2012%20Alabama%20State%20Issues%20Agenda

League of Southeastern Credit Unions 2012 Alabama State Issues Agenda Issue Public Deposits

Background The safeguarding of public funds is an essential, and increasingly crucial, function of state and local governments. A great variety of state and local governmental entities are charged with managing billions of dollars annually. Although the Federal Credit Union Act (FCUA) authorizes all federally-chartered credit unions to accept public deposits, Alabama law does not grant state governmental entities the authority to deposit funds in federally-chartered and/or state-chartered credit unions. Currently, the credit union chartering acts of 33 states permit credit unions to accept deposits of public funds. 24 states now provide complete authority for public funds to be deposited and held in credit unions.

LSCU Position The LSCU will vigorously advocate for legislation that grants credit unions the ability to accept public deposits.

A key advantage to allowing credit unions this authority is that interest paid by credit unions on deposits, on average, continues to exceed the interest paid by banks. In some states where public entities are not permitted to deposit public funds into credit unions, banks are taking advantage of the situation by paying no interest on public deposits. Expanding public deposit authority to credit unions would spur competition and lead to public entities earning more income on their decreasing deposits of public funds.

Issue was raised with House and Senate Leadership during the 2011 Session but legislation was not introduced. Leadership has been told to expect a bill to be introduced in 2012.

1

Issue

Background

LSCU Position

Charter Conversion Strengthening

Preserving, protecting, and promoting the credit union charter are fundamental to the role of the leagues and CUNA. Ensuring that credit union members are fully informed of the pros and cons of a proposed credit union to bank conversion is paramount to a fair and democratic process. The LSCU believes the credit union charter is the charter of choice for best serving consumers’ financial needs. The lack of state law or regulation on the issue of credit union to bank conversion create uncertainty and leave the door open to possible abuse. It is prudent to look at ways to codify language ensuring members are fully informed of both the advantages and disadvantages of a charter change.

The LSCU will advocate for legislation that strengthens consumer safeguards when a credit union is attempting to convert to a bank.

Alabama Credit Union Act

Chapter 5-17 of the Alabama Code regulates state-chartered credit unions.

Opportunities to review and improve Alabama’s Credit Union Act should be explored prior to and during each legislative session.

LSCU Staff is preparing a comparison between the existing Act, the Model Credit Union Act and progressive credit union acts of other states.

The LSCU will support and advocate for legislation that improves the Alabama Credit Union Act and will oppose any attempt to negatively amend the Alabama Credit Union Act.

Current Alabama law does not provide a remedy to card issuers should a merchant fail to properly maintain access devices to personal information. A change federal law recently placed a cap on interchange debit fees, thus creating less of a protection to issuers should a data breach occur. It should be the responsibility of the retailer to ensure their access devices and systems are maintained with proper security provisions, as well as all security protocols followed.

The LSCU will advocate for legislation that protects card issuers and financial institutions from data breaches caused by the failure of a retailer to maintain security protocols to access devices.

Data Breach

The League introduced data security legislation in 2008 and 2009. The bill received committee hearings in the House and Senate. Enforcement provisions of the bill became the sticking point and slowed movement of the bill. Changes to interchange could remove one argument from opponents, but private rights of action as the enforcement could remain an issue for Republicans who view it as a new avenue of lawsuits for plaintiffs’ attorneys.

2

Issue

Background

LSCU Position

Taxation

The credit union tax exemption is a vital component of the credit union charter and is created by the not-for-profit, mutual ownership structure of credit unions. The exemption is applicable regardless of the size or charter type of credit unions, or the products and services offered. The tax exemption translates into a lower cost of financing for consumers and small businesses as well as higher interest rates paid on savings accounts, CDs, etc. It has been estimated that Alabama credit unions provided $188 million in direct financial benefits to the state’s 1.8 million credit union members during the twelve months ending June 2010. These benefits are equivalent to $108 per member or $205 per member household. Now more than ever, it is critical for the credit union tax exemption to remain in place.

The LSCU will oppose any and all attempts to subject credit unions to any new form of taxation.

Foreclosures/Mortgage Lending

The high foreclosure rate has led lawmakers to look at a number of proposals that call for sweeping changes to the mortgage lending industry in an effort to go after “bad actors” with an emphasis on protecting borrowers. With the recent news stories of “robo signing” and other foreclosures related issues from some of the nation’s biggest banks, we expect legislation to be reintroduced that attempts to further address the foreclosure problem.

The LSCU will closely monitor and oppose any legislation which hinders the rights of the lender or creditor in the mortgage relationship.

ACUA Fund Sweeps

The Alabama Credit Union Administration (ACUA) is the regulatory agency for state-chartered credit unions in Alabama and is completely funded by examination fees paid by credit unions. Alabama code requires that fees paid by credit unions to the ACUA are to be used only for operation of the agency. Any funds not used by the ACUA remains in its segregated account. Previously, proposed state budgets have attempted to take unspent funds from the ACUA account and transfer it into the state’s General Fund budget. In addition to being a violation of the Alabama Credit Union Act, any “sweeping” of credit union paid funds amounts to a backdoor tax on the industry.

The LSCU will oppose any attempt to sweep funds from the ACUA to make up for shortfalls in the state budget.

Uniform Residential Mortgage For several years, legislation has been introduced to place new penalties on lenders Satisfaction that fail to timely file a statement of satisfaction or provide a borrower with a correct payoff amount. Legislation introduced in recent years included new penalties for failure to timely provide a payoff statement, and allows for “self-help” filing of affidavits of satisfaction of the mortgage. The League’s concerns has been with additional penalties for lenders who make inadvertent mistakes, the burden of proof of when a notice was sent to a borrower, and the possible confusion of the system created by attorneys and title companies filing notices of satisfaction.

The LSCU understands the need for a fair process by which borrowers are given accurate and timely payoff amounts and the satisfaction or mortgages are properly recorded. However, the LSCU will oppose any legislation that unduly burdens credit unions or exposes them to liability.

3

Issue

Background

LSCU Position

Right of Redemption Time Period

Current Alabama law gives borrowers 1-year to exercise the right of redemption of real property. This can create problems for buyers of foreclosed property, as well as lenders seeking to sell foreclosed property within the 1-year time period.

Previously, legislation has been introduced that would shorten the time period for the right of redemption from 1-year to 90-days. Although the legislation has not passed, it has come up in committee for consideration a number of times.

Opponents of the change argue that 90-days is too short of a time period.

The LSCU will actively support efforts to reduce the right of redemption time period to help lenders more easily dispose of foreclosed property.

Regulatory Relief

In response to the failures of several large financial services companies and the associated costs incurred by the government to prevent other similar failures, the 111th Congress enacted comprehensive financial regulatory restructuring legislation intended to address the causes of the financial crisis and prevent future crisis. This legislation included reforms to the regulation of systemically significant financial institutions, hedge funds, securities, and credit rating agencies. The bill also created a Bureau of Consumer Financial Protection, which has the authority to write consumer protection regulations related to financial products and examine financial companies for compliance.

The LSCU will continue to work cooperatively with the Alabama Credit Union Administration (ACUA) and lawmakers to reduce the regulatory burden for credit unions and advocate for greater flexibility from the regulator for credit unions seeking to achieve regulatory compliance.

Credit unions did not cause the Wall Street meltdown. However, the “One Size Fits All� approach to regulation has put an undue strain on Alabama credit unions resources particularly small asset size (SAS) credit unions.

Examination Process

Concerns from credit union officials regarding the examination process, procedures for appeals, and examiner relations have surfaced with greater frequency over the past few years, perhaps in conjunction with the rise in new regulations and addition of inexperienced examiners.

The LSCU will continue to work cooperatively with the ACUA to improve communications between the agency and credit unions as well as make clear credit unions rights and appeals process.

Questions regarding these or any other issue should be directed to LSCU SVP of Governmental Affairs Will McCarty at 1-866-231-0545, Extension 2137, will.mccarty@lscu.coop or LSCU Director of Legislative Affairs Jason Cochran at Extension 2159, jason.cochran@lscu.coop.

4