Volume 29, Number 11                                                           June 30, 2009

HEADLINE NEWS

Changes From June 15th Article on Escheat Reporting – Prepare Now But No August 1 Report Due!
     The Delaware Credit Union League has just learned that the Delaware State Bureau of Unclaimed Property has made even more changes to the 2009 escheat reporting. These changes nullify some of the information provided in the last issue of Together.
     The Delaware State Escheator at the Bureau of Unclaimed Property no longer wants credit unions to send in a preliminary report on August 1.
     Instead, credit unions should use the time before the November 10 escheat report deadline to accomplish the following tasks:
     1.  Compile a list of abandoned accounts, which refers to various types of credit union accounts abandoned for five years or more: share and share draft accounts, uncashed share drafts, dividends, etc.
     2.  Try to contact these members so the accounts can be deemed active (see the special escheat mailing for more details).
     3.  Advertise the existence of these abandoned accounts according to state rules by September 1.
     Every Delaware CU, regardless of whether it holds unclaimed property, must file a copy of Form AP-1 (Report of Unclaimed or Abandoned Property) and Form AP-2 (Report of Unclaimed or Abandoned Property Detail Sheet), which provide a summary of the credit union’s report and which must be signed and verified by a credit union officer. These reports and remittance of monies in any such accounts are due by November 10, 2009.    
     Unclaimed property forms and a booklet describing the process for submitting unclaimed property is available at www.state.de.us/revenue (click on “unclaimed property”). The League will soon send out a full packet of escheat information, including those materials, to each CU manager/CEO.
     Other New Requirements in 2009. 
     1.  A credit union must file electronically if the unclaimed property owner count is greater than 10.
     2.  Where the expense of a newspaper advertisement exceeds 50% of the reported value, a publication waiver may be requested by submitting a waiver request form. This form will be part of the escheat packet sent out by the League. Or go to: http://revenue.delaware.gov/information/waiver.pdf.
     Remember, amounts in excess of $25 must be reported to the state of the member’s last known address. You will need to contact each applicable state to obtain the correct filing forms, deadlines and dormancy periods (which vary from state to state). For example, in Maryland and most recently in New York, the dormancy period has dropped to three years before abandoned property must be turned over to those states.
     Call or email Susan Fallon (susan@dcul.org) if you need contact information for other states or if you need more detailed escheat reporting information. The League also has sample letters that can be sent to members who have a dormant account.

First Delaware Credit Union to Achieve $250 Million Milestone
     In the midst of economic uncertainty, Dover Federal Credit Union was recently recognized as the first credit union in the state of Delaware to grow past $250 million in total assets. The recognition is a sign of the credit union’s strength and ability to meet the financial needs of families across Delaware, according to a CU press release.
     “It is rewarding to have over 35,500 members who have chosen Dover Federal as their financial partner for more than fifty years,” commented David Clendaniel, president/CEO of Dover Federal Credit Union. “Our members have trusted us to provide smart financial solutions and that confidence has allowed the organization to truly excel even during tough times.”
     Dover Federal was chartered by a group of Air Force and civilian workers at Dover Air Force Base in 1958. Today the credit union serves more than 35,500 members, encompassing the military, Delaware families and more than 300 different select employer groups and organizations across the state. There are six credit union branches statewide from New Castle to Milford with the corporate center in Dover.

NCUA NEWS

NCUA Acts on Corporate Credit Union Stabilization
     During its June meeting, the National Credit Union Administration (NCUA) Board took action to implement the Temporary Corporate Credit Union Stabilization Fund authorized by the Helping Families Save Their Homes Act. In short, the new law and NCUA’s actions enable insured credit unions to spread out the insurance costs associated with corporate credit union stabilization efforts.
     Going forward, the costs of corporate stabilization efforts will be borne by the new stabilization fund. As a result, the share insurance fund will recover those costs that hit the fund earlier this year. In addition, the share insurance fund equity ratio improves to 1.26% of insured shares based on December 31, 2008, figures. For credit unions, it means the share insurance fund will pass back earnings equal to 0.69% of insured shares as of December 31, 2008.
     Looking ahead, it is expected that the share insurance premium will be adjusted from .30% to roughly .15% of insured shares.

NCUA Webinar Addresses Accounting Challenges
     The NCUA webinar held on June 24 helped clarify questions from CUs about how to handle recent announcements on the corporate system, guarantees, and the National Credit Union Share Insurance Fund (NCUSIF) write-down changes. 
     First, the corporates: The audit for WesCorp is finalized, and there is a $3.5 billion deficit in capital, resulting in a complete write-off of paid-in or membership capital. The US Central audit is scheduled to be completed in mid July, although early indications are that the deficit is $1.7 billion. All existing deposits in the corporates (except membership capital and paid in capital) are fully guaranteed until September 30, 2011. Any CDs existing prior to June 1, 2009, will be fully guaranteed until September 30, 2011, regardless of their term. Any CDs purchased after June 1, 2009, are only guaranteed if the term is two years or less. If a CD is purchased with a longer term after June 1, 2009, it is not guaranteed at all. The NCUA Board may elect to extend the date of the guaranty past September 30, 2011, to a maximum of December 31, 2014, as the dates near.
     On the write-down: Now that the NCUSIF is no longer impaired, the 69% write-down is not required, but since most credit unions already took the write-down, they now have to debit back the 69% to NCUSIF and non-operating income credited in June. Call reports are not to be restated.
     On premium changes: The premium assessment has been re-evaluated as well. All credit unions will be billed for the premium assessment this fall; however, the amount has changed. The new estimated amount is 15 basis points, instead of the previous 30 basis points, and the base for the calculation has changed. If a credit union has assets less than $50 million, then the 15 basis points should be applied to insured shares as of December 31, 2008, using $250,000 as the insured amount, not the previous $100,000. If a credit union has assets of $50 million or more, the 15 basis points should be applied to insured shares as of June 30, 2009, using $250,000 as the insured amount as well. The NCUSIF deposit going forward will now be based on insured shares using $250,000 as the insured amount. 
     An archive of the webinar with more details will be available on the NCUA website: www.ncua.gov.

NCUA Releases Letter to CUs
     In advance of its July 24 webinar, NCUA released Letter to Credit Unions 09-CU-14 to outline the benefits and requirements of its recently enacted corporate credit union stabilization fund legislation; to describe the actions taken to implement the legislation; and to summarize the impact of the actions on the NCUSIF capitalization deposit and the premium assessment.
     In addition, the letter explains implementation of corporate stabilization and what to do if a credit union has already charged some expenses or how/if a credit union can recover any of the 1% deposit that was written down.
     The NCUA will publicly answer questions related to this letter in July. To access a copy of the letter, go to the following NCUA site: http://www.ncua.gov/Resources/CorporateCU/Files/CULetters/09-CU-14CorpStabilizationFundImplementation.pdf.

COMPLIANCE RECAP

“Red Flags” FAQs from Regulators Available
     Six federal agencies, including the National Credit Union Administration, have issued a set of frequently asked questions (FAQs) to help financial institutions, creditors, users of consumer reports, and issuers of credit cards and debit cards comply with federal regulations on identity theft and discrepancies in changes in address.
     The “Red Flags and Address Discrepancy Rules,” which implement sections of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), require credit unions to develop and implement written Identity Theft Prevention Programs and require issuers of credit cards and debit cards to assess the validity of notifications of changes of address. The rules also provide guidance for users of consumer reports regarding reasonable policies and procedures to employ when consumer reporting agencies send them notices of address changes.
     The FAQs provide guidance on numerous aspects of the rules including:
•    Types of entities and accounts covered;
•    Establishment and administration of an Identity Theft Prevention Program;
•    Addressing validation requirements applicable to card issuers; and
•    The obligations of users of consumer reports upon receiving a notice of address discrepancy.
     The League emailed a copy of the 14-page FAQs document to all credit union managers/CEOs. This document is also included with this month’s Compliance Recap in the CEO/managers’ mailing.

New Rule for Truth-in-Lending Disclosures on Closed-End Home Equity Loans
     Effective July 30, 2009, lenders must provide a Truth-in-Lending (TIL) disclosure for all closed-end loans secured by the member’s residence within three (3) business days of application and cannot close until seven (7) business days after its delivery.
Additionally, there is new language required to appear on the initial Truth-in-Lending disclosure. The new statement is “You are not required to complete this application merely because you have received these disclosures or signed a loan application.” It is permissible for the statement to appear on a Truth-in-Lending disclosure given at
closing since some lenders will use the same form at application and closing.
     CUNA Mutual’s LOANLINER division has revised its stand-alone Truth-in-Lending document along with its Closed-End Home Equity Notes to comply with the rule by July 30, 2009.
     If your credit union does not originate closed-end real estate-secured loans, no action is required.

Avoid Lawsuits With Proper ATM Fee Disclosure
     Consumers continue to file lawsuits against financial institutions as ATM owners, including CUs, for failing to disclose fees as required by Regulation E. Recently, four lawsuits against credit unions were filed in Pennsylvania District Court claiming there were no fee disclosures on ATMs.
     If your credit union operates an ATM and charges consumers fees for balance inquiries or an electronic funds transfer (cash withdrawal, transfer, etc.), be sure all ATMs, including any located in the lobby, comply with the fee disclosure requirements in Regulation E.
     Here are a few tips from CUNA Mutual Group:
•    Post a sign on or near every credit union ATM stating that fees will/may apply. If you choose to state the amount of the fee on your signage, procedures should be in place to ensure the accurate charge amount is always reflected on the signage.
•    Rely on the ATM screen to state the actual amount of the fee. Once notified, consumers must be able to cancel the transaction and avoid the fee if they choose.
•    Disclose the fee on the receipt.
Credit unions should adopt procedures for inspecting their ATMs to ensure that the required signage/notices are present, current, and have not been altered.

New NCUA Rule Effective Dates
     The effective dates of two recently adopted NCUA rules have been published in the June 24 Federal Register: one addresses operating fees; the other, second lien modifications. Effective January 1, 2010, the NCUA has amended its rule on the assessment of operating fees by permitting federal credit unions to subtract investments made under the Credit Union System Investment Program (CU SIP) and the Credit Union Homeowners Affordability Relief Program (CU HARP) from their total assets. Another rule adopted at the last NCUA open board meeting, one amending lending rules to create a limited exception to the 20-year maturity limit on second mortgage loans, became effective upon publication on June 24, 2009.

DELAWARE NOTES

Kudos to the employees of AMERICAN SPIRIT FCU and EAGLE ONE FCU who are participating in Dress Down Days in July and August. The League encourages other CUs in supporting this fundraiser for CULAC.

DEL-ONE (DELAWARE FCU) was featured in a long article in Credit Union Times’ June 3rd issue regarding physical and virtual security. Comments by information systems manager Amanda Lennon were featured in the article. Del-One went live with virtualization in December, although the process has been a year in planning. Working with Interphase Systems of Plymouth Meeting, Pennsylvania, the credit union completely virtualized its data center and back-up site, except for its HP9000 and main Summit core.  

To motivate students towards achievement, DOVER FCU recently donated $5,000 to local high schools as a sponsor of the Challenge Program, Inc. Three Delaware high schools, Lake Forest, Caesar Rodney, and Polytech, participated in the program and held award ceremonies in May, 2009. “This year’s recipients were bright, dedicated, motivated and truly deserve recognition for their achievements,” commented David Clendaniel, president/CEO of Dover Federal. “We’re proud to be a part of the mission to support achievement in these young lives while building a bridge between high school students and the business community.” The goal of the Challenge Program, Inc. is to motivate students by providing financial incentives for successes they achieve while in school. Students are presented awards in four different categories: most improved, best attendance, most community service, and best overall GPA.

Shown here are Dover Federal CEO David Clendaniel, back row far right, with the
2009 Challenge Program award winners and staff members at Caesar Rodney High
School.

SUSSEX COUNTY FCU touted the award given to their board chairman, John Lewis, as Delaware’s 2008 Volunteer of the Year on their outdoor electronic sign, which is located in front of the credit union’s Seaford branch.

EDUCATIONAL OPPORTUNITIES

July QuickBites Teleconferences
One-hour sessions run from 11 a.m.-noon:
•    7/08  Repossession and Sale of Collateral
•    7/21  Death of a Member
•    7/29  Credit Union Employment Issues
The two-hour session runs from 11 a.m.-1 p.m.
•    7/15  Social Media Marketing
The fee for the one-hour sessions is $99; the two-hour session fee is $169. The deadline to register with Bernadette Hines: one week before the session.

Auto Industry Update & Indirect Lending Program Seminar – Tuesday, July 9, from 10 a.m. – noon. This complimentary session will be presented by CUDL. Participants will:
•    Gain vital insight into the auto lending marketplace in order to grow your vehicle loan portfolio.
•    Learn how to capture your members’ lending loyalty by providing a one-stop shopping resource.
•    Discover how to enhance overall member satisfaction, drive member financing, and strengthen both member loyalty and dealer partnerships.
     To register, email or call Jane Bailey at jane@dcul.org by July 1.

Is the Economy Improving? Conference Call – Presented by Brad Stewart, SVP/CIO of Mid-Atlantic Corporate, on July 9, from 11 a.m.-noon. Brad will examine the most up-to-date economic factors, such as the housing market, current unemployment rate, retail demand and the stock market. Deadline to register is June 30. Contact Mid-Atlantic’s marketing department to enroll.

VP of Finance/Chief Financial Officer (CFO). Credit union in Central Delaware seeks an individual with at least six years experience in financial reporting, accounting, information systems, strategic planning, and investments. A more detailed description of this listing is found on the League website: http://www.dcul.org/jobs.htm.

CU Position Sought. Individual with experience in member service, data entry, some bookkeeping, and loss prevention seeks credit union position. Call Susan Fallon at the League and request resume #062309.

Recent Legal Opinions from NCUA

The following is a brief summary of the legal opinions published by the National Credit Union Administration’s Office of General Counsel issued from January-June 2009. 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.

Electronic Stop Payment Order (08-1122; January 5, 2009) – A credit union asked if it must obtain a signed, stop payment form to document a member’s request to stop payment on a share draft using an automated, telephone teller service. Under NCUA regulations, a signed form is not required, as long as a credit union retains the electronic record in accordance with its records retention policy. However, to determine whether state law would require a signed document, you should consult with local legal counsel.

Removal of Director (08-1299 Redacted; January 9, 2009) – In this letter, NCUA reminded federal credit unions (FCU) that a board does not have blanket authority to remove a director. The NCUA legal opinion letter was responding to a query by a credit union board member who was removed when his or her seat was declared vacant by a special meeting of the board of directors. The agency said FCU Bylaws allow a board to declare a seat vacant only if the director fails to attend regular meetings or otherwise fails to perform any of the duties as a director. Even under those circumstances, a special meeting of the members would be needed to remove the director. The inquiring board member said, in declaring the seat vacant, the board relied on alleged infractions, including breach of confidentiality, divisive behavior, and breach of fiduciary duty.
     The NCUA noted, “Absent an affirmative membership vote at a special meeting, a director cannot be removed from membership on the board of directors.” The NCUA also pointed out that if a board believes a member is acting inappropriately, as did the board of the credit union in this instance, it may bring the issue to its supervisory committee, which can then suspend the director until a special meeting of members is called.
     The initial letter also asked if minutes must be kept of executive committee meetings. NCUA said “yes.” The director who serves as secretary for the board must prepare and maintain a record of meetings of all members and directors. All minutes and records must be available to all directors so long as he or she has proper purpose for obtaining them.

Service Facility Requirement for Multiple Common Bond FCUs (08-1218; January 12, 2009) – NCUA indicated that a credit union’s website is excluded from the definition of “service facility.” The FCU Act requires that a multiple common bond credit union adding a new group to its field of membership must be “within reasonable proximity” of a service facility of the credit union. A service facility can be a credit union-owned branch, ATM, or mobile branch, among other things. According to NCUA’s Chartering and Field of Membership Manual, the definition of “service facility” explicitly “does not include the credit union’s Internet website.” According to NCUA, “a credit union’s Internet website lacks a physical presence so cannot meet the statutory requirement to be within reasonable proximity of the groups.”

Applicability of the FOIA to Federal Credit  Unions (09-0108; January 26, 2009) – This opinion letter explained why a federal credit union is not subject to the Freedom of Information Act (FOIA). Under FOIA, federal agencies are required to make certain records available to the public. However, the NCUA wrote, the law defines agency to include “any executive department, military department, government corporation, government controlled corporation, or other establishment in the executive branch of the government (including the Executive Office of the President), or any independent regulatory agency.” NCUA Associate General Counsel Sheila Albin wrote in the January 26 opinion, “While federal credit unions may be considered federal instrumentalities under certain federal laws, for example tax and bankruptcy laws, federal credit unions are not agencies for purposes of FOIA.”

Conflict of Interest When Selling Loans to a Bank (09-1024; January 30, 2009) – An NCUA provision that prohibits credit union officials from receiving compensation when making loans does not apply when a credit union sells loans it previously made, according to NCUA Associate General Counsel Sheila Albin. NCUA responded to a letter questioning whether a general lending regulation prevents credit unions from selling loans to a bank in which one of the credit union's directors owns stock.
     The provision, Section 701.21(c)(8), applies when credit unions make loans to their members, but not to a credit union’s sale of whole loans or participating interest in loans it has granted. “Credit union officials are cautioned, however, to avoid any impropriety when deliberating on or participating in the determination of any matter affecting their pecuniary interest, including the sale of credit union loans to a bank in which an official owns a minority interest,” Albin wrote. In general, the interested director should not deliberate or vote on the transaction. The purpose of the rule is to ensure that an individual in a position of authority does not put self-interest ahead of the credit union’s interest in making good loans and providing good services to members, NCUA said.        

GAP Insurance (09-0218; February 24, 2009) – The issue addressed in this letter is whether an FCU is engaging in insurance business under New York state law if it earns a fee by offering guaranteed auto protection (GAP) waivers to its members for more than the FCU pays for GAP creditor insurance coverage. In this letter on preemption of New York insurance law, NCUA states that GAP waivers are a permissible loan-related activity for FCUs under NCUA's incidental powers rule, regardless of state law limitations.

Board Vote on FCU Charter Amendment (09-0238; March 6, 2009) –The issue in this instance was whether the disqualification of two directors from a vote on a proposed FCU charter based on a conflict of interest was appropriate. NCUA responded that disqualification from a board vote is necessary only if the director has a conflict of interest in the matter before the board. The determination, in this case, by legal counsel and the Chairman that a conflict of interest existed was incorrect.
     In this instance, two directors were disqualified from voting on whether to add two new select groups to the FCU's field of membership. The FCU incorrectly found a conflict of interest existed because the disqualified directors were members of an existing select group. The FCU stated that the directors would be disinclined to approve the new select groups because those groups are in direct competition with the existing select group to which the directors are members. “A conflict of interest exists only if a director has a direct or indirect interest in the transaction under consideration or a direct or indirect interest in an entity with an interest in the transaction.” NCUA concluded that no conflict existed in this situation since the directors would not receive any personal or financial benefit from the proposed charter amendment.
     Additionally, NCUA recounted that the “FCU Bylaws require an affirmative vote of 2/3 of the authorized number of members of the board for any charter amendment.” Merely a 2/3 vote of qualified directors eligible to vote was insufficient, and therefore the resulting vote was invalid.

Loan Modifications (09-0426; May 28, 2009) – NCUA clarified that FCUs can offer shared appreciation loan modifications. In exchange for a reduction of the principal balance of the troubled borrower’s outstanding residential mortgage loan, the borrower would agree to share with the FCU any future increase in the home’s appreciation. Shared appreciation agreements allow mortgage holders to reduce the balance of their loan by sharing any future increases in the home’s value with the cooperating credit union. However, NCUA said that credit unions that wish to take part in mortgage loan modifications should consult with a tax adviser and should also contact the Treasury to ensure that their actions are permissible under the loan modification guidelines in the Treasury’s “Making Homes Affordable” program.

Credit Unions Don’t Face Risks of Stockholders (09-0243; May 27, 2009) – Members of federally chartered credit unions do not face the same level of risks faced by shareholders in for-profit corporations or individuals taking part in a business partnership, NCUA Associate General Counsel Sheila Albin said in a recently released legal opinion letter. The assurance came in response to a query about the differences between the benefits of credit union membership and ownership of shares of a for-profit entity.
     According to Albin, FCU members, who “invest in and become members of” their credit unions by starting savings, checking, and share certificate accounts, have several protections that are not afforded to average corporate shareholders. They include National Credit Union Share Insurance Fund backing of up to $250,000 in total shares that are held in qualifying accounts. Members will also maintain the value of their shares if their FCU “becomes insolvent or is liquidated,” the letter added. Members would also be entitled to a pro-rata share of their credit union’s worth if that credit union is voluntarily liquidated, Albin said.
     Additionally, Albin said that while holders of traditional stocks can have a cumulative advantage over their fellow shareholders when leadership decisions are made, CU members only have one single vote, no matter how large or small their accounts are. These members are also entitled to lending and savings rates that outperform those of traditional banks, for the most part. A credit union’s profits may also be redistributed to its members in the form of dividends, Albin added.

Investment Advice Services  (09-0511; June 3, 2009). In this letter, the agency addressed a query regarding whether federal credit unions can offer investment advice services. NCUA Associate General Counsel Sheila Albin wrote that an employee of such an institution cannot provide investment advice that would subject the employee or the federal credit union to federal or state securities laws. However, she added, the credit union may establish a shared employee arrangement with a third-party registered investment adviser so that an employee can act as an employee of a third-party registered investment adviser. Also, Albin stated, a credit union may also act as a finder or offer investment adviser services through a credit union service organization (CUSO). The NCUA opinion further noted that firms and individuals offering advisory account services must be registered as “Registered Investment Advisers” and that while banks have an exemption from the requirement, federal credit unions do not.

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).