Small Credit Union Workshop

February 7, 2012

2

Comment Letters Submitted • February 22, 2011 – Regulation of Debit Interchange

Fees and Routing Regulations• April 14, 2011 – Risk-Based Pricing/Consumer Credit

Score Disclosures • May 23, 2011 – Interest Rate Risk Management. • June 3, 2011 – Regulation CC Regulatory Revisions –

This amount was increased from $100 to $200. • June 30, 2011 – Transfer of Rules & Orders to CFPB –

Standard Operational Process

3

Comment Letters Submitted • July 22, 2011 – Ability to Repay Mortgage Lending Rule -

The Consumer Financial Protection Bureau (CFPB) began work on July 21st, so the CFPB will be the agency finalizing the rule.

• August 1, 2011 – Interagency Credit Risk Retention. • August 5, 2011 – Regulatory Review List – NCUA regularly

reviews its regulations to determine the need to update, clarify, simplify, or eliminate them.

• September 26, 2011 – NCUA CUSO Rule Revision – The NCUA Board proposed the expansion of reporting requirements for CUSOs.

4

Regulatory Changes during 2011• Safe and Fair Enforcement (SAFE) for Mortgage Licensing Act• Garnishment • Risk Based Pricing Notice• Regulation CC • NCUA Assessments and Premiums

5

NCUA Assessments and Insurance Premiums

• The NCUA assessment for the Corporates was 25 basis points (bp).

• The NCUA Premium for Natural Person Credit Union losses was zero for 2011.

6

Regulatory Changes during 2012

• ATM ADA Requirements • NCUA Assessments and Premiums• CFPB

7

ATM ADA Requirements• The Department of Justice is requiring that ATMs be have with

ear phone jacks that allow sight challenged users to be able to use to comply with ADA requirements. Be wary of the Ides of March as this rule becomes effective March 15, 2012.

• Speech must be recorded or digitized human, or synthesized, and delivered through a mechanism that is readily available to all ATM users, such as through a telephone handset or a headset plugged into an audio jack.

• ATMs must provide the opportunity for the same degree of privacy of input and output available to all individuals.

8

NCUA Assessments and Insurance Premiums

• The NCUA has stated that their assessment for the Corporates is a range of 8 to 11 basis points (bp). The NCUA Premium for Natural Person Credit Union losses has been projected to be zero and it looks like it will be zero for 2012.

9

CFPB• Cordray named to lead New Bureau - President Obama

has named former Ohio Attorney General Richard Cordray as his nominee to serve as Consumer Financial Protection Bureau (CFPB) director. Cordray is currently serving as the CFPB's assistant director for enforcement.

10

Regulatory Update CFPB Examination Procedures Released – The CFPB has released its Supervision & Exam Manual. The manual consists of supervision process descriptions, examination procedures, and templates for documenting information about supervised institutions. Also, the CFPB outlined its Mortgage Servicing Exam Procedures describing the information examiners will use to evaluate servicers’ policies, compliance with applicable laws, and risk to consumers. The CFPB has supervisory authority over insured credit unionswith total assets over $10 billion, NCUA and state regulators retain the examination authority over CUs with less than $10 billion in assets, and will have “exclusive” enforcement authority. The CFPB limited power over these smaller institutions includes authority to (1) join NCUA examiners “on a sampling basis;” (2) require reports; and (3) refer suspected violations to NCUA for action. The CFPB expects to begin exam operations during before the end of 2011.

CFPB

National Credit Union Administration•1. 12 CFR 701.21—Loans to members and lines of credit to members (but only as applied to non-federally chartered housing creditors under AMTPA - Alternative Mortgage Transaction Parity Act)•2. 12 CFR part 707—Truth in Savings•3. 12 CFR part 716—Privacy of Consumer Financial Information

11

CFPB• 4. 12 CFR part 717—Fair Credit Reporting, except with

respect to §§ 717.83 (Disposal of consumer information), 717.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 717.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

• 5. 12 CFR part 741—Requirements for Insurance, but only with respect to §§ 741.217 (Truth in savings), 741.220 (Privacy of consumer financial information), & 741.223 (Registration of residential mortgage loan originators)

• 6. 12 CFR part 761—Registration of Mortgage Loan Originators

12

Regulatory Compliance Additions

• Free Compliance Training for Chapters. IRAs and HSAs this Thursday for 54 people from the Central Florida Chapter.

• LSCU Compliance Helpline @ 1-866-231-0541 – A source for

League members to obtain regulatory compliance information and operational guidance. LSCU compliance staff will be available to provide answers to regulatory questions as well as feedback on a variety of policy and procedural issues.

13

Regulator Meetings

• LSCU / Supervisory Agency Issues Conference - LSCU officers met with Alabama, Florida and NCUA regulators to discuss issues of importance. The meetings, part of the League’s proactive outreach efforts, provided an opportunity for the League to present issues important to affiliate credit unions and offer ways the League and LEVERAGE can assist members in meeting NCUA rules and regulation requirements. The agencies responded with methods and processes they viewed as effective and trends they had observed as a result of recent examinations.

14

Regulator Meetings• Enterprise wide shocks on credit risk• BSA on annual training for staff and volunteers and

independent testing• Troubled Debt Restructuring (TDR) on loan modifications• Operating expenses are going to be a concern for

smaller and mid-size credit unions• Document of Resolution (DORs) should be handled.

Repeat DORs will be elevated to a Letter of Understanding and Agreement (LUA)

15

Regulator Meetings• Loan demand is flat and credit unions could increase

emphasis on used car lending• Your ALM program and interest rate risk• Allowance for Loan and Lease Loss (ALLL) should be

reviewed to ensure that loans are being properly categorized and charged off so your financials can present a full and fair disclosure of your credit union’s financial condition.

16

Economic Outlook

17

Economic Outlook

18

Economic Outlook• Based on records from 1981-2010, an average year

sees global economic losses of $75 billion. • The previous record for damage was $261 billion in

2005. The figures are adjusted for inflation.• Economic losses caused by the magnitude-9.0

earthquake and the resulting tsunami in Japan came to $210 billion, making it the costliest natural catastrophe of all time.

• The Japanese disaster was also the year's deadliest catastrophe, with 15,840 fatalities reported.

19

Economic Outlook

20

Economic Outlook• In December, employers added 200,000 jobs and the

unemployment rate fell to 8.5%, the lowest in nearly three years.

• Florida’s unemployment rate has now fallen to single digits for the first time since the first quarter of 2009.

21

Economic Outlook

22

Economic Outlook• Home sales and home building are expected to stabilize during

2012 after sliding steeply the past five years during the worst decline since the Great Depression.

• The recovery will be slow and house prices are still expected to fall but the housing market is starting to stabilize because of low prices and record low interest rates.

• JPMorgan Chase’s Jamie Dimon, said in early January, 2012 that housing is near its bottom but could stay there a year.

• Prices on average have fallen about a third since 2006. • Housing’s outlook is brightening with signs of a better economy.• U.S. existing-home sales rose for the third straight month in

December, finishing 2011 with a modest overall increase in sales from the year before, according to the National Association of Realtors.

23

Economic Outlook

24

Economic Outlook• Consumer borrowing surged in November by $20.4 billion, the

Federal Reserve said January 9th. That's the largest monthly gain in a decade.

• The third straight monthly increase in overall borrowing marks a departure from the more thrifty habits practiced during and immediately after the recession, when credit tumbled and the savings rate climbed.

• Borrowing has increased in six of the past nine months. • Europe's debt crisis could slow U.S. growth. A recession in Europe

could dampen demand for U.S. exports and weaken financial markets.

• The Fed's borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

25

Economic Outlook

• This past Friday data was released that the economy grew 243,000 new jobs in January. The economy is growing stronger, however there are still too many Americans that need a job. And, until the housing sector stabilizes the economy will continue its erratic growth forward.

• The unemployment rate dropped to 8.3%, still too high but at least it is headed in the right direction!

26

Economic Outlook

• Last month, amid positive economic indicators, a CBS News/New York Times survey showed that for the first time in nearly a year, more Americans said the economy was improving than said it was getting worse. There was still widespread pessimism over the condition and direction of the economy, but less than there had been in previous months.

27