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Filed on February 15, 2005, published the first business day after.
- Inside Washington
- Bank blames better rates on CUs
- CUNA supports FTC privacy plan for children
- CDs as option for private Social Security accounts
- CUNA seeks 60 more days for TILA review
- NCUA charters low-income CU in Missouri
- Newark NCUA summit set for April 8
- CU System briefs
- Utah resolution debate squelched, bill moves on
- Banks back eliminating corporate taxes in Utah
- CU bill on today’s slate in Vermont
- CUs should warn members about phished site
- Texas CUs ready for out-of-state competition
- W.Va. CUs give better deals, says Gazette
- CFO Council examines strategic equity planning
- CU's gifts fit role as corporate citizen
- Market News
- News of the Competition
- Protect your PC before the next crash
- Tips to avoid an IRS audit
- Insurance services offered by CUSO
- Manitoba's CUs grow in small-business market
- Consumer borrowing levels high, warns Irish league
Inside Washington
- WASHINGTON (2/16/05)--The Government Accountability Office (GAO) gave the Federal Deposit Insurance Corp. a clean bill of health for its accounting during the past two years. The GAO audited the 2003 and 2004 financial statements of the bank and thrift insurance funds and the Federal Savings and Loan Insurance Corp. Resolution Fund. It concluded that the FDIC complied with all accounting standards and had effective internal controls over financial reporting. The GAO had said that the FDIC's information systems had several weaknesses and that the agency lacked a comprehensive information security program. Those issues have been resolved, the GAO said in a report that was sent to Congress on Friday and released to the public Monday (American Banker Feb. 15)...
- WASHINGTON (2/16/05)--The Shadow Financial Regulatory Committee called the Federal Deposit Insurance Corp.'s (FDIC) recent decision to expand its backup exam authority "a mistake" Monday. The new policy lets FDIC examiners get information from fellow regulators about banks or thrifts that pose major risks to the deposit insurance funds, or to join exams of such banks, if the FDIC chairman gives prior approval. The FDIC has said it will use the authority to keep an eye on the large banks that will get more flexibility to set their own capital levels under Basel II. Paul Horvitz, a professor at the University of Houston and a member of the committee, said the policy would add a layer of supervision to financial services and require sophisticated exam tools that would be expensive for regulators to install (American Banker Feb. 15)...
- WASHINGTON (2/16/05)--The Office of Thrift Supervision issued final guidance and best practices on overdraft protection programs Monday. In particular, institutions may not manipulate transaction-clearing procedures to inflate fees charged to their customers, according to the agency. The guidance says that thrifts must disclose the order in which they process transactions. Commercial bank and credit union regulators have not issued final guidance (American Banker Feb. 15)...
Bank blames better rates on CUs
SALT LAKE CITY (2/16/05)--A Utah bank blamed credit unions, in part, for the reason it had to offer its customers better rates on money market accounts during a quarter in which the bank reported record earnings.
Zions Bancorp., a publicly traded company based in Salt Lake City, reported record net income of $105 million during the fourth quarter of 2004. For the year, the $32 billion-asset Zions said net income increased 20.2% to a record $406.0 million--from the $337.8 million in 2003.
Harris Simmons, Zions chairman and chief executive officer, said in a press release that the strong earnings growth was a result of "continued strong loan growth, coupled with modest core deposit growth, good credit quality and an improving net interest margin."
Simmons is chairman-elect of the American Bankers Association, and has continued to press the issue of competition from credit unions, particularly his lobbying efforts against Utah's largest credit unions and credit unions' tax exemption.
But Simmon's bank could have reaped even more profits, according to an article, "Feeling Heat from Deposit Competition," which appeared in the Jan. 31 American Banker. It cited Zions Bancorp. as "one of the many large regional banks that gave in to deposit pricing pressure in the fourth quarter."
Zions said its deposit costs began to rise late in the quarter after "pressure from other banks and specifically credit unions in Utah prompted it to raise rates on money market accounts by 20 basis points late in the fourth quarter," reported the American Banker.
The Credit Union National Association's (CUNA) John McKechnie said this was another example of how credit unions benefit all consumers, even those who aren't members. "Without credit unions acting as honest brokers, banks would be free to charge even more for their services," observed the senior vice president of governmental affairs.
The bank offered its customers a higher return, but still didn't prohibit it from earning record profits.
"Mr. Simmons would rather blame us, but his customers are probably thanking us," said McKechnie.
CUNA supports FTC privacy plan for children
WASHINGTON (2/16/05)--The Credit Union National Association (CUNA) said Tuesday it supports the Federal Trade Commission's (FTC) proposal to make permanent the provisions regarding e-mail parental consents for information collected about children's online activities that is used for internal purposes.
"The use of e-mails, along with a means to verify that consent was received from the parent provides a flexible approach to protect information from children that is used solely for internal purposes," wrote CUNA's Jeff Bloch, senior assistant general counsel, in a comment letter to the agency.
"We appreciate the FTC's original intent to make these provisions temporary with the idea of amending them to incorporate new technologies that may develop," said Bloch. "We agree it makes sense to make them permanent now since the expected progress in technology has not occurred."
Bloch said there is very little, if any, downside to this approach since the FTC will continue to have the authority to change these provisions in a future rulemaking if the technology evolves to the extent that warrants such a change.
The FTC specifically requested comments on what effect eliminating the sliding scale would have on the information collection and use practices of website operators. The current sliding scale approach outlines different consent requirements depending on how the information is used and requires more reliable and costly methods of obtaining parental consent for disclosure of children's information to third parties, as compared to the methods for obtaining consent for information that is used for internal purposes.
"We believe that without the sliding scale controls in place, website operators will be more inclined to release information to third parties, since monetary incentives to use the information for internal purposes only would no longer exist," Bloch said.
CDs as option for private Social Security accounts
WASHINGTON (2/16/05)--Rep. Tom Feeney (R-Fla.) is urging top lawmakers to let Federal Deposit Insurance Corp.-insured banks' and thrifts' investment products, such as certificates of deposit (CDs), to be part of Social Security private account offerings.
The Credit Union National Association will be discussing with Feeney and other members of Congress as having credit unions as an option for these CDs.
Feeney, a member of the House Financial Services Committee, wrote in a draft letter to House Ways and Means Committee Chairman Bill Thomas (R-Calif.) that the ability to invest some Social Security dollars in CDs in addition to stocks and bonds is important because it would protect retirement savings against bumps in the economy. He is seeking signatures from other lawmakers before delivering it.
CUNA seeks 60 more days for TILA review
WASHINGTON (2/16/05)--The Credit Union National Association (CUNA) asked the Federal Reserve for a 60-day comment period extension on an advance notice of proposed rulemaking (ANPR) on possible changes to the open-end credit rules under the Truth in Lending Act (Reg Z).
The comment period is currently scheduled to end on March 28, but CUNA is asking for until May 27 to submit comments. CUNA has been actively involved in soliciting feedback from its member credit unions on how the open-end credit rules can be amended to accomplish the dual goals of making the required disclosures easier for consumers to understand, as well as minimizing additional burdens for credit unions or possibly even reducing current burdens.
"We are optimistic that these goals can be accomplished, and CUNA enthusiastically embraces the opportunity to participate in this process," wrote Jeff Bloch, senior assistant general council in a comment letter.
As part of this process, CUNA has formed a working group to coordinate these efforts, which includes members of CUNA's Consumer Protection Subcommittee, as well as other interested credit unions and representatives from its credit union leagues.
Bloch said he'd welcome the opportunity for this group to meet with Fed staff at the appropriate time in this process.
CUNA believes many of the issues raised in the ANPR affect other issues, such as closed-end lending and require comparisons between different types of open-end credit, such as credit cards and home equity lines of credit. "We believe the comment process will be improved if the Fed allows additional time for affected parties to develop meaningful comments on these important issues," said Bloch.
NCUA charters low-income CU in Missouri
ALEXANDRIA, Va. (2/16/05)--The National Credit Union Administration (NCUA) chartered Choices Federal Credit Union, St. Louis, Mo., a low-income credit union formed to serve employees of eight community organizations and members of a low-income association in the St. Louis area.
Choices will serve the employees of Better Family Life, Beyond Housing/Neighborhood Housing Services of St. Louis, Inc., Catholic Commission on Housing, Good Samaritan Service Center, Habitat for Humanity St. Louis, Justine Peterson Housing and Reinvestment Corporation, STEP, Inc. and the Urban League of Metropolitan St. Louis. It will also serve members of Stakeholder Clients' Association.
"Choices will provide over 94,000 residents in the St. Louis metropolitan area a low-cost alternative to the nontraditional financial services currently offered in their neighborhoods," said NCUA Chairman JoAnn Johnson.
The institution is entitled to receive low-interest loans through NCUA's Community Development Revolving Loan Fund, accept non-member deposits and receive free technical assistance from NCUA. A majority of potential members have a median household income less than 80% of the national household income or make less than 80% of the average for all wage earners.
Newark NCUA summit set for April 8
WASHINGTON (2/16/05)--The National Credit Union Administration (NCUA) is sponsoring a free Access Across America economic empowerment summit in Newark, N.J., April 8, for credit union officials and board volunteers.
The one-day event will focus on federal resources available to credit unions. Credit unions in New Jersey, New York, Connecticut, Pennsylvania, and Delaware are invited to attend. The purpose of the summit is to enhance the abilities of credit unions to expand financial services to their members by partnering with other federal agencies and non-profit organizations.
Key topics include member business lending, health savings accounts, homeownership, financial education and serving areas with people of modest means.
Participating agencies include the Departments of Agriculture, Health and Human Services, Housing and Urban Development and Treasury. Also, presenting will be the Export-Import Bank of the United States, Small Business Administration and the Neighborhood Reinvestment Corporation.
CU System briefs
- SOUTH BURLINGTON, Vt. (2/16/05)--The Vermont Credit Union League treated all 180 state representatives and senators with a chocolate heart candy for Valentine's Day. The handmade Lake Champlain chocolate hearts were wrapped in a label saying, "More than 260,000 Vermonters Love Their Credit Unions" (NewsLine Express Feb. 14) ...
- ST. PAUL, Minn. (2/16/05)--The man believed to be the "Fishing Hat Bandit"--the most prolific bank robber in Minnesota history--pleaded not guilty to 22 counts of bank robbery and attempted robbery Monday. John Douglas Whitrock was indicted Feb. 7 for his alleged role in an 18-month string of robberies of credit unions and banks in the Minneapolis area. He was arrested after the president of Real Financial CU followed the suspect after a Jan. 7 robbery of the credit union. If Whitrock is convicted, he faces up to 20 years in prison and a $250,000 fine on each of the 22 indictments (St. Paul Pioneer Press Feb. 15) ...
- RIVERSIDE, Calif. (2/16/05)--March Community CU, Moreno Valley, Calif., has been approved by the city as its lender for the Homeownership Opportunity Program. The program helps qualified low-income homebuyers with down payments on eligible homes in the city. As an approved lender, the $366 million asset credit union can provide first mortgages to qualified homebuyers (The Press-Enterprise Feb. 13) ...
- WESTBROOK, Maine (2/16/05)--Casco FCU President/CEO Dave Sayers, back row at left, coached the Gorham, Mass.-based credit union team to a semi-finalist finish in the 11th annual Dr. Noel Paradise Swish-Out Childhood Cancer Challenge. The basketball challenge, sponsored by Maine's credit unions, raised just over $15,000--a record that helped the event pass the $50,000 mark in total funds raised. Twenty-nine teams participated in the event, in which 100% of the proceeds go to the Maine Children's Cancer Program.
(Photo provided by the Maine Credit Union League) ... - HARRISBURG, Pa. (2/16/05)--The Pennsylvania Credit Union Association (PCUA) is seeking unique historical items from credit unions, especially those with original names and logos. The items will be featured in the Pennsylvania Credit Union Memorabilia Room at the league's headquarters in Harrisburg, Pa., to highlight its 70-year history. Credit unions with collectible passbooks, publications, posters, anniversary or Credit Union Day items, or other historical memorabilia can send them to PCUA in Harrisburg (Life is a Highway Feb. 15) ...
- NORFOLK, Va. (2/16/05)--A regional assistant school superintendent pleaded not guilty Feb. 9 to five counts of money laundering in connection with a drug ring. Pamela Hoffler-Riddick is one of more than 30 people indicted in connection with a drug distribution and money laundering ring based in Hampton Roads, Va. Some of the money ended up in an account in Virginia Educators CU, Newport News. She is associated with John McBride, who became a financial adviser to Aaron Burton, allegedly one of the key players in the drug ring (The Richmond Times-Dispatch Feb. 10) ...
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SEATTLE (2/16/05)--King County CU, Seattle, announced it hired Tom Graves as the new president/CEO, effective March 1. Before joining the $162 million asset credit union, Graves was president/CEO of Government of Guam Employees CU, Barrigada, Guam. He has 28 years of credit union experience ...
Utah resolution debate squelched, bill moves on
SALT LAKE CITY (2/16/05)--Without even an introduction from its sponsor, House Joint Resolution 1 (HJR1) was passed by the Senate Revenue and Taxation Committee Monday and is headed for the Senate floor.
Committee Chairman and Sen. Curtis Bramble (R-Provo) and Sens. Howard Stephenson (R-Draper) and Darin Peterson (R-Nephi) were the only three present and the only three who voted in favor of passing the resolution (Deseret Morning News Feb. 15).
"Jeff Alexander didn't even see it coming," said Scott Simpson, president of the Utah League of Credit Unions, referring to the resolution's sponsor, State Rep. Jeff Alexander (R-Provo).
Simpson said the minute Peterson walked into the meeting, Bramble recognized that there were enough members for a quorum and made a motion to move HJR1 to the Senate.
Peterson wasn't even in his chair as he said yes, Simpson noted, and the resolution received "unanimous consent" to go to the Senate floor.
The committee hearing on HJR1, which also had an item relating to nonprofit Intermountain Health Care on the agenda, was "over before it could even start," Simpson said.
It was placed on the Senate Consent Calendar, where it could be voted on with a voice vote. If any objections were made, it would go to a roll call vote, which allows for debate. However, Simpson said, "Some folks want to avoid a debate with only two weeks left in the session."
The third option is the resolution gets pulled off the consent calendar and moved to the second reading calendar, where it would go through the entire process.
State Sen. Dan Eastman (R-Bountiful) is HJR1's sponsor in the Senate.
The non-binding resolution asks Congress to re-examine the regulatory and tax-exempt status of credit unions and give states the power to set tax policy on credit unions.
Banks back eliminating corporate taxes in Utah
SALT LAKE CITY (2/16/05)--As a banker-sponsored effort pushes for taxation of credit unions, another tax-elimination proposal is gaining their support in Utah.
State Sen. Curtis Bramble, chairman of the Senate Revenue and Taxation Committee, introduced a measure that would eliminate state corporate income taxes as part of an economic revitalization plan from Gov. John Huntsman Jr. (American Banker Feb. 15).
Howard Headlee, president of the Utah Bankers Association, said the group is generally behind the tax revocation, but would prefer not to get special treatment. Rather, bankers would like to see the state's largest credit unions pay taxes, according to the article.
"It sounds like they're looking for a tax policy that benefits the very few and not the masses," Scott Simpson, president of the Utah League of Credit Unions, told News Now.
CU bill on today’s slate in Vermont
SOUTH BURLINGTON, Vt. (2/16/05)--Vermont's House Commerce Committee will focus on House 149 (H. 149), a credit union modernization act proposed by the state regulator, during today's session.
The modernization of the state's credit union statutes is a rewrite by the state's regulator, the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA). Vermont Credit Union League President Joe Bergeron and Vermont Bankers Association President Chris D'Elia are among the witnesses set to testify today (NewsLines Express Feb. 14).
Last week, Deputy Commissioner Tom Candon provided the committee with background information about credit unions, their Vermont history and present-day status. BISHCA attorney Steve Knudson followed with a line-by-line reading and explanation of H.149. Knudson's review will conclude early today.
Gov. Jim Douglas supports the modernization bill. Bankers have a "Hike the Hill" event planned today with other nonrelated interest groups visiting the statehouse, making it a full house for today's activities.
CUs should warn members about phished site
MADISON, Wis. (2/16/05)--What should a credit union do when its name is involved in a phishing expedition for personal account information that could be used in identity theft?
"The first thing that credit unions need to do, if someone sends them an e-mail that they believe to be fraudulent, is to get the word out to their members," said Dorothy Steffens, vice president of web services at the Credit Union National Association (CUNA).
That's what CUNA did Tuesday morning when it discovered someone had sent credit union members an e-mail purporting to come from CUNA's website. The fraudulent e-mail message attempted to collect members' usernames and password information.
The message contained graphics from CUNA's website, including the America's Credit Unions logo and the word "Consumer," and was addressed to credit union members. It claimed it was verifying accounts and told the member: "Your credit union account may be slightly out of date or incomplete. This irregularity can and must be fixed through the Credit Union National Association Confirmation process..." It asked for the recipient to log in and confirm identity at a link.
CUNA has no such link on its cuna.org website, and there is no confirmation process for accounts at CUNA. CUNA does not have access to credit unions' member accounts.
CUNA immediately put a fraud alert on its web site to notify members not to click on the website link. The notice says that "we would never ask for any credit union account information, PIN number, access code, and that if they are asked for this information, to immediately contact us," said Judy Cooper, CUNA senior vice president and associate general counsel. "We tried to get the word out to make sure members were protected," Cooper said.
"CUNA also contacted credit unions whose members we believe had received the e-mails," Cooper said. Each credit union was asked to alert its members. Many started with notices on their websites.
Cooper says CUNA also has contacted the Federal Bureau of Investigations and is talking to regulators.
However, says Steffens, "the best thing to do is educate members in advance and let them know that their credit union protects their personal privacy and would never request personal information such as usernames, account numbers, PIN or Social Security numbers in an e-mail."
"They should also tell members that if they have filled out any type of form on the web that has asked for their credit union account personal information to contact the credit union immediately," Steffens added.
Steffens sent an e-mail with the details of the situation to the Anti-Phishing Working Group, which has an anti-fraud resource list. Use the resource links for more information about phishing.
Texas CUs ready for out-of-state competition
SAN ANTONIO (2/16/05)--Credit unions and banks in Texas are ready for the new competition they'll see from the likes of banking giants Wachovia and Citigroup Inc., says San Antonio Express-News (Feb. 13).
Wachovia and Citigroup are opening branches in Texas, joining other major out-of-state banks such as Bank of America, Wells Fargo, and the about-to-be consolidated JP Morgan Chase and Bank One.
Credit unions and other smaller, local and regional institutions say their proven performance will help them prosper among more competition. At least two major credit unions in San Antonio are optimistic about their prospects because of a stronger economy and their expertise in serving specific sectors.
Security Service FCU's core competency is auto lending, says Jack Worthington, a senior vice president, in the article. Worthington expects auto loans to stay strong in 2005, after generating a volume unsurpassed in San Antonio. However, home sales may weaken, he says. The $3.3 billion asset credit union is optimistic about its ability to maintain a continuing market share.
San Antonio FCU should win its share of the consumer loan market because its prices are lower than those charged by bigger banks, said Jeff Farver, CEO of the $1.7 billion asset credit union. It is expanding its products and services to loans for manufactured homes and Internet-based member financing options for smaller retailers.
Farver notes that San Antonio FCU also has two new branch sites opening this year, but adds the credit union will operate more austerely until low interest loans are retired and replaced with loans drawing higher interest.
W.Va. CUs give better deals, says Gazette
CHARLESTON, W. Va. (2/16/05)--Credit unions offer good deals, says the Charleston Gazette, citing a weekly survey of rates by the Datatrac Research Standards national rate index (Feb. 13).
A four-year loan for a new car averaged 6.55% at banks in late January, while credit unions offered similar loans for 4.8% on average, says Datatrac.
A four-year, used-car loan would go for an average of 7.23% at a bank and 5.09% at a credit union, Datatrac says.
And in savings, a consumer could earn 1.04% at a credit union on a money-market account, while at a bank the earnings would average 0.62%.
"Are you beginning to see a trend here?" the article asks. Of 11 rates checked on Jan. 24 by Datatrac, credit unions beat banks in 10.
That fact isn't lost on the West Virginia Credit Union League, which says 121 credit unions served about 400,000 members in the state at year-end 2004. League President Ken Watts estimated combined assets at about $2.3 billion.
However, there is room to grow, says Watts. West Virginia's credit unions serve 25% of the state's population, lower than the national average. "You hear bankers complain [about competition from credit unions]. We say we wish we had that problem," Watts told the Gazette.
The largest credit union in the state has assets of $260 million, which is much smaller than the largest banks. "We have many credit unions under $1 million in deposits. Credit unions by nature are much smaller organizations. That's why we don't put much credence in the bankers' claims. We have enough challenges," he said.
West Virginia credit unions rank high in reserves to assets ratios, which, says Watts, "indicates good management and a good conservative approach."
CFO Council examines strategic equity planning
MADISON, Wis. (2/16/05)--The importance of capital planning to a credit union's competitive and financial success is the topic of the latest white paper from the Credit Union National Association (CUNA) Chief Financial Officer (CFO) Council.
"Strategic Equity Planning: Finding the Ideal Capital Position" explores the key components in determining a strategic "ideal" position including:
- An assessment of all risks facing the credit union;
- Consideration of leadership competence and experience;
- An appraisal of the regulatory environment;
- A marketplace perception of the need for capital for safety and soundness purposes; and
- A recognition of the balance between safety and soundness and competitiveness.
The white paper includes worksheets to help credit unions assess risk factors such as interest rates, credit, liquidity, earning power, growth, technology, business and leadership.
Members of the CFO Council can get complimentary copies of the white paper through the resource link below. Nonmembers can order copies for $50 each.
For more information on the CFO Council, use the resource link.
CU's gifts fit role as corporate citizen
WALNUT CREEK, Calif. (2/16/05)--Few financial institutions give away money, but Pacific Service CU considers it a responsibility to earmark part of its budget for contributions to its community.
Over the past four years, Walnut Creek-based Pacific Service has given away $500,000 to area charities. In 2004 alone, the more than $1 billion asset credit union gave nearly $150,000 to organizations.
"We feel very strongly that we have a responsibility as a corporate citizen to the communities we serve, so we budget for our contributions annually," said Tom Smigielski, president/CEO. "We don't ask our employees or our members to give. As a corporation, we take it upon ourselves to do what we can to better the lives of the less fortunate in our communities."
Pacific Service launched its Community Involvement Program in 2001, with a budget of $100,000 and designated four major areas for charitable giving: children, especially those in at-risk and low-income areas; American Red Cross; low-income credit unions; and recognition of employee volunteer spirit.
"While financial institutions can't forget their basic purpose of saving money, lending money and earning money, there is a greater obligation beyond that," Smigielski said.
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| Pacific Service CU board Chair Charlie Diaz, left, and President Tom Smigielski delivered 3,000 school bags filled with supplies to Head Start students. The credit union also was recently involved in the Salvation Army's holiday food basket distribution and helped with Sonoma County Regional Parks SAFE Summer program in Santa Rosa. |
Market News
MADISON, Wis. (2/16/05)
- The sluggish job market may not pick up speed any time soon, say many labor experts and economists (CNN/Money Feb. 15). "I do think we're in a new era now in which job growth will remain sluggish for quite some time," said former Labor Secretary Robert Reich in a comment mailed to CNN/Money. The economy created almost 2.2 million jobs in 2004--an improvement from a net job loss in 2002-2003. However, that's still far below the average of any recovery that's lasted this long since World War II, said Anthony Chan at JP Morgan Fleming Asset Management. Factors curbing job growth include global competition, productivity that is growing at more than double the historical average, the shift of jobs overseas, the growing use of temporary workers and the nation's shrinking manufacturing base. Employers are also being hit by higher health-care and raw-material costs, noted Richard Yamarone, chief economist at Argus Research. The weak job market has caused many would-be workers to drop out of the labor force. The number of such "discouraged" workers surged 20% last year. The Bush administration is now acknowledging this weaker scenario for the job market. In December, the Council of Economic Advisers quietly lowered its forecast for job growth this year--to 175,000 jobs per month from a 2004 forecast of 300,000 ...
- Retail sales edged down by 0.3% last month as weaker auto sales offset an increase in holiday gift-card redemptions, according to the Commerce Department. Auto sales tumbled by 3.3% in January--following a 4% surge in December and the largest decline since last June. Retail sales excluding autos rose a solid 0.6% in January following a 0.3% gain. Sales are clothing and general merchandise stores were strong last month--in part reflecting consumer redemptions of holiday gift cards. Job gains and low interest rates have helped buoy consumer spending, which makes up more than two-thirds of economic activity in the U.S. However, employers added just 146,000 new jobs in January. And the Federal Reserve is expected to continue boosting interest rates this year, making consumer borrowing more costly (The Wall Street Journal Online and The New York Times Feb. 15) ...
- More middle-class workers are enrolling their children in taxpayer-funded health-insurance programs instead of their employers' plans as costs soar (The Wall Street Journal Online Feb. 15). For example, nationwide enrollment of children in the State Children's Health Insurance Program (Schip) jumped to 5.8 million in fiscal 2003--up 9% from the previous year and 76% from 3.3 million in fiscal 2000. The program was authorized to spend about $40 billion in federal matching funds over the 10-year period ending in 2007. The program's coverage is less comprehensive than Medicaid's and requires families to pay premiums and out-of-pocket expenses. The Bush administration has suggested that Schip, with its capped federal spending, would be a better model than Medicaid for covering some people. The percentage of children covered through employer health plans fell to 58.3% from 62.3% over the past four years, while the percentage of children covered by state health-care programs rose to 26.4% from 20.9%, according to the Employee Benefit Research Institute. Many financially strapped states are now restricting enrollment in such plans and seeking ways to prompt companies and insurers to provide cheaper coverage ...
- A record number of metropolitan areas--62 out of 129--saw double-digit home-price gains between the fourth quarter of 2003 and the fourth quarter of 2004, according to the National Association of Realtors (NAR). The previous record was set in the second quarter, when home prices in 49 metropolitan areas were up by 10% or more. The national median price for existing homes was $187,500 in the fourth quarter--up 8.8% over the past year. "With more buyers than sellers nationally, what we're seeing is a natural pressure on home prices as buyers compete to bid on available properties," said David Lereah, chief economist at the trade association. However, he noted that low debt-service costs have kept homebuying affordable in most areas. Las Vegas topped the NAR's list as the market with the biggest appreciation gain--at 47.3%. Prices were up 34.7% in the San Bernardino and Riverside counties in California. And six of the top 10 markets were in Florida. At the same time, homeowners in Atlanta, Chicago and Denver saw average price gains of just 3%, 2.7%, and 1.7% respectively. And prices in four cities--Austin, Indianapolis, Beaumont/Port Arthur, Texas, and Charleston, W.Va.--declined (CNN/Money and REALTOR.org Feb. 15)....
- Total existing-home sales rose to the second-highest pace on record during the fourth quarter, according to the National Association of Realtors (NAR) (REALTOR.org Feb. 15). The seasonally adjusted annual rate was 7.76 million in the fourth quarter--up 7.3% from the same period in 2003. The record pace of 7.80 million was set during the second quarter of 2004. The 30-year, fixed-rate mortgage averaged 5.73% in the fourth quarter of last year--down from 5.92% in the fourth quarter of 2003, according to Freddie Mac. The trade association said that the strongest sales increases for the fourth quarter were in Arizona (28.8%); North Carolina (25.4%); and Georgia (21.7%). NAR said that 45 states and the District of Columbia set home-sales records last year, while three states had their second-best showing, and there was insufficient data for two states ...
News of the Competition
MADISON, Wis. (2/16/05)
- The latest big-bank mergers appear to be lowering customer satisfaction (American Banker Online Feb. 15). The University of Michigan's latest survey on the subject found that customer-satisfaction scores failed to gain ground last year after they hit a 10-year peak in 2003. The banking industry received a score of 75--matching the 2003 reading. The index steadily declined during the late 1990s, then steadily improved from 2000 to 2003. Lower customer satisfaction in the 1990s coincided with a merger wave, said Claes Fornell, head of the University of Michigan's index, in a phone interview. "The pattern seems to hold – the ones that have merged do not seem to have improved" service, said Fornell. He said that customer satisfaction typically declines for several years following a merger. It eventually picks up, but not usually above the pre-merger level. Fornell noted that the trend holds for other industries as well. Banks performed better in last year's survey than supermarkets (73); department and discount stores (74); and health insurers (67) ...
- Provisions in President Bush's proposed budget for 2006 could thin student lenders' margins, boost their exposure to defaults and result in fewer high-risk originations, say lenders and analysts (American Banker Online Feb. 15). The proposed budget calls for a reduction in subsidies for federally guaranteed loans. Other proposals include replacing fixed-rate consolidation loans with variable-rate loans, boosting lenders' fees, making banks cover a larger percentage of credit losses, and introducing a 0.25% portfolio fee on outstanding loans. "There will be some margin compression" if the provisions are enacted, said J. Barry Morrow, president/CEO of student lender Collegiate Funding Services. He said small lenders also may decide to exit the market. The budget calls for a $2.9 billion cut in the Federal Family Education Loan program, which subsidizes lenders making government-guaranteed, high-risk student loans. It would also double the origination fees lenders are charged, to 1%, and more than double, to 5%, the share of losses that lenders must cover on defaulted loans. Consumer Bankers Association members traveled to Washington last week to encourage congressional staff to review the proposed changes. The requests were met with "some receptivity and sensitivity," said John Dean, special counsel for the trade association. Many lenders said it was too early to know which provisions would be enacted ...
- Regional banks are snapping up experienced employees laid off by big commercial banks (The Wall Street Journal Online Feb. 15). When Washington Mutual decided to cut 850 jobs last July, other bankers began courting the laid-off employees. Late last year City National Bank of Beverly Hills, Calif., snatched six former Wamu bankers to form a new group targeting small and middle-market firms in the Bay Area. City National doesn't wait until there are vacancies to fill to seek candidates, said Kate Dwyer, executive vice president and director of human resources. "This is a hugely competitive market," said Dwyer. According to a January survey by the American Bankers Association, 80% of banks plan to boost lending to midmarket businesses by at least 10% over the next 12 months. And banks are paying higher salaries amid intense competition. Chief executives at U.S. banks and thrifts earned $314,017 in median total compensation during 2004--up from $290,000 in 2003, according to SNL Financial of Charlottesville, Va. Hiring by nontraditional firms such as home-equity lenders and hedge funds is also helping boost demand for commercial-banking talent. And within the banking industry, mid-market banks are making the biggest hiring push as they try to win a larger part of the lending market in the wake of big bank mergers ...
- J.P. Morgan Chase was fined $2.1 million by regulators for failing to retain e-mail messages that were linked to investigations of conflicts-of-interest between investment-banking and research-analyst practices (The Wall Street Journal Online Feb. 15). The fine by the New York Stock Exchange, the Securities and Exchange Commission, and the NASD was one of the largest ever imposed for a violation of e-mail retention, said people familiar with the matter. Regulators fined five other Wall Street firms $1.65 million each in 2003 for failing to adequately retain e-mail records. The regulators didn't accuse J.P. Morgan of intentionally destroying e-mails, but of initially incorrectly informing regulators that it had provided a complete set of e-mails as requested ...
Protect your PC before the next crash
NEW YORK (2/16/05)--If your PC crashes, do you know what to do? Save yourself a lot of anger and frustration. Know how to reinstall and reconfigure applications, and be familiar with the basic steps to safeguard against data loss (PC Magazine Feb. 2).
- Copy every file to some form of removable media. Either drag and drop files to an alternate drive or use a dedicated backup software program. Other programs, such as Norton Ghost, can create an image file of your entire hard drive and save everything on a DVD or removable hard drive. If your primary hard drive crashes, use Ghost to rebuild the drive without first reinstalling Windows.
- Protect sensitive data with a personal password to restrict access to your computer. However, someone still can access your files by plugging your hard drive into another computer. Activate Windows XP's data-encryption feature, which allows only you to read your encrypted data.
- Enable your PC to perform necessary functions without starting Windows. The Windows Recovery Console (WRC) allows you to copy files, repair a damaged boot sector, or make other repairs if Windows won't start. When activating the WRC, make sure to allow yourself access to files you might need, because Microsoft's security prevents initial access to most of the folders.
- Run Windows XP's Disk Defragmenter to improve speed and reduce the chance of data loss or hard drive crashes. The defragmenter reorganizes the files on your hard drive that have been broken up to fit in the drive's available space. Find the tool under Start, All Programs, Accessories, System Tools.
- Keep your PC up-to-date by adding or removing unnecessary programs. Be sure to clean out your Temporary Items folder and run an antispyware program.
For more information, read "How to Be "Spywary": It's More Software Than You Bargained For" in the Home & Family Finance Resource Center technology section.
Tips to avoid an IRS audit
NEW YORK (2/15/05)--Avoid getting creative on your tax returns. As the Internal Revenue Service (IRS) continues to boost enforcement efforts, creativity on your part could raise a red flag.
In 2004, the agency collected $43.1 million in enforcement revenue, a 15% increase from the previous year, while the number of individual taxpayer audits exceeded one million for the first time since 1999 (CNNMoney.com Jan. 31).
Unfortunately, IRS staffers won't say exactly how they determine whom to audit. However, they admit that a few specific items will trigger an audit.
- Itemized deductions. The IRS looks more closely at returns with itemized deductions than those with the standard deduction. The agency refers to a range of typical deductions for each tax bracket based on the average claim. If you are entitled to take deductions, go ahead. Just be sure to hold onto your receipts.
- Hobby losses. You're more likely to be targeted for an audit if your side business reports a loss every year. If you disguise your hobby as a small business, remember that Schedule C is used to report income or loss from sole proprietorships. Schedule C filers are the largest group of red flags.
- Home office deductions. Be careful with your home office deduction or the IRS may come knocking on your door. The room has to be solely for business purposes. The deduction is limited to the actual space your office occupies. Only that portion of your total housing expenses is eligible for the deduction.
- Casualty losses. The first $100 in losses is not deductible. Casualty losses must be the result of a sudden event rather than gradual wear and tear.
- High income. The IRS targets the high-income brackets since there is more tax money at stake. If you earn $100,000 or more, you have a one in 20 chance of being audited. Your only defense is to know the rules and avoid excessive deductions.
Bottom line: Everyone is eligible for an audit. Tax preparation software helps avoid careless errors. Remember to sign and date your return. And if your math is off, your taxes likely will be re-computed, raising--you guessed it--a red flag.
For more information, read "Tax Time: Early Birds Catch a Breather" in the Home & Family Finance Resource Center money savvy section.
Insurance services offered by CUSO
SANTA ROSA, Calif. (2/16/05)--RCU Services Group, a wholly owned subsidiary of Redwood CU, recently launched RCU Insurance Services to provide a full line of insurance products to credit union members and the community.
The Santa Rosa, Calif.-based subsidiary will offer auto, homeowners, life and other personal insurance products such as identity fraud insurance.
"Together, Redwood CU and RCU Insurance Services can address consumers' lending and insurance needs as a package, which is both convenient and cost-effective," said Renée Guerin, president/CEO, RCU Services Group.
"We have had a great response so far from our clients--and we've been able to save them an average of $230 annually over their existing policies," Guerin added.
Redwood CU has $1.1 billion in assets and offers its 111,000 members financial management services, retirement planning and investment products through RCU Services Group and RCU Auto Services.
Manitoba's CUs grow in small-business market
WINNIPEG (2/16/05)--Four of the five major banks in Manitoba, which serve more than 1.46 million small businesses in Canada, have lost small-business market share since 1989. Only credit unions grew in the small-business lending market share (Winnipeg Free Press Feb. 14).
According to a 2003 Canadian Federation of Independent Business (CFIB) survey, credit unions increased in market share in small businesses to 37.4% in 2003 from 35.1% in 2000.
That's because traditional banks take a cookie-cutter approach to small business loans and financing, says Shannon Martin, CFIB director of provincial affairs. Banks look at entire sectors, not individual small businesses, Martin said.
Small businesses are relationship-based in their approach to their customers, and that's what they expect from a financial institution, said Martin.
Banks' rejection rate for small-business loans has grown, with the newest, smallest enterprises rejected the most.
But more small businesses are looking to credit unions and caisses populaires (credit unions in Quebec) as a first door to funding.
An example: Colleen Dudar, owner of a women's clothing retail shop, whose bank "simply wasn't interested in any small business, period," she told the Free Press. The bank refused to increase her line of credit and instead to cut it in half, even though her store was solid and she'd met the bank's payment schedules.
She went to a credit union, which listened, looked at her company structure and plans, and financed the move of her store to a better retail location. Today the credit union handles all her banking needs.
Consumer borrowing levels high, warns Irish league
DUBLIN (2/15/05)--The levels of consumer borrowing in Ireland are reaching dangerously high levels, says the Irish League of Credit Unions (Business and Finance Daily News Service Feb. 9).
Personal borrowing during the past few months increased substantially and will result in financial difficulties for many consumers who can't repay the loans, said the league.
Some analysts say the credit levels aren't a cause of concern in the current economic environment, according to league CEO Liam O'Dwyer. "That may be true in a macro sense, but credit unions see the personal difficulties caused by expensive credit and credit-dependence every day," he added.
Prudent borrowing for sensible expenditures such as home improvements can be worthwhile, O'Dwyer said, if borrowers can realistically cope with the repayments and interest rates. But, Ireland's interest rates will rise, he said.
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