2014 Issues & Industry BriefingA Political and Industry Event for Michigan’s Credit Unions

Hosted by MCULLAF

November 17, 2014MCUL Headquarters Lansing, MI

2014 Michigan Political Overview

In the 2014 General Election, all 14 of Michigan’s U.S. House seats and 1 U.S. Senate seat stood for election.

Early last year, U.S. Sen. Carl Levin (D) announced that he would retire and not seek re-election, creating a vacancy in his long-held Senate seat. That announcement was followed by similar declarations by U.S. Rep. Dave Camp (R), Chair of the powerful U.S. House Committee on Ways and Means, U.S. Rep. Mike Rogers (R), Chair of the U.S. House Committee on Intelligence, and long-serving U.S. Rep. John Dingell (D), “Dean of the House.”

U.S. Rep. Gary Peters (D) won the race for the open U.S. Senate seat, defeating former Michigan SOS Terri Lynn Land (R) by a wide margin.

Ultimately, 5 Michigan U.S. House seats were open in the General Election, all of which have now been filled by credit union allies:

– State Sen. John Moolenaar (R) will succeed Rep. Camp in the 4 th District.– Former State Sen. Majority Leader (R) will succeed Rep. Rogers in the 8 th District.– Attorney David Trott (R) will succeed U.S. Rep. Kerry Bentivolio in the 11 th District, whom he defeated in the

August Primary Election. Rep. Bentivolio served one term in Congress.– Executive and political powerhouse Debbie Dingell (D) will succeed her husband U.S. Rep. John Dingell (D)

in the 12th District, who retires as the longest-serving member of Congress in history, at 58 years.– Southfield Mayor Brenda Lawrence (D) will succeed Rep. Peters (D) in the 14 th District. She defeated

former U.S. Rep. Hansen Clarke (D) and term-limited state Rep. Rudy Hobbs (D) in the August Primary Election.

2014 Michigan Political Overview

U.S. Rep. Justin Amash (R), who faced a stiff August Primary Election challenge, and U.S. Rep. Fred Upton (R), who faced a significant infusion of out-of-state corporate money for his challenger, both won re-election comparatively easily.

The Michigan delegation overall will retain a 9-5 Republican-Democrat split, with both U.S. Senate seats held by Democrats.

While MCULLAF is concerned with federal issues, the General Election night was interesting at the state level as well. A few notes include:– Governor Rick Snyder (R) won re-election over challenger and former state Senate Minority

Leader and U.S. Rep. Marc Schauer (D).– Secretary of State Ruth Johnson (R) and Attorney General Bill Schuette (R) easily won re-

election to their second and final term.– Senate Republicans retained their “super majority” and expanded their margin by one, to 27-11.– House Republicans also retained and expanded their majority to 63-47, by defeating two

Democrat incumbents and winning two previously-Democrat open seats.

Credit union candidates in Michigan enjoyed resounding success, with 100% of supported candidates at the federal level winning. All statewide state candidates were also successful, and all but the two incumbents that lost were successful in the state legislature.

2014 Michigan Political Overview

Nationally, Republicans seized control of the U.S. Senate for the first time in eight years, by taking at least seven seats. Similarly, Republicans expanded their majority in the U.S. House to potentially record levels. Several elections in both chambers are still awaiting final counts as well as the result of at least one December runoff, so final margins have yet to be determined.

The 2014 “Lame Duck” session at the federal level will likely be uneventful, given the changeover coming next year. The primary issue will be extending funding for the government beyond the current December 11 sunset, and possibly some action on Executive appointments. There could be a flurry of smaller, non-controversial legislation, but impactful reforms will likely be held to a minimum.

At the state level, the 2014 “Lame Duck” session will feature a Senate membership with 37 out of 38 members that are completing their final term, or have just won re-election to their final term – and will never again be accountable to a voter. The primary issue likely to be considered by the legislature is transportation infrastructure and addressing a systemic and recurring need for road repair, statewide.

2014 Legislative Priorities – Federal Issues

Comprehensive Tax Reform Regulatory Relief

– Examination Fairness– Privacy Notice Elimination– CLEAR Relief Act– Mortgage Choice Act of 2013– Community Institution Mortgage Relief Act – Portfolio Lending and Mortgage Access Act– CFPB Reforms

GSE Reform Charter Enhancements

Comprehensive Tax Reform

The U.S. House Ways & Means Committee and Senate Finance Committee continue to work toward introducing legislation on tax reform.

Last year, indications that the process would entail a “blank sheet of paper” approach, and that “everything was on the table” opened the door for ABA and ICBA attacks on the credit union exemption, as well as state- and local-level attacks by bankers associations around the country.

The “Don’t Tax My Credit Union Campaign” generated over 1 Million contacts from around the country, and over 32,000 originating in Michigan.

All 16 members of Michigan’s U.S. Congressional Delegation gave strong statements of support for the credit union industry and the tax exemption.

The initial discussion draft of legislation, unveiled in late February, holds credit unions harmless in every respect. While a very positive sign that leaves credit unions in strong position, the industry must remain vigilant and fend off continued banker attacks.

Regulatory Relief – Various Measures

Various measures have been introduced on aspects of regulatory reform, and heard by the U.S. House Committee on Financial Services.

Several have passed the full U.S. House, including H.R. 3211 (Rep. Huizenga) on points and fees related to MLO, as well as measures on IOLTA accounts. Others have passed Committee, including H.R. 4521(Rep. Luetkemeyer; raise small servicer exemption and broaden exemption from high-cost escrow provisions) and H.R. 2673 (Rep. Barr; portfolio loans as QM).

S. 2732 (Sens. Toomey and Donnelly) has been introduced to raise the direct examination threshold for financial institutions from $10B to $50B.

Regulatory Relief – MCUL Advocacy

Credit unions continue to concentrate on advocacy for regulatory relief, including the following:– Indexing the direct examination threshold as well as the interchange threshold to

inflation; – Increasing the direct examination and interchange thresholds to $80 billion; and – Applying the thresholds to all regulation issued under Dodd-Frank instead of simply

using it as a cutoff for direct examination authority; – Applying QM safe harbor to mortgages held in portfolio for three years; – Clarifying SAFE Act requirements and exemptions for MLO; and – Generally expanding exemptions (ie. small servicer, etc.) for small creditors.

There are legions of Dodd-Frank issues, big and small to choose from, but credit unions must focus on those global and specific issues that are of most impact.

Credit unions remain very active on the NCUA risk-based capital effort.

GSE Reform

In the U.S. House, Chairman Jeb Hensarling (R-TX) of the House Financial Services Committee is championing H.R. 2767, the “Protecting American Taxpayers and Homeowners (PATH) Act”. As passed by the Committee, this legislation would not ensure the survival of a “government backed” 30 year fixed mortgage, which is critical to maintaining a vibrant secondary market.

Sens. Bob Corker (R-TN) and Mark Warner (D-VA) introduced S. 1217, the “Housing Finance Reform and Taxpayer Protection Act of 2013”. The original “Corker-Warner” bill would allow for the continuation of a “government endorsed” 30-year fixed mortgage. It also winds down Fannie and Freddie but allows for flexibility to ensure no market disruption, and creates the Federal Mortgage Insurance Corporation (FMIC) to take the place of the FHFA.

Several months ago, Sens. Tim Johnson (D-SD) and Mike Crapo (R-ID), Chair and Ranking Member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, introduced a bi-partisan compromise measure on top of S. 1217, which was reported to the U.S. Senate Floor in May.

Johnson-Crapo embodies many of the key elements supported by credit unions in the original Corker-Warner plan, and they continue to work on refinements. The measure may pass the Senate this session, but is not yet expected to gain traction in the House.

Charter Enhancements – MBL and Supplemental Capital

H.R. 688 (Rep. Royce) has been introduced to raise credit unions’ MBL cap from 12.25% to 27.5%, and the Senate version is S.968 (Sen. Udall).

H.R. 4226 (Rep. Royce), the Credit Union Residential Loan Parity Act, would treat business loans on residential apartment buildings made by banks and credit unions equally (outside the MBL cap).

H.R. 719 (Rep. King) would allow the NCUA to authorize additional forms of supplemental capital.

2014 Legislative Priorities – State Issues

PRE on Foreclosed Properties Payday Lenders and Installment

Loans Foreclosure Process – Technical

Amendments Oil and Gas Leases

PRE on Foreclosed Property

Current state law purports to let financial institutions retain the PRE (Homestead Exemption), but require payment of identical mills through alternate statutory language.

HB 4135 (Rep. Frank Foster) passed the House Tax Policy Committee unanimously, passed the House 85-23, and passed the Senate Finance Committee unanimously. SB 532 (Sen. Jack Brandenburg) passed the Senate Finance Committee unanimously. Both bills awaits further consideration on the Senate Floor.

The MI Department of Treasury has registered opposition based on potential impact to the School Aid Fund, but have reduced their fiscal estimates by 80%. MCUL, MBA, and MAR continue to work to neutralize their opposition.

Payday Lenders and Installment Loans

HB 5594 has been introduced on behalf of payday lenders to allow a monthly service charge in addition to interest on installment loans under the Regulatory Loan Act (not the DPTSA).

The legislation would allow up to 9.75% of the original loan amount to be charged per month, not reduced each month by principal payments or annualized. A $1,000 loan over 12 months would be subject to an estimated 208% APR equivalent.

The House Financial Services Committee has delayed action on the legislation based on concerns expressed by MCUL and other consumer and interest groups.

MCUL has communicated strong opposition to this measure, and will work with other interest groups to prevent its movement.

Foreclosure Process Technical Amends

HB 5794 (Rep. Mike Callton) has been introduced to fix a semi-substantive typo in recently enacted foreclosure legislation, that refined the process by which inspection of property during the redemption period by a purchaser occurs.

HB 5795 (Rep. Lisa Lyons) applies the same recently enacted parameters on who can redeem a property to those properties that come through judicial foreclosure, as those that now come through non-judicial process.

Both bills passed Committee and the House of Representatives unanimously. Passage in December is expected, uneventfully.

2013-14 Advocacy Accomplishments

Key Highlights Accomplished in 2013-14 Sessions:– Foreclosure Reform and Inspection of Property in Redemption (SB

383, etc., HB 5277)– UCC 9 Deficient Notice Penalty Amendments (SB 551, etc.)– Recording Process Reforms for Lost Documents (HB 4638-40)– Electronic Vehicle Titling and Lien Transactions (SB 915-918) – Urban Blight Enforcement and Credit Union Exemption (SB 35-38)– Anti-Card Skimming Prohibitions and Penalties (HB 5050-5054)– Campaign Finance Amendments (SB 661)– Derivatives Authority for State-Chartered Credit Unions (DIFS Order

No. 14-033-CU)– Unanimous Support for CU Tax Exemption from MI Delegation– Over 200 MI Letters and 2200 Nationally, Advocating CU Position

on Risk-Based Capital (Resulting In New Comment Period)

CFPB Amendments

Mortgage Rules– 2013 Mortgage Rules under TILA– Annual Privacy Notice Requirements Under GLBA (Reg P)– TILA Threshold Adjustments– Ability-to-Repay Rule – Successors in Interest under TILA– Integrated Mortgage Disclosures – TILA/RESPA

International Remittance Transfers - Extension of temporary exception for certain disclosures

16

NCUA Amendments

Voluntary Liquidation Capital Planning and Stress Testing Derivatives Credit Union Service Organization Emergency Liquidity Unfair or Deceptive Acts or Practices; Technical

Amendments Charitable Donation Accounts

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Additional Regulations

IRS – Foreign Account Tax Compliance Act (FATCA)

FinCEN–Definitions of Transmittal of Funds and

Funds Transfer

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What’s next for 2015

NCUA- New proposal and second comment period for RBC- Separate proposal for IRR

CFPB

- TILA/RESPA Integrated Mortgage Disclosure Implementation

FinCEN

- Look for final rules addressing Customer Due Diligence requirements

CRI Report

The 2015 credit union industry’s “Community Reinvestment Initiatives” annual report will be issued early next year. The CRI report details, among other items, all of the charitable and community work and efforts to improve the areas where our employees and members live and work.

The 2014 report issued earlier this year focused on the Credit Union National Association’s theme, “Unite For Good.”

According to that report, the vast majority of members had a high opinion of credit union services and confidence in their credit union as their primary financial institution.

Credit union members benefited by nearly $50M in fewer or lower fees; $154M in lower interest rates on loan products; and $23M from higher interest rates on savings products.

CRI Report

Michigan credit unions invested $2.2M in financial education in the prior year, with over 22,000 students learning money management at 253 credit union locations in schools; and over 3,200 financial education presentations reaching nearly 60,000 students and incorporating materials into teacher’s curriculum.

This year, credit unions have continued conducting “reality fairs” in several communities to assist students in learning how to budget and manage their financial affairs.

New this year, the industry has developed a guide and curriculum for schools on “skilled trades” and the availability of training for skilled and high-paying jobs that may not require advanced degrees. The curriculum has been incorporated where appropriate into reality fairs and other programs, in addition to other distribution.

Last year, credit unions invested $2.7 million in scholarship dollars, assisting nearly 3,000 students.

Credit unions made $24.4 million in payday-alternative loans, in over 97,000 loans to members.

For the Invest In America program, started by Michigan credit unions, nationwide member savings through the program on vehicle loans topped $785M.

CRI Report

Credit union support of small businesses topped $1B in loans last year, increasing by 26%. 2014 is shaping up as another promising year, as credit unions continue to support the engines of our communities.

As of last year, credit unions employ over 13,300 Michigan citizens, not including credit union service organ izations.

Credit unions invest in ongoing education of members, employees, and the public in many areas, including financial literacy; the promote cooperation among cooperatives to assist people and communities; and promote social and human development among their membership. Last year, credit unions donated nearly $11 million to charitable causes and participated in or spearheaded over 4,600 community outreach and volunteer projects.

Michigan’s credit union community – for decades, promoting social responsibility, civic engagement, and the philosophy of “people helping people.”