
                                                         All FICUs    FDIC-Insured
                                 11%
                                                                             10.17%
Delinquent Loans / Total Loans




                                 10%
                                 9%
                                 8%          7.55%
                                 7%
                                 6%                                                                        5.45%
                                 5%
                                 4%                                                         3.09%
                                 3%     2.02%                            2.21%
                                 2%                      1.56%1.72%                     1.90%          1.76%

                                 1%
                                 0%
                                       All Real Estate   Home Equity       First       Credit Cards   Total Loans &
                                            Loans          Loans         Mortgages                       Leases
*Note: Credit union delinquencies are reported as 2 months or more past due,
       while FDIC delinquencies are reported 90 days or more past due.
Source: NCUA Call Report & FDIC Quarterly Banking Profile
                                                 Net Charge-Off Ratios
                                                                     (annualized)
                                                         All FICUs      FDIC-Insured
                                3.0%                                                                                   2.84%
                                2.8%
                                2.6%                                                                         2.49%
Net Charge-Offs / Total Loans




                                                                                                   2.38%
                                2.4%                                                     2.24%
                                2.2%
                                                                               1.94%
                                2.0%
                                1.8%
                                1.6%
                                1.4%                                 1.28%
                                                 1.16%    1.18%                        1.15%     1.16%     1.20%     1.19%
                                1.2%                                         1.11%
                                        0.99%
                                1.0%                              0.82%
                                0.8% 0.66%      0.69% 0.73%
                                0.6%
                                0.4%
                                       Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010

Source: NCUA Call Report & FDIC Quarterly Banking Profile
                                              Net Charge-Off Ratios
                                                        As of March 31, 2010 (annualized)

                                                          All FICUs     FDIC-Insured
                                14%                                                             13.13%
                                13%
Net Charge-Offs / Total Loans




                                12%
                                11%
                                10%
                                 9%
                                 8%
                                 7%
                                 6%
                                 5%                                                         4.62%
                                 4%                            3.12%                                            2.84%
                                 3%         2.04%                                 1.76%
                                 2%                      1.30%                                             1.19%
                                 1%   0.61%                               0.33%
                                 0%
                                      All Real Estate    Home Equity         First          Credit Cards   Total Loans &
                                           Loans           Loans           Mortgages                          Leases

Source: NCUA Call Report & FDIC Quarterly Banking Profile
FICU/NCUSIF Statistics
                      Return on Average Assets (ROA)

                                              All FICUs
          1.0%
                         0.82%
          0.8%
                                        0.63%
          0.6%
                                                                                 0.47%
          0.4%

          0.2%                                                       0.20%

          0.0%
                                                       -0.04%
                      2006          2007           2008          2009         Mar-10
         -0.2%

                                                  All FICUs

Source: NCUA Presentation by Gigi Hyland at NAFCU’s 43rd Annual Conference and Exhibition, July 2010
                                         Net Worth Ratio

                                                All FICUs
         12.0%
                                                11.51% 11.41%
         11.5%
                                       11.23%
                            10.96%
         11.0%
                   10.71%                                          10.61%
         10.5%
                                                                              9.90% 9.87%
         10.0%
          9.5%
          9.0%
                    2003      2004     2005      2006      2007 2008* 2009            Mar-
                                     Aggregate Net Worth to Total Assets               10

     * Includes adjustments made after NCUSIF stabilization expense was announced.
Source: NCUA Presentation by Gigi Hyland at NAFCU’s 43rd Annual Conference and Exhibition, July 2010
                          CAMEL Code 3 Comparison
                         May 31, 2010 to June 30, 2010




Source: NCUA Board Presentation on NCUSIF Statistics, July 29, 2010
                         CAMEL Code 4/5 Comparison
                         May 31, 2010 to June 30, 2010




Source: NCUA Board Presentation on NCUSIF Statistics, July 29, 2010
                      Number of Credit Union Failures




Source: NCUA Board Presentation on NCUSIF Statistics, July 29, 2010
                                          Number and Costs of
                                         FCU and FISCU Failures
                                           FCU      FISCU     FCU Costs    FISCU Costs
                                25                                                             $250




                                                                                                      Costs of Failures (in Millions)
                                20                                                             $200
           Number of Failures




                                15                                                             $150


                                10                                                             $100


                                5                                                              $50


                                0                                                              $0
                                     2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
* 2010 figures are as of June 30
Source: NCUA
                          Percentage of FICU and Bank Failures


                                                                FICUs              Banks
          2.50%
                                                                                                                  2.07%
          2.00%

          1.50%

          1.00%
                                                                                                                  0.43%
          0.50%

          0.00%
                        2004           2005           2006           2007            2008          2009           2010*



*2010 FICU and Bank failures are through March 2010; 2010 figures are annualized
Source: NCUSIF Monthly Report, NCUA 5300 Call Report, FDIC (http://www.fdic.gov/bank/individual/failed/banklist.html) and FDIC Quarterly
Banking Profile
                   Conservatorships


"The federation does not have access to the credit union's
records, nor NCUA's examination documents, so it is difficult
for us to evaluate the facts and merits of the case, but it is
important for credit unions who feel that they have been
mistreated by their regulators to use all means available,
ultimately including the courts, to assert their legal rights and
argue their case …."

       Letter to Members, Cliff Rosenthal, Executive Director,
       National Federation of Community Development Credit Unions
Board of Directors
Responsibilities
              Board of Directors
               Responsibilities

The management of a Federal credit union shall
  be by a board of directors ….
           - The Federal Credit Union Act,
             Section 1761

The board of directors shall…have the general
  direction and control of the affairs of the
  Federal credit union.
           - The Federal Credit Union Act,
             Section 1761d
Corporate Credit Unions
           Corporate Credit Unions

Regulators have a “woeful record” in forecasting
 problems that threaten safety and soundness…
 “they cannot identify the timing of a crisis, or
 anticipate exactly where it will be located, or
 how large the losses and spillovers will be.”

          Alan Greenspan, speaking before the
          Financial Crisis Inquiry Commission,
          April 7, 2010
         Corporate Credit Unions


― Looking back, they should’ve recognized it, but, like
   I said, I didn’t recognize it and nobody I know
   recognized it.‖

            Warren Buffet, speaking on the role
            of Moody’s Investors Service and other
            ratings agencies, before the Financial
            Crisis Inquiry Commission, June 2, 2010.
         Corporate Credit Unions


“It is indisputable that the corporate network,
  taken as a whole, failed its members. But to
  paint all corporates with the same broad brush
  is doing a disservice to the members/owners of
  those corporates that actually benefited them
  throughout this crisis.”

           Thomas Bonds, Pres/CEO Corporate
           America – Credit Union Times, Jan
           2010
        Corporate Credit Unions


“NCUA, the Corporates, and the Natural Person
 Credit Unions all are equally responsible
 toward protecting our members’ money, which
 lately we’ve done a very poor job of,
 notwithstanding the economic downturn and
 mortgage meltdown”

          Nick Meyer, president, Minnesota
          Valley FCU, Credit Union Journal,
          March 15, 2010
         Excerpt from 1997 Treasury Report
                  on Credit Unions


“ Because credit unions must expense any losses to the
  Share Insurance Fund, they have an incentive to
  monitor each other and the Fund. This financing
  structure makes transparent the financial support that
  healthier credit unions give to the members of failing
  credit unions. Credit unions understand this aspect of
  the Fund and embrace it as a reflection of their
  cooperative character.”
      Excerpt from 1997 Treasury Report
               on Credit Unions


“The current structure gives each credit union a financial
  incentive to ensure that it and others remain solvent
  and do not require Share Insurance Fund assistance.
  Because their 1% deposit is at risk when other credit
  unions fail, and because the Share Insurance Fund may
  have to levy additional assessments on surviving credit
  unions, credit union managers have an incentive to
  alert federal regulators to unsound or illegal practices
  at other credit unions.”
“We live in a culture where accountability and
responsibility are forgotten values. When
“mistakes are made” they are always made by
someone else.”

        Frank Rich, New York Times
        Columnist, commenting on Alan
        Greenspan’s quickness in “passing
        the buck” on the Great Recession
    Corporate Stabilization Efforts

- $1.0 Billion cash contribution from the
National Credit Unions Share Insurance Fund
(NCUSIF) to U.S. Central FCU


- $6.4 Billion – Provision for Corporate Credit
Union Losses (Stabilization Fund)


- Total Cost: $7.4 Billion
           Impact on Federally Insured Credit
                       Unions
2009 Assessment
15 basis points
-    5 basis points Corporate Stabilization
-    10 basis points NCUSIF
2010 Assessment
40 basis points – or higher
-    13.4 basis points Corporate Stabilization
-    10-25 basis points or higher NCUSIF
             ASSESSMENTS 2010
•   NCUA has consistently stated that the expected
    total assessment to be billed to natural person
    credit unions for 2010 will be 15-40 basis points.
    - 5-15 for corporate stabilization
    - 10-25 for the NCUSIF

•   In June, NCUA established an assessment of 13.4
    basis points for corporate stabilization. At the time,
    Board Member Fryzel indicated that told credit
    unions should budget on the higher end of 15-40
    basis points for the total assessment for the year.

•   Chairman Matz indicated shortly thereafter that she
    hopes to keep the total assessment below 40 basis
    points.
             NCUSIF MANAGEMENT

•    NCUA typically sets the normal operating level - usually at 1.3
     in the fall
     - NAFCU has advocated that NCUA set the operating level
         below 1.3

•     If the equity ratio falls below 1.2, NCUA must create a
      restoration plan and inform Congress.
    –      The restoration plan must bring the equity ratio up to 1.2 in
           8 years.

•    If the equity ratio falls below 1.0 an immediate write-down of
     credit union’s deposit will occur.
     ASSESSMENT PREDICTIONS


NAFCU continues to believe that total
assessments for the NCUSIF and
corporate stabilization will be as NCUA staff
has stated and will be on the upper end
of 40 basis points.
        NCUSIF PREMIUM FACTORS

Factors that can affect the NCUSIF assessment:

1)    Earnings in the fund
2)    Insured share growth
3)    Level of loss reserves
     a) General Reserve (mirrors the credit union
         historical loss reserve)
     b) Specific Reserves (mirrors the reserves of
         estimated losses on individual troubled cases)
             ASSUMPTIONS FOR 2010

•   NCUSIF investment income remains a non-factor
    due to low expected returns. The Federal Reserve
    is expected to continue it accommodative stance
    and keep targeted interest rate at or near 0 percent.

•   “Flight to safety” will continue and insured share is
    expected to grow 5 percent from December 2009 to
    June 2010.
              ASSUMPTIONS FOR 2010

•   Shares of “problem” credit unions is rising.
    - As of May 2010 the shares of CAMEL Code 4/5 credit
      union is 6.23 percent of total insured shares.

•   NCUSIF insurance loss expense is expected to increase in
    2010.
    - As of May 2010 insurance loss expense is $309.5
      million. NCUA budgeted $750 million this year.

•   Unanticipated insurance losses such as failures due to fraud
    may put further downward pressure on the NCUSIF equity
    ratio.
               NCUSIF Assessments

―In fact, we had budgeted to build up equity toward a ratio of 1.3 percent this
year. But anticipated losses – based on CAMEL ratings and other trends –
have forced us to increase our reserve for losses. As a result, the ratio has
fallen to 1.22 percent. If these trends continue, we project that the ratio will drop
below 1.2 percent by the end of summer.

If that happens, the law requires NCUA to submit a plan to Congress showing
how we would get back above the 1.2 benchmark.‖

                        Remarks of NCUA Chairman Debbie Matz,
                        NAFCU 43rd Annual Conference and
                        Exhibition, Chicago, Illinois, July 22, 2010
             NCUSIF Assessments

―At a time when so many credit unions are vulnerable, it is virtually impossible to
manage the equity ratio with a fine measure of precision, while maintaining a
reasonable margin of safety.

Some have called for the NCUA to maintain a ratio a few basis points below the
normal operating floor of 1.2 percent. This is the one option for the NCUA
Board to consider. This would slightly ease the assessments on credit unions
for a limited time. But others argue that reducing the fund’s safety margin much
further would be irresponsible. I agree. Given the magnitude of losses that are
now likely, I believe it is not practical to try to manage the ratio to a few basis
points above the statutory minimum of 1.0 percent. That would risk an
immediate assessment required by law.‖

                        Remarks of NCUA Chairman Debbie Matz, NAFCU 43rd
                        Annual Conference and Exhibition, Chicago, Illinois, July
                        22, 2010
                     Effect of NCUSIF and Corporate
                Stabilization Expense on FICU Net Income

                    Negative Net Income           Positive or Zero Net Income

           100%

             80%                  65.8%
                                                         60.7%
                                                                                51.4%
             60%                                                     48.6%
                          34.2%               39.3%
             40%

             20%

               0%
                      FICUs before NCUSIF      FICUs after 15bp       FICUs after 40bp
                          & Corporate       Stabilization Expenses NCUSIF & Corporate
                      Stabilization Expense                        Stabilization Expenses
As of December 31, 2009
Source: NCUA 5300 Call Report
                     Effect of NCUSIF and Corporate Stabilization
                            Expense on FICU Capital Ratio

                     Cap Ratio of at Least 7%            Cap Ratio Less Than 7%

           8000           7161                  7083                    6947

           6000

           4000

           2000                                             471                    607
                                   393

                 0
                      FICUs Current Capital      FICUs after 15bp       FICUs after 40bp
                             Ratio             NCUSIF & Corporate      NCUIF & Corporate
                                              Stabilization Expenses Stabilization Expenses
As of December 31, 2009
Source: NCUA 5300 Call Report
Legislative Issues
    Legislative Issues


•   CURIA
•   Reg Relief/CURRA/CUBTRRA
•   MBL
•   CRA
•   EESA/TARP/CLF
•   Mortgage Bankruptcy Reform
•   Interchange Fees
•   Overdraft Fees
•   Student Lending
•   Commission of Fiscal Responsibility and Reform
•   Alternative Capital
•   GSEs
                  Legislative Issues
                 Member Business Lending

Senator Mark Udall (D-CO) amendment 4443 to
            H.R. 5297 on 6/30/10

• Amendment reflects Treasury/NCUA/Banking Committee
  supported language which would allow MBL Cap to be raised
  to 27.5% for credit unions that meet certain criteria; those that
  meet the criteria could grow MBL portfolio 30% a year (over
  old cap) to new level of 27.5%.


• S. 5297 stalled in Senate on procedural issues; any final
  action unlikely until at least mid-September
             Legislative Issues
     Member Business Lending (Continued)

           Udall Amendment key criteria:
• Have been near the current limit for four consecutive
  quarters (for example, credit unions with member
  business loans totaling eighty percent of the current
  cap);

• Are well capitalized; those that fall below would have to
  suspend making new loans until they are well-capitalized
  once again and obtain NCUA’s approval;
             Legislative Issues
     Member Business Lending (Continued)

          Udall Amendment key criteria
                  (continued):
• Have at least five consecutive years of experience in
  underwriting and servicing member business loans;

• Have strong policies and experience in managing
  member business lending loans; and

• Satisfy other standards established by NCUA to
  maintain the safety and soundness of credit unions.
            Legislative Issues
            Regulatory Restructuring



• H.R. 4173, the Dodd-Frank Wall Street Reform and
  Consumer Protection Act passed by House on 6/30/10
  by vote of 237-192 and Senate on 7/15/10 by vote of 60-
  39

• Maintains federal charter and independent NCUA
                Legislative Issues
        Regulatory Restructuring (Continued)

Bureau of Consumer Financial Protection (BCFP)

• NCUA has a seat on the Financial Stability Oversight Council which
  helps oversee systemic risk and can veto a BCFP rule by 2/3 vote

• NAFCU was successful in conference to get Senate position of no
  examination and enforcement by BCFP for credit unions $10 billion
  and under; those over $10B subject to examination and enforcement
       – NAFCU opposed including credit unions under any part of
         BCFP
              Legislative Issues
      Regulatory Restructuring (Continued)

•   NAFCU successfully kept credit unions from paying for the BCFP.
•   Banks above $10B will face new premiums to increase the
    Deposit Insurance Fund’s operating level from 1.15% to 1.35%
    with no ceiling.
•   NAFCU successfully kept credit unions over $10B from paying
    into the systemic risk fund.
•   Financial entities above $50B will face risk-based assessments to
    liquidate systemically-risky financial entities.
•   Makes permanent the new $250K deposit insurance level
•   NAFCU successfully worked with NCUA to get parity for the
    NCUSIF with the FDIC for the increased coverage on non-
    dividend-paying business share accounts
               Legislative Issues
                    Interchange Fees

H.R. 4173 includes Senator Durbin’s (D-IL)
         Interchange Amendment
• Gives the Federal Reserve Board the authority to cap
  interchange fees at “reasonable and fair” levels; only can
  take processing costs and some individual fraud into
  account
• So-called exemption given to institutions under $10B in
  assets
• Networks may set one interchange rate consistent with
  Federal Reserve Board cap; rendering exemption
  completely moot
              Legislative Issues
           Interchange Fees (Continued)

  H.R. 4173 includes Senator Durbin’s (D-IL)
          Interchange Amendment
• Merchants would be allowed to set up to a $10 minimum on
  payment with cards
• Merchants may covertly direct consumers to big bank
  products with capped interchange fee rates
• Merchants would be allowed to offer discount pricing for
  different payment methods, are not supposed to discriminate
  based on issuer
               Legislative Issues
            Interchange Fees (Continued)
               Durbin Amendment II
• Senator Durbin (D-IL) inserted interchange language into S.
  3677, the Financial Services and General Government
  Appropriations bill, during subcommittee mark-up on 7/27
   – Would cap credit card interchange rate to federal government
     at lowest rate available in the market
• Senator Susan Collins (R-ME) led effort to strike provision
  during full Appropriations Committee mark-up on 7/29
   – Struck implementation of Durbin’s provision in favor of a
     Government Accountability Office (GAO) study on the issue
     examining the impact on all parties, including smaller
     institutions and specifically credit unions
   – Amendment adopted by voice vote
            Legislative Issues
          Interchange Fees (Continued)
• Study passed as part of Credit Card bill (H.R.
  627); GAO Report released in November 2009
   –If interchange fees for merchants were
    lowered, consumers may benefit from lower
    prices for goods and services, but proving
    such an effect is difficult
   –Consumers also might face higher card-use
    costs if issuers raised other fees or interest
    rates to compensate for lost interchange fee
    income
                Legislative Issues
                Alternative Capital
   NAFCU-CUNA Joint Statement of Principles
   (While not signing on to the principles as a regulator association,
                  NASCUS indicated its concurrence)
• Risk-based capital standards with reasonable leverage ratios
• Access to supplemental capital (in addition to retained earnings)
  with a structure that must:
  - Preserve the not for profit, mutual, member-owned and
     cooperative structure of credit unions and ensure that ownership
     interest remains with the members;
  - Provide a degree of permanence; and,
  - Applies for PCA purposes or changes the definition of net worth to
     include other capital balances.
Regulatory Issues
            Regulatory Issues
                Compliance Dates
• February 22, 2010 – Credit CARD Act
• April 1, 2010 – HOEPA (Escrow Rule)
• June 1, 2010 – Reg GG (Internet Gambling)
• July 1, 2010 – Reg Z (Open-End Disclosures)
• July 1, 2010 – Reg E (Overdraft Protection Programs)
• July 1, 2010 – Reg Z (Open-end Lending)
• July 1, 2010 – FACTA (Credit Reporting Agencies)
• August 15, 2010 – Reg E (Overdraft Opt-in, Accts prior
  to 7/1/10)
• August 22, 2010 – Reg Z (Credit Card Fees)
• August 22, 2010 – Reg E (Gift Cards)
           Regulatory Issues
             Other Proposed Rules
• Amendments to Regulation Z- Closed End Lending
  Secured by Real Property
• Amendments to Regulation Z - HELOCs
• HUD: RESPA Required Use Prohibition
• NCUA: Golden Parachutes and Indemnification Payments
• NCUA: Short Term, Small Amount Loans
• NCUA: Fiduciary Duties at FCUs; Mergers and
  Conversions of Insured CUs
• NCUA: Amendments to the Reg Flex Program
• Multi-Agency: Garnishment Orders
• NACHA: Enhancements to ACH Applications
• FFIEC: Reverse Mortgage Products
               Regulatory Issues
    Upcoming Final Regulation Effective Dates

• October 1, 2010 – HOEPA (Escrow Rule)
• October 1, 2010
   – SAFE Act (Registration implementation)
• December 31, 2010
   – New model privacy form becomes standard
• January 1, 2011 – FACTA (Risk-based pricing)
• January 1, 2011 – Mobile ACH Payments
• January 28, 2010
   – SAFE Act (Anticipated acceptance of federal
         registrations)
           Regulatory Issues
        NCUA Examiner Focus in 2010

• Credit Unions that hold fixed-rate long term
  mortgages on their books
• Indirect Lending
• Loan participations
• Member business lending
                       Credit Union Locator
•   Problem: Membership growth – how do
    prospective members find a credit union?
•   Solution: A credit union locator site
•   On track for >130K unique visitors in 2010
     –   NY Times, Wall St. Journal, Consumer Reports,
         CBS Daily Show, numerous local TV stations
•   Created, maintained and sponsored by
    NAFCU Services and Preferred Partners




                                                         88
                  Financial Calculators

•   Problem: Financial literacy and marketing
    – how can credit union websites help
    Members and promote CU solutions?
•   Solution: 30 free financial calculators for
    NAFCU Member websites
     –   Deployed on >140 NAFCU member websites
     –   >400,000 calculations YTD 2010
•   Created, maintained and sponsored by
    NAFCU Services and Preferred Partners




                                                  89
                                          Free Video Ads

•   Problem: Awareness – how can credit unions
    better compete with banks for advertising
    mindshare?
•   Solution: Free customizable ads for credit
    unions ($150 for customization)
     –   121 CUs have requested 3015ads
     –   www.nafcu.org/video-ads
•   Created, maintained and sponsored by NAFCU
    Services and Preferred Partners




                                                           90
First Place ID Theft PSA




                           91
92
   2010 AND BEYOND:
A CAPITOL PERSPECTIVE