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NORWALK, Conn.-A comment letter submitted by NCUA and the banking regulators has given the Financial Accounting Standards Board second thoughts on a proposed rule on accounting for troubled debt restructuring and could at least delay the implementation date.

The federal regulators told the accounting rules-makers the proposed rule, which sets new standards for troubled debt restructuring, both for purposes of recording an impairment and for disclosure, could create uncertainty in credit union and bank statements and boost loan losses. The accounting proposal would apply to mortgage loan refis and restructuring of car, credit card and other consumer loans due to a member job loss or other economic problem.

The proposed rule is already being adopted at some credit unions and increasing delinquencies and losses. North Carolina State Employees CU said is opted for early adoption for its Dec. 31, 2010 financials, causing an increase in reported delinquency to 1.56%, compared to just 0.62% at Dec. 30, 2009. The credit union delinquency ratio without the TDR adjustment would have been just 0.93%. The increase in delinquency at December 31, 2010 created by the new TDR reporting provisions was 0.63%.

The FASB, which originally set a June 15, 2011 voluntary implementation date and Dec. 15, 2011 mandatory deadline, is said to be reconsidering the deadline, especially in light of the ascension of Leslie Seidman, a long-time member of the seven-member board, to chairman of the panel.

The regulators told the FASB in a comment letter on the proposal last month they are concerned that a provision regarding a borrower's inability to obtain similar financing at a market rate of interest may be interpreted that would cause mortgage modifications, extensions and renewals as troubled debt restructurings and thus be subject to write-downs. The regulators-NCUA, the FDIC Federal Reserve, Office of Thrift Supervision and Comptroller of the Currency-noted that many creditworthy borrowers may be having trouble now obtaining credit at market rates because in some markets credit is not available at all.

The regulators asked FASB to modify the proposal so that restructuring absent a market rate is not automatically considered a troubled debt restructuring. Just as troubling, said the regulators, is a provision that would make the accounting retrospective. "We have concerns," they wrote, "that institutions, particularly those that are small, will not have adequate access to prior information sufficient to determine whether prior modifications should have been considered TDRs."



SAN FRANCISCO-In an effort to satisfy thousands of credit unions and banks Visa said it will develop a two-tiered system of debit card interchange to help in the implementation of the price controls required under the Dodd-Frank Act.

The system will include one tier for the credit unions and banks over $10 billion in assets, as required under Dodd-Frank, and one for all those under the $10 billion threshold. "We have said that we will support a two-tiered debit interchange structure," a Visa spokesperson said in a statement.

The establishment of a two-tiered system comes as a growing number of credit unions are calling on the Fed to include such a fee schedule in developing the price controls and rules for Dodd-Frank. The Fed has proposed cutting interchange fees on debit transactions by as much as 70% to an average of 12 cents per transaction.


Major Source of Income

Interchange on debit transactions, just like on credit, have become a major source of income for credit unions, as much as $2 billion a year of the $5 billion in interchange accruing to credit unions, and growing rapidly.

Visa's decision was widely expected in the industry, where thousands of Visa and Mastercard issuers will not come under the Fed's interchange price controls. Mastercard is expected to follow suit and create its own two-tiered system but said Friday it has not made a final decision. "MasterCard is continuing to evaluate the viability of a two-tier interchange structure for debit and excluded products," the company said. "We will be thoughtful and comprehensive in our analysis of this issue. We believe it is not prudent to make such a decision in advance of knowing all the facts."

Randy Beck, executive vice president of Eau Claire, Wis.'s Royal CU, said even though Dodd-Frank exempts smaller institutions from the price controls, he is concerned that the absence of a two-tiered pricing system offered by Visa and Mastercard will cause the exempt institutions to be impacted under a single-tier system "I realize there is an exemption for financials who are under $10 billion in assets, but it remains unclear as to whether the networks will develop and support two different levels of interchange," said Beck, in a comment letter submitted to the Fed on the proposal.


Only 3 CUs In Top Tier

"We are concerned that the proposal does not include provisions to enforce the small issuer exemption," wrote Jack Ewald, president of UHS FCU in Johnson City, N.Y., small issuers will be disadvantaged if the provisions on routing.

Under a two-tiered system, only three CUs that have more than $10 billion in assets will be in the top tier and come under the Fed's price controls. All the other credit unions would be in the second tier.

Visa's commitment to a two-tier schedule comes even though its executives have indicated such a structure would be hard to implement operationally.

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