The new CARD Act Includes Gift Card Changes

As you may have noticed, the CARD act applies to much more than just credit cards. Your Gift Card program will also be affected. Along with Home Equity Lines, unsecured, and other secured lines of credit. It even takes a shot at gift certificates. . . and don't forget Protecting the Right of Individuals to Bear Arms in Units of the National Park System - I'm not kidding, this is actually in the CARD Act. Ever wonder how many laws and regulations our lawmakers can actually come up with? I'm hoping they run out of ideas soon.

The law amends Regulation E to prohibit a credit union from charging dormancy/inactivity fees, or service fees on a gift certificate, store gift card or general-use prepaid card. But a fee may be assessed after 12-months of inactivity. Only one fee can be charged each month, and the proper disclosures have been given at the time the card was purchased.

In addition, a gift certificate, store gift card or general-use prepaid card cannot have an expiration date earlier than 5 years after the instrument was issued or the date on which funds were last loaded on to the card, and the terms of expiration must be clearly stated. The Fed has yet to provide the amount of fees that are acceptable. The Fed is to issue final regulations with an effective date 15 months after the President signed the CARD ACT.

Help Your Members With Free or Affordable Health Care

The national discussion related to affordable health care discussion seems to be all the rage today. A little secret . . . there is already free or affordable health care available to anyone who needs it.

Train your front-line people or collection people to listen to your members. Are they having financial problems due to health care costs? Right from the Federal Health Resources and Services Administration Site:

Federally-funded health centers care for you, even if you have no health insurance. You pay what you can afford, based on your income.

Health centers provide:

checkups when you're well
treatment when you're sick
complete care when you're pregnant
immunizations and checkups for your children
dental care and prescription drugs for your family
mental health and substance abuse care if you need it

Click on the link to the FHRSA, input the address, and find a nearby health center. It's easy, and you might just save a life, or maybe a bellyache, possibly a toothache.

Fed Slows Mortgage Purchases, Sees Stronger Economy

Sept. 23 (Bloomberg) -- The Federal Reserve will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.
“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,” the Federal Open Market Committee said in a statement today after meeting in Washington. The $1.45 trillion program was scheduled to cease by the end of this year.
Chairman Ben S. Bernanke and his fellow policy makers indicated for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep their benchmark interest-rate “exceptionally low” for an “extended period.” Today’s statement signals the Fed will maintain its stimulus measures to secure a recovery and reduce unemployment.
“The mortgage market has gotten a reprieve, and mortgage rates may stay low going into the spring of next year,” said Christopher Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York

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Told You So . . . Senator Dodd is Introducing a Bill Regulating Overdraft Fees.

If you haven't taken a look at your NSF and "Courtesy Pay" program in a while. This would be a good time to do so. . . you might be surprised at how much revenue you realize from these programs. And it all may change very soon. I don't mean to sound like a broken record (I've written several articles about this since July 1st, 2009), but you might want to come up with a plan to somehow replace potential lost revenue.

Here's what Sen. Dodd has to say “Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet,” . . . “I am working on a bill to protect consumers from these fees.” Representative Carolyn Maloney, chimed in “The evidence is overwhelming that bank overdraft fees are out of line, and that banks are milking their system for all it’s worth,” . . . “It’s time to crack down -- as Congress has already done with credit cards.”

According to Bloomberg, Dodd’s bill would require customers to “opt-in” to banks’ overdraft protection programs, prohibiting lenders from automatically enrolling their customers in the plans. It's not clear whether your current program will be "grandfathered" in.

Couple this with the letter that Democratic leaders sent to the Federal Reserve back in June 2009, and an abundance of horror stories from consumers (just do a search online, you will see what I mean), and I believe we will see some significant changes in NSF requirements soon.

Who's the Boss? The Auditor, Examiner, or You?

Janice Hollar, a management consultant with Janice Hollar & Associates wrote an excellent article related to a common trap that credit unions often fall into: managing your credit union to keep the examiners and auditors happy. If you find yourself worrying about getting a near-perfect exam or audit, then you probably have taken your eye off the ball and have your priorities out of order.

Ms. Hollar explains that, while we must operate our credit union's in a safe an sound manner, "managing the credit union to a CAMEL ratio does not necessarily mean you are satisfying the boss that matters most: the member owners".

Exams and audits can be an important tool. But, as Janice says "Don’t ignore the CAMEL. Just don’t rely on it alone. If the CAMEL is poor, obviously there is a problem. But if your CAMEL is good, it’s not an indication that everything is fine". Take a minute digest how relevant the findings actually are. If it is just minutia, then the examiner/auditor ran out of important issues to review. . . address the items, then get to work on the important issues and grow earnings and capital by servicing new and existing members.

Want some advice on how to get the examiner or auditor out of your credit union quicker? Try some of these useful tips:

1. Tell everyone to speak only in a "robot" voice the whole time they are in.

2. Tie jingle bells to all your clothes.

3. Deliberately hum songs that will remain lodged in the examiner's brains, such as "Feliz Navidad", the Archies "Sugar" or the Mr. Rogers theme song.

4. Borrow the examiner's pen, then chew on it before returning it. Repeat.

5. Never break eye contact when talking to the auditor, all the while bobbing your head like a parakeet.

Risk Based Examinations. A Quick Overview.

Examinations have migrated considerably from the "bad old days" where an examiner would review a slew of items and report any number of minutia. If I didn't know better (I don't for sure), I would have bet big money that they were paid by the word. The reports were often useless in determining where potential risk, if any, needed to be addressed. Since then, examinations are intended to be more focused on "the forest instead of the trees". Hence the advent of the Risk Focused Examinatin Program.

Right from the NCUA examination manual; "While performing risk-focused supervision, examiners should look for sources of uncertainty within the operation of the credit union. Based on their findings and using their professional judgment, examiners will prioritize these risks by the magnitude of the potentially adverse effect on the earnings and capital of the credit union".

Regardless of what the examiners will review, your credit union should focus on risk management, it's just smart management. This includes a strategic plan with implementing policies, procedures, and internal controls necessary to manage inherent risk. The seven categories of risk for credit union supervision purposes are Credit, Interest Rate, Liquidity, Transaction, Compliance, Strategic, and Reputation risk. Ignoring any one of these risks can mean big trouble. Be sure you have policies in place that address all of these areas, and DOCUMENT your efforts to ensure that your credit union actually follows your policy and procedure. Examiners are funny about this.

Unrelated but in the news: on President Obama's discussion with children across the U.S. . . .
"The President also said that kids -- he told them if they study hard, the United States will continue to prosper. Then he added, 'But just to be safe, bone up on your Chinese.'" --Jimmy Fallon

Bank Pain, Credit Union Gain. Commercial Property Forecast : Forget the Umbrella, Bring a Lifeboat.

The credit union industry can thank their lucky stars that the NCUA didn't raise the 12.5% commercial loan cap (yet). Plenty of small and medium-sized banks loaded up on developer loans just as their big brothers scarfed up home mortgages during the housing bubble. But that's not to say that some credit union's didn't take the bait and jump into the "profitable" commercial loan ocean as well. Many more banks and maybe a few credit unions will likely end up in Davy Jones' Locker because they took the plunge.

The outlook: vacancies are rising causing rents to fall, and it is estimated that up to $300 billion in loans will mature this year; commercial loans are often written with a balloon note. Even if the loans are generating sufficient P&I payments, property values have fallen so much that the lender may not or cannot re-write the loans. As a result, according to The Kiplinger Letter, defaults will soar from about 1.6% in 2008 to 5%.

It is highly likely that a good number of your competitors are on the ropes. They are forced to charge more for loans, if they are lending at all. Do some homework; what are their weaknesses? Find out. No need to take unnecessary risk, but you may find that this is a perfect time to pick up some market share. Yes, you need to watch your expenses, but don't stop advertising. Just make sure that the advertising you are doing is effective. Demand that the people who you pay to do your advertising can quantify the expenditure.

Short-Term CDs, a Lullaby.

Remember the sweet little lullaby Rock-a-bye Baby? - It's very soothing, puts the baby to sleep, nice. That is until you consider some of the lyrics: "When the bough breaks, the cradle will fall. And down will come baby, cradle and all".

Market Rates Insight has released a new analysis which confirms what most of us already know. Members are eschewing long-term CDs for short term deposits. This has been the trend for at least the past year, and as a result, the typical credit union's cost of funds has dropped rather quickly and significantly. Since deposit interest rates are historically low and you still hold loans and investments booked during a period where rates were higher, your bottom line is looking better (aside from loan losses, a Brother's Grimm story). Heck, you can even run a loan special a very low rates, right? "Rock-a-bye baby. . ."

Flash forward. Rates begin to rise, and all that short-term money begins to reprice. Quickly. Within a year. You hear someone say, "hey, what's happend to the bottom line? It turned all red". That loan special you were so proud of? No one is claiming credit for that brain-child anymore; and "down will come baby, cradle and all. . ."

The good news? Rates probably won't move much within, say, the next year or so. But once they do, they can move quickly. Age-old advice that the wizened give - be forward looking and get your balance sheet in order, you might have a little time.

Credit Card Act Compliance. A Little Break. Maybe.

The Credit Card, Accountability, Responsibility, and Disclosure Act of 2009. I get it! the C.A.R.D. Act . . . those wacky congress folks are so darn clever with the names of their regs.

Under the CARD Act, credit unions are required to deliver periodic statements for open-end consumer credit plans at least 21 days before the payment due date, this portion of the Act is effective August 20, 2009. According to a recent NCUA Release, "the Federal Reserve Board acknowledged that some creditors may experience difficulties, for open-end credit plans other than credit cards, with revising their billing systems by August 20", and "that for a “short period of time” a creditor “may remedy this technical issue by prominently disclosing elsewhere on or with the periodic statement that the consumer’s payment will not be treated as late for any purpose if received within 21 days after the statement was mailed or delivered.”

The NCUA will review credit unions on a case-by-case basis to determine if reasonable efforts have been taken to come into compliance with the CARD Act. In any case, no late fees should be imposed under these circumstances.

Speaking of credit cards, my card was stolen a few weeks ago. I told the credit union to just let the thief keep it . . . he spends a LOT less than my wife. Ba-dum-dump!