HOUSE BILL WOULD CREATE
EXAM APPEALS PROCESS
WASHINGTON-A bipartisan group of House members introduced a bill that would set up a financial institutions ombudsman who would referee disputes over credit union and bank exams.
The bill would also provide major relieve on troubled real estate loans by allowing credit unions and banks to count recently modified mortgages as accruing as long as the borrower hadn't been delinquent in the last six months. The bill would also stop regulators from forcing a credit union or bank deemed well capitalized to raise additional capital for any modified mortgages counted accruing under the same legislation.
The proposed accounting provisions are gaining momentum and are already included in a regulatory relief bill that is expected to be broadened to include credit unions.
The bill, dubbed the Financial Institutions Examination Fairness and Reform Act, would create a new Office of Examination Ombudsman to investigate complaints about examinations and allow financial institutions to appeal any material supervisory determination in an exam report to an independent administration law judge. It would also require regulators to list any information that was used to support a certain regulatory action or request.
"We have heard significant concerns about the fairness of the examination process for financial institutions and their ability to effectively appeal regulator decisions," said Rep. Shelley Moore Capito, the Republican chairman of the House Financial Services Subcommittee on Financial Institutions, who co-sponsored the bill. "This legislation provides financial institutions with a fair and impartial process to appeal examination reports for federal financial regulators and providing further clarity to regulators."
But perhaps the main focus of the bill is the proposed changes in accounting for troubled mortgages. The proposals would allow credit unions and banks actively engaged in mortgage modifications to accrue for the losses over five years, instead of recognizing them immediately.
Introduction of the measure comes as a different House committee rejected a similar proposal that would allow modified mortgages to be considered accrual for accounting purposes as long as the loan is current and the borrower did not miss a monthly payment in the previous six months since the modification.
The bill has bipartisan support with co-sponsors including: Reps. Spencer Bachus, the Republican chairman of the Financial Services Committee; and Carolyn Maloney (D-NY), John Carney (D-DE), Sean Duffy (R-WI), Steven Pearce (R-NM), Bill Posey (R-FL), Jim Renacci (R-OH), David Schweikert (R-AZ) and Lynn Westmoreland (R-GA).
EX-CU MANAGERS STILL SUBJECT
TO REGULATORY ADMIN ACTIONS
HARRISBURG, Penn.-A state appellate court rejected an appeal by the former CEO of Boeing Helicopters CU, who said the State Department of Banking could not bar him from the credit union industry because he is no longer working for the credit union, which fired him two years ago.
The Commonwealth Court of Pennsylvania said in its ruling the Pennsylvania banking statute gives the state regulator authority to ban people working with credit unions and banks, and those whose actions may have affected those institutions-even after they have left the jobs. To rule otherwise would hamper the enforcement ability of regulators, said the court.
"There can be no question that the (Department) has jurisdiction to determine whether people should be prohibited from working in credit unions," wrote the court in. If the regulator does not have authority over ex-credit union employees, then all a CEO has to do to avoid sanction is to resign right before the regulator's action, said the court.
In this case, the Department of Banking had issued an order intending to bar John Galante, the CEO of Boeing Helicopters CU, on Jan. 26, 2009, a week after he was terminated by the CU. At the time, the $110-million Ridley, Penn., CU was embroiled in a major fraud investigation that saw its chief lending officer jailed for accepting kickbacks for approving risky loans. Galante was not charged with any involvement in the $2.5-million fraud.
In challenging the regulator's order, Galante's lawyers argued the Department of Banking no longer has the authority to ban him because he is no longer CEO of the CU.
Prohibition orders, like the one assessed Galante, are among a handful of civil administrative actions used by state regulators and NCUA to enforce credit union rules and typically ban an individual from working for credit unions for life. NCUA prohibition orders are particularly stiff as they bar an individual from working for any federally insured credit union or bank, with violators subject to big fines.
The orders are typically brought well after an executive has departed the credit union and the legal process has run its course. NCUA almost always prohibits credit union executives from working in the industry after they have been convicted of a criminal act, like fraud or embezzlement.
