Volume 28, Number 20                                                           October 30, 2008

HEADLINE NEWS

Letter to the Editor Touts Credit Unions’ Safety and Soundness
     The News Journal, Delaware’s statewide newspaper, published a letter to the editor written by Delaware Credit Union League president Patrick Mahaney on Credit Union Day, Thursday, October 16. The newspaper titled the letter, “Credit unions’ insurance protects users’ accounts.”
     According to Mahaney’s letter, The News Journal had published several articles about the safety of deposit accounts protected by the Federal Deposit Insurance Corporation (FDIC). However, little mention had been made of the alternative National Credit Union Share Insurance Fund (NCUSIF). The letter pointed out that both funds are backed by the full faith and credit of the United States government. Underscoring the safety and soundness of the NCUSIF, the letter pointed out that credit unions continue to operate with “a safety net of capital that helps us weather temporary setbacks,” as well as regular federal examinations. The letter ended, “Your money is safe in Delaware credit unions.”

News Journal  Voices Support for New Credit Union
     The News Journal also voiced support in a staff editorial for the creation of a new credit union to help low-income Delaware residents. The editorial appeared in the October 6 editorial section and commented on the Delaware Community Reinvestment Action Council’s recent application to the National Credit Union Administration (NCUA) to create the credit union.
     The credit union would “appropriately” be named Stepping Stones Community FCU, the newspaper said. The credit union would be “significant and welcome progress” for Eastside residents in Wilmington, Delaware. “Credit union membership at this time is a good idea, particularly during this extended credit crunch,” the newspaper said.

NCUA Insurance Estimator Now Reflects Higher Coverage
     The National Credit Union Administration (NCUA) has placed an updated share insurance estimator on its website to provide members of insured credit unions an opportunity to estimate the amount of coverage the National Credit Union Share Insurance Fund now provides. The estimator, known as the Electronic Share Insurance Calculator (E-SIC), bases computations on the rules in effect as of October 3, 2008, reflecting the temporary higher $250,000 coverage.
     Developed by the Federal Deposit Insurance Corporation and adapted for credit union members, E-SIC is available online at NCUA’s website: http://webapps.ncua.gov/ins/. 
     NCUA’s Share Insurance Tool Kit, found at http://www.ncua.gov/ShareInsurance/Index.htm, is also available to provide additional information about the recent changes to the rules affecting the coverage provided by the National Credit Union Share Insurance Fund.
     E-SIC reflects both the NCUA Board’s recent simplification of the rules for revocable trusts and the passage of the “Emergency Economic Stabilization Act.”  If subsequent statutory or regulatory changes should occur, NCUA will update the E-SIC as quickly as possible.

Mid-Atlantic Corp Rating Stable
     Fitch Ratings has affirmed the long-term and short-term Issuer Default Rating (IDR) for Mid-Atlantic Corporate Federal Credit Union (Mid-Atlantic) at ‘AA-’ and ‘F1+’, respectively. The rating outlook is “stable.” The affirmation reflects Mid-Atlantic’s sound financial condition and low risk profile. As a corporate credit union, credit risk remains low and liquidity is strong, while earnings are lean and capital remains lower than many other financial institutions. Mid-Atlantic is conservatively managed and the company fulfills its mission without taking on undue risk, according to Fitch.

NCUA NOTES

NCUA Rules on NCUSIF Sign Requirements
     What may credit unions do with their standard official share insurance signs that boldly display the temporarily outdated $100,000 insurance maximum? NCUA recently ruled that they can leave them alone, replace them with newer signs available through the agency, or even place a new $250,000 ceiling sticker on the existing sign.
     In an October 15 Federal Register document (http://edocket.access.gpo.gov/2008/pdf/E8-25124.pdf), the NCUA noted that this new interim final rule recognizes that requiring credit unions to replace the current sign with a revised sign would be an expensive and burdensome process – particularly in light of the fact that the revision is temporary – effective from October 3, 2008 to December 31, 2009. The rule became effective October 22.

NCUA Confirms Nov. 1 Enforcement of Red Flag Rules
     NCUA has confirmed that it has no plan to delay the effective date for enforcement of the Identity Theft Red Flags rule for federal credit unions.
     The Federal Trade Commission announced last week that it is postponing for six months enforcement of the red flag rules for entities under its jurisdiction, which include state chartered credit unions. The FTC’s action was primarily directed at non-financial institution creditors – such as automobile dealers and utility companies – which were unaware of these rules until recently.
     NCUA and the federal banking agencies still expect federal credit unions and banks to be in compliance as scheduled and have emphasized earlier that an institution’s current policies and procedures on information security and fraud prevention can form the foundation of the required identity theft program, which should help to minimize compliance burdens.

Quarterly Share Insurance Fund Report
     NCUA recently reported on the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF’s equity level is now at 1.28% and is expected to be at that level at the end of this year, precluding the possibility of an NCUSIF dividend. This indicates also that a premium may not be required, although additional losses or expenses will affect that decision. The recent temporary increase in insurance coverage to $250,000 will not require a premium or adjustment to the 1% deposit. NCUA staff noted that the total insurance loss expense for 2008 is estimated to be approximately $152 million, and they expect an additional $13.5 million in losses between September and year end. 

Final Rule – Incidental Powers
     NCUA has issued a final rule that updates Part 721, Incidental Powers, by adding illustrations of permissible activities under the categories of correspondent services, operational programs, and finder activities. The rule is intended to consolidate published legal opinion letters issued since 2001.
     The final rule will clarify certain provisions and update the rule by adding examples of activities that are currently permissible, such as permitting FCUs to provide correspondent services to foreign as well as federal or state-chartered credit unions and finder activities that permit an FCU to introduce its members to an outside vendor so that they may negotiate and consummate a transaction. NCUA staff clarified that, upon request, credit unions may seek a determination by NCUA whether a certain activity qualifies as an incidental power. The final rule will also add payroll services to the operational programs category.

CLF Is a Liquidity Resource
     NCUA Chairman Michael E. Fryzel has issued a Letter to Credit Unions #88-CU-23 to remind credit unions that the Central Liquidity Facility (CLF) is an available resource for contingent liquidity during the current market turbulence.
     “The CLF has a total of approximately $41.5 billion available to meet back-up liquidity demands, appropriated by Congress and administered by NCUA. Credit unions should carefully monitor liquidity and if necessary, utilize the CLF on an as-needed basis,” Fryzel stated in the letter.
     The CLF lends to credit unions that are creditworthy and demonstrate liquidity needs. A credit union generally is deemed creditworthy if it is a viable operation. Three forms of loans available through the CLF are short-term adjustment credits, seasonal credits, and protracted adjustment credits. Credit unions can apply for a CLF loan either through a corporate credit union or as a regular member, the NCUA said in a release.

CU SYSTEM NEWS

CU Day Celebrations in Delaware
     The League received the following reports on how credit unions celebrated Credit Union Day with their members.

•    On October 16, DEXSTA FCU offered $1.99 per gallon for regular gas to the community from 9:00 a.m. until 12:00 noon. The location was at the Gulf station on 1700 Marsh Road and was on a first-come basis. In addition, specially wrapped candy bars were handed out at the branches, accompanied by a “Refer A Friend” promotion. For each new member that was referred, the referrer and the new member were given a $10 deposit. 

DEXSTA staff member Edna Turner explains the credit union’s gas promotion to a prospective member

•    LOUVIERS FCU celebrated at all four branches by giving away promotional items with the LFCU logo (memo pads, wrist bands, etc.) and Halloween bags for the children with bookmarks, crayons, and coloring books about credit unions. And, of course, refreshments were available.

•    At SEAFORD FCU, both branches in Seaford and Millsboro served light refreshments and provided giveaways along with information about the credit union advantage in banking. New members who signed up that day had $10 put in their accounts to provide $5 in savings and pay the membership fee. In addition, the local weekly Morning Star newspaper featured an article on the credit union, its history in serving members, and its safety and soundness.

  

Sussex County FCU decorated for CU Week

IRA Training in November
     Don’t miss out on this last chance to register for the IRA Essentials and Advanced Workshops. The IRA Essentials Workshop is being held Wednesday, November 19, at the League office. This full-day session gives attendees a solid foundation of IRA knowledge. Exercises are included throughout the day to help participants apply information to job-related situations. Attendees will leave this session able to work with IRA owners and process basic IRA transactions with confidence. This is a beginners’ session; no previous IRA knowledge is assumed. Topics include fundamentals, contributions, distributions, tax reporting, transfers and rollovers.
     The Advanced IRA Workshop is being held Thursday, November 20, again at the League. This is a full-day session that builds on the learners’ knowledge of IRA basics to help them address some of the more complex IRA issues they handle at the credit union. The trainer will utilize real-world exercises to help participants apply information to job-related situations. Topics include contributions, distributions, required minimum distributions, and processing a death claim.
     The cost to attend either session is $250, which includes lunch, refreshments, and materials. The sessions will run from 9 a.m.-4:30 p.m., and participants should bring a hand-held calculator. Contact Bernadette Hines at the League to see if space is still available.

Resource: Understanding the Financial Crisis
     The Federal Reserve Bank of Philadelphia has launched Financial Crisis Resources, background on how the Fed, the U.S. Treasury, and others are responding to the current financial crisis. http://www.philadelphiafed.org/financial-crisis-resources/

Annual ACH Audit Due by December 1
     The National Automated Clearing House Association (NACHA) requires all financial institutions that receive or originate ACH transactions to complete an annual compliance audit by December 1. Contact Jane Bailey for information about who can perform this audit for your credit union.

DELAWARE NOTES

DEL-ONE (Delaware FCU) held a groundbreaking on October 1 at its newest location in Smyrna. The new Del-One branch, slated to open in spring 2009, is located at 201 Pharmacy Drive, across from Rite Aid, and will be equipped with drive-thru lanes, a drive-up ATM that accepts deposits, a coin redemption machine, safe deposit boxes, a cyber café where members get free online account access, and an after-hours deposit box.

Pictured from l. to r.: Alice Smith, Delaware Credit Union League; Bill Newnom, Steve Smith, Karen Whitaker, & Robert Baldwin, Del-One Board of Directors; Senator Bruce Ennis; Richard “Duke” Strosser, Del-One President & CEO; Debbie Wicks, Smyrna School District Superintendent; Breezy Brown, Del-One Board of Directors; David Hugg, Smyrna Town Manager; and Gina Aurora, Central Delaware Chamber of Commerce.

SUSSEX COUNTY FCU employees raised $270 for breast cancer research on Friday, October 3 (Lee National Denim Day). Employees who wanted to wear their jeans to work donated $5.00. The CU matched the $270 contribution, for a total donation of $540.

On Saturday, October 11, LOUVIERS FCU was a platinum sponsor for the second annual Money Fair, “Money Without Borders (Dinero sin Fronteras),” hosted by the Delaware Community Reinvestment Action Council, the Latin American Community Center, and Voices Without Borders. The objective of the Money Fair was to educate the Latino community about their financial opportunities, fiscal options, access to capital and entrepreneurship. The event included fiscal and financial literacy classes geared towards the Latino small-business owners at no cost to the participants.

Louviers FCU teller Adelina Torres (left) and and marketing director Faith Simpers

DEXSTA FCU’s Fall Safety Fair was held at their Prices Corner branch on Saturday, October 18, and was a huge success. As a service to both members and the community, the following organizations participated at the event: the Delaware State Police, Delaware State Fire School, Liberty Mutual, WSTW, WDEL, Christiana Fire Company, and Elsmere Fire Company. Snacks, candy, giveaways, and face painting, as well as many free items were enjoyed by 200 – 300 visitors. During the live radio broadcast, CEO Jerry King and Vice President Peg Conway were interviewed, plus there were some great call-ins from satisfied credit union members!

DEXSTA CEO Jerry King discusses the merits of credit unions to WDEL radio spokesperson Spencer Graves

EDUCATIONAL OPPORTUNITIES

November QuickBites Teleconferences
One-hour sessions run from 11 a.m.-noon:
■    11/05 - Disaster Recovery
■    11/13 - Money Laundering
■    11/20 - Preparing for Your IT Security Exam
Two-hour sessions run from 11 a.m.-noon.
■    11/18 - CU Financials for Staff
The fee for the one-hour sessions is $99; the two-hour session is $169. The deadline to register with Bernadette Hines is one week prior to the session.

Upcoming Council Meetings
■    11/05  Cards Council: Cards Regulatory Changes
■    11/06  Marketing Council: The Challenge Program and Seminars in a Box (held in Dover)
■    11/12  Financial Council: Economic Overview
Council meetings will be held from 10 a.m.-noon at the League office (unless noted), followed by lunch and networking. There is no fee for council members; non-members: $100. Contact the League to register.

►IRA Essentials Workshop – Wednesday, November 19, from 9 a.m.-4:30 p.m. Topics covered are fundamentals, contributions, distributions, transfers and rollovers, and tax reporting.
►IRA Advanced Workshop – Thursday, November 20, from 9 a.m.-4:30 p.m. Topics covered are contributions, including conversion contributions; distributions, including excess, recharacterizations, and taxation; required minimum distributions; and death claims.
The fee for each session is $250 per person. Participants are asked to bring basic hand-held calculators to both sessions. Regis. deadline: November 12.

Free Foreclosure Prevention Workshop for Your Members. This session is hosted by the Delaware Community Reinvestment Council. Attendees are asked to bring their last monthly statement, mortgage papers, etc., so that housing counselors and servicers can help review their situation. Date: Thursday, November 13, from 3-8 p.m. at the Electrical Union Hall, 814 West Basin Road, New Castle.

The following is a brief summary of the legal opinions published by National Credit Union Administration’s Office of General Counsel from August through October 2008. The number in parentheses after the subject is that given to the letter by NCUA, as well as the date of issuance, and can be used when requesting copies of the letters. NCUA opinion letters are available on NCUA’s website (www.ncua.gov) or by calling Susan Fallon at the League office.

Attorney-Client Privilege (08-1032 – October 21, 2008)
          A recent explanation by the National Credit Union Administration (NCUA) of its opinion on attorney-client privilege needs additional clarification, according to the Credit Union National Association (CUNA), which requested the recently issued explanation.
The agency acknowledged that it previously permitted credit unions to withhold from federal examiners records covered by attorney-client privilege because of an assertion that producing them could be read by the courts as having waived the privilege.
          However, the NCUA wrote in its October 21 letter to CUNA that it will no longer permit credit unions to withhold privileged documents because of that assertion. The possibility of a court using the release of a privileged document to claim a credit union waived its attorney-client privilege was eliminated by the addition of Section 205(j) to the FCUA, the agency claimed. “This does not mean that it is no longer possible for a credit union to assert the attorney-client privilege against NCUA,” wrote Robert Fenner, NCUA General Counsel, in the agency letter. “However,” he added, “our experience has been that the waiver of privilege as to a third party was almost always the reason for asserting the privilege in the past.”
          CUNA Deputy General Counsel Mary Dunn said of the NCUA letter, “While CUNA appreciates NCUA”s efforts to clarify its information on this topic, we believe unanswered questions remain about the application of the NCUA opinion.” Dunn said CUNA will follow up with the NCUA.

Safekeeping of Investments (08-0917 – October 8, 2008)
          According to this NCUA opinion letter, a wholly-owned subsidiary of a registered bank holding company is eligible to act as an investment safekeeper for a federal credit union (FCU). NCUA’s investment rule permits an FCU to have its investments and repurchase collateral held by a safekeeper that is regulated by the Securities and Exchange Commission, a federal or state depository institution regulator, or a state trust company regulator. 12 C.F.R. §703.9(b). NCUA also notes that bank holding companies and their subsidiaries are subject to regulation and supervision by the Federal Reserve. 12 C.F.R. Part 225. Other requirements on FCUs using safekeepers include: board of director approval of the safekeeper and a written agreement obligating the safekeeper to exercise, at least, ordinary care; obtaining and reconciling monthly a statement of investments and collateral held in safekeeping; and analyzing annually the safekeeper’s ability to fulfill its custodial responsibilities. 12 C.F.R. §§703.9(a), (c)-(d).

Insurance Coverage for Interest on Lawyers Trust Accounts (IOLTA) (08-0840 – October 8, 2008)
          This letter addresses a question about the insurance coverage by the National Credit Union Share Insurance Fund (NCUSIF) for IOLTA accounts in federal and state-chartered credit unions and those designated as “low-income.” As discussed in the letter, client funds in an IOLTA account are insured for those clients who are members of the credit union or, if a credit union is designated as low-income, all funds are insured regardless of the client’s membership status.

Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (08-0843 – October 3, 2008)
          This letter addresses several questions regarding the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Licensing Act), which was enacted as Title V of Subdivision A of the Housing and Economic Recovery Act of 2008. Pub. L. No.110-289, 122 Stat. 2659 (July 30, 2008). The SAFE Licensing Act reflects congressional intent to encourage uniformity among the states in terms of licensing and regulation for the residential mortgage industry. Among other provisions, the law encourages the states, acting through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, to establish a nationwide mortgage licensing system and registry. All loan originators would be licensed through or registered with the system.

Permissibility of a Federal Credit Union (FCU) Providing Locked Box Accounting Services to Members (08-0730  – August 11, 2008)
          A Bronx, New York, credit union asked if an FCU can provide locked box accounting services to its members under the operational programs category of NCUA’s incidental powers regulation. NCUA’s answer was “yes,” it is within an FCU’s incidental powers to offer these types of services to its members. Bethex FCU proposed to collect monthly rental payments on behalf of a housing cooperative and apply those payments to the cooperative’s accounts. Also under the proposal, the FCU would pay, from the cooperative’s accounts, certain monthly bills and reconcile the account ledger to the monthly statements. NCUA defines operational programs as programs that an FCU establishes to deliver products and services to members that enhance member service and promote safe and sound operation. 12 C.F.R. §721.3(j). These programs include pre-authorized member transactions and loan collection services. Accordingly, the services the CU is planning on behalf of its member are permissible.

Suspension of Services Policy (08-0431 – August 12, 2008)
          The National Credit Union Administration (NCUA) has no prohibition against a federal credit union applying the same “suspension of services” policy to a member who presents a risk of potential loss to the credit union as it does to an abusive member. However, the agency warns that the Equal Credit Opportunity Act (ECOA) may have an impact on a proposed policy. In the legal opinion letter, the agency noted that, generally, a federal credit union may suspend services to a member if it complies with the Federal Credit Union Act (FCU Act). The act grants all members two basic rights: the right to maintain a share account and the right to vote at annual meetings.
          “However, nothing in the FCU Act or (NCUA) rules and regulations precludes an FCU from restricting the availability of certain services, provided there is a rational basis. A rational basis exists when there is a relationship between the risk to a credit union and the restriction of services,” wrote Associate General Counsel Sheila Albin in the letter.
          She added, “We caution, however, that any suspension of services policy should be in writing and an FCU should make its membership aware of the policy before it is enforced against any individual.”
          The NCUA letter also pointed out that contract provisions and federal and state laws may limit a federal credit union’s ability to deny certain services to members; specifically that ECOA may have an impact on a proposed policy. That law is intended to promote the availability of credit to all creditworthy applicants, regardless of race, color, religion, national origin, sex, marital status or age. “ (P)olicies that are facially neutral may be prohibited under the ‘effects test.’ Under the ‘effects test,’ a policy is discriminatory if it has a negative impact on a protected class of persons, even if there is no intent to discriminate,” the NCUA letter said; and it suggested a credit union consult counsel to determine the applicability of ECOA and whether a policy would have a discriminatory effect if implemented.

Gift Cards as an Electronic Financial Service (08-0121 – June 10, 2008)
          In answering a question from Texas Tech Federal Credit Union, Lubbock, the National Credit Union Administration (NCUA) stated it is within a federal credit union’s incidental powers to receive payments for gift cards and track payments for one of its members. The Texas credit union was checking to see if it could perform those functions related to gift cards to be offered by Texas Tech University's athletic department for purchases of athletic event tickets, concession goods and related apparel at the university’s athletic store.

NCUA Letter 88-CU-20: Evaluating Current Risks for Credit Unions. This Supervisory Letter discusses several of the current risks facing the credit union industry, provides NCUA field staff with guidance for assessing mortgage portfolio risk management, and recommends best practices for conducting risk focused supervision and monitoring.

NCUA Letter 88-CU-21: CU Financial Trends. This letter provides CU financial trends for the first half of 2008.

NCUA Letter 88-CU-22: Share Insurance Coverage Enhancements. President George W. Bush signed into law the “Emergency Economic Stabilization Act of 2008” on October 3, 2008, which temporarily increases federal deposit insurance coverage. The new law amends the share insurance coverage provided by the National Credit Union Administration (NCUA) through the National Credit Union Share Insurance Fund (NCUSIF) and the deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC). The NCUA Board also took action on October 3 to eliminate the concept of “qualified beneficiary” in determining NCUSIF share insurance coverage. The law increasing insurance coverage became effective on October 3, 2008, and will remain in place through December 31, 2009.

NCUA Letter 88-CU-23: Central Liquidity Facility. This letter assures credit unions that NCUA’s Central Liquidity Fund (CLF) is available to help credit unions meet their liquidity needs. In order for the CLF to lend, credit unions must: 1) be creditworthy and 2) demonstrate liquidity needs. [See previous article under “NCUA Notes”]  

TOGETHER is published on the 15th and 30th of each month by the Delaware Credit Union League, 4 Quigley Boulevard, New Castle, DE19720. Information to be published should be sent or phoned into the League no later than the Monday of the week preceding the publication date. Telephone: (302) 322-9341 or (800) 292-7875. This newsletter can also be found on the League website: www.dcul.org. Hard copies of the newsletter will be mailed to each credit union CEO/manager for distribution to those without computer access. Readers can receive a reminder when the newest edition is posted to the Web by emailing susan@dcul.org. Editor: Alice Smith (alice@dcul.org).