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Groundbreaking legislation. Political intrigue. Indecipherable regulations. If you get chills of excitement just thinking about these topics, this is the blog for you! Henry Meier is taking on the latest laws, regulations and political issues that impact New York credit unions, so read often and join the conversation!

September 6, 2011 at 9:13 am 13 comments

Are Bitcoins Always Suspicious?

As I explained in my blog the other day, for banking compliance geeks FinCEN’s annual compilation of SAR filings is a big deal that gets noticed. So when it uses this publication to highlight issues related to the filing of Suspicious Activity Reports in relation to virtual currency in general and the Bitcoin specifically, it can be assumed that this is an issue of particular importance to individuals who work at the intersection of law enforcement and banking regulation. According to its SAR Narrative Spotlight Column, “FinCEN is observing a rise in the number of SARs flagging virtual currencies as a component of suspicious activity. Like all emerging payment methods, understanding virtual currencies is key to insightful SAR preparation and filing.”
According to FinCEN useful narrative information accompanying a SAR bitcoin filing may include:
• Information on users of crypto-currency (even when their participation in the transaction is not considered suspicious). If possible, such information should be supplemented with the ACH or wire data related to transactions conducted to or from known virtual currency exchanger. An exchanger is one of a handful of platforms, one of which filed for bankruptcy, which will exchange the Bitcoin into currency.
• Information related to Bitcoin speculation. Specifically, FinCEN reminds depository institutions that the value of a Bitcoin is highly volatile and “following a rapid rise in the relative value of crypto-currency to the dollar an institution may see high value deposits originating from foreign or domestic virtual currency exchangers.” FinCEN goes on to note that speculation is not criminal activity, however, “speculation can share a transaction footprint with other activities that might be suspicious.”

Depository institutions should be mindful that virtual currencies can be used to hide the source of funds stolen by hackers and identity thieves.

I’ve used more quotes than I like to in writing this blog today because I am not sure I completely understand where FinCEN is heading when it comes to the regulation of virtual currencies. It seems to be suggesting that virtually any time a member uses funds derived from a Bitcoin or other virtual currency, a SAR filing is appropriate. The concern I have is that very little of the account activity highlighted by FinCEN is necessarily suspicious. If and when virtual currencies become more commonly used, FinCEN is going to have to issue more formal guidance clarifying when member use of virtual currency is truly worthy of a SAR.

July 23, 2014 at 8:26 am Leave a comment

What Rights Does Your Pregnant Employee Have?

The way my father explained it to me, people have been getting pregnant for quite some time.  In addition, since 1978, federal law has banned discrimination in the workplace on the basis of pregnancy.  So you may find it odd that pregnancy is a hot topic in legal circles these days.  However, recent developments have brought the issue of pregnancy discrimination to the forefront of HR law.

First, the Supreme Court has decided to review a case next term, Young v. United Parcel Service, in which it will clarify what accommodations, if any, must be provided to a pregnant employee.  Not coincidentally, the EEOC recently released an updated guidance on this issue for the first time in more than two decades.

The issues involved are not as clear cut as you might think.  First, let’s start with the basics.  We all should know that you can’t discriminate against someone just because she is pregnant.  The Pregnancy Discrimination Act provides that pregnant women “shall be treated the same for all employment purposes. . .as other persons.”  It seems simple enough, but the case the Supreme Court is going to hear involved a driver whose job required her to lift up to 70 lbs.  The company’s policy excused drivers from this requirement if they were disabled or if they lost their license, but not if they were pregnant.  The company argued that it was required to treat her equally with all other employees and it would not be doing that if it excused her from the weight restrictions just because she was pregnant.

When I first read this decision I wondered why she couldn’t be treated as disabled under the ADA.  But the Fourth Circuit, which heard the case being decided by the Supreme Court, ruled that the ADA doesn’t apply to pregnant women.  As a result, the Fourth Circuit ruled that the company acted legally despite the fact that her request to lift lighter packages could have been easily accommodated.

Undoubtedly with an eye toward weighing in on the Supreme Court’s decision, the EEOC’s recently updated pregnancy guidance argues that there may be circumstances in which pregnant women are protected under the ADA.  As I like to say, this is one of those cases that are going to be worth keeping an eye on.  With my usual caveat that I am not an HR attorney but I like to play one occasionally writing this blog, this is one area where it seems a bit of common sense goes an awfully long way.  UPS has provided us a great case to consider, but had it not been so stubborn in adhering to its policy, an employee could easily have been accommodated and millions of dollars in legal fees could have been avoided.

July 22, 2014 at 8:31 am Leave a comment

Is Auto Lending The New Subprime?

That’s the question posed by the New York Times in an article yesterday in which it seeks to sound the alarm:  in a nutshell it argues that, just like the mortgage meltdown, major banks are loosening lending standards in an effort to ensure they have enough automobiles to meet Wall Street’s growing demand for securities comprised of auto loan pools. This is one of those times where I am glad that credit unions aren’t mentioned alongside the banks.

This is the type of article that gets regulators thinking that more needs to be done, so you may want to take a quick look to see how appropriate your underwriting standards are for auto lending.  Here are some things to keep in mind.

The NCUA deserves credit for raising concerns about indirect auto lending long before it was trendy.  The banks highlighted in the article are accused of hiding behind dealer practices when asked about questionable sales techniques and underwriting standards.  But remember “the dealer made me do it” is no defense.  This is particularly true for credit unions that have the added requirement of ensuring that any person taking out a car loan is a qualified member.  As summarized succinctly in this indirect lending guidance from the NCUA from 2011:

Indirect lending standards should be consistent with the credit union’s direct (internal) loan underwriting standards. The standards should be reviewed at least annually or more often if risk levels increase or if negative trends begin to surface.  Exceptions to the indirect loan policy should be infrequent. All exceptions should be approved by credit union personnel responsible for administering the indirect lending program and reported to the board of directors for their review.

One other quick point about the article.  Not all securitization is bad.  Financial institutions, and especially smaller ones, need a vibrant secondary market to sell off loans and make new ones to members.  The Times is right to highlight the negative influence that demand for higher yielding securities may be having on auto lending standards, but I just hope that regulators don’t overreact and throw the baby out with the bath water.

*******************************

I’ve done this blog long enough now that every so often I feel like Steve Martin in The Lonely Guy.  When the new phone book is delivered, he runs down the street yelling:  I’m in the book, I’m in the book.  I was excited to find out this morning that the Annual Review of SAR Filings had been published by FinCEN.  California and New York lead the way when it comes to depository institutions filing Suspicious Activity Reports.

On that note, have a nice day.

July 21, 2014 at 8:22 am Leave a comment

CFPB’s publication of narratives is a Bad idea

Those wacky kids at the CFPB are out it again. This time they want to go Wiki leaks with consumer complaints.  They are proposing that the CFPB’s consumer complaint database be expanded to include consumer narratives of complaints consumers agree to publicize. The allegedly offending company would be given the option of responding with its own competing narrative. According to the CFPB,  publishing narratives would “be impactful by making the complaint data personal (the powerful first person voice of the consumer talking about their experience), local (the ability for local stakeholders to highlight consumer experiences in their community), and empowering (by encouraging similarly situated consumers to speak up and be heard)” Let Freedom Ring!

Cut through the hyperbole and what you are left with is a debate about the value of empowerment of which I am proudly on the losing  side. Amazon just celebrated its twentieth anniversary and, in addition to providing us books and consumer goods with great service at a lower price, it gave us the consumer narrative review. I have never used one of the narratives to buy anything of value. Given the choice I will look at Consumer Reports before I buy a TV or read a book review written by an expert when deciding what to read next. To me these are more reliable than on someone so enamored or annoyed about a product or service that they actually took the time to sit down and write a review. The internet indeed can “empower” anyone to think they are an expert but that doesn’t make them one..

But I am a dinosaur . More and more people are as likely to get their news from Facebook as from the New York Times. The whole idea of an information hierarchy is viewed with suspicion. What is the big deal they say? After all if someone doesn’t find an internet review-or an association blog for that matter -credible than they can just ignore it. They can just ignore a complaint they find on the CFPB’s website.

The problem is that the mere fact the complaint is on a government database is going to be giving complaints much more credence than they deserve.  I was against the CFPB granting public access to its credit card complaint data base because I believe that the CFPB has an obligation to investigate complaints before throwing them out to the general public. Unsubstantiated allegations can do a lot more harm than good.   A Government website isn’t a free market place of ideas. Unlike those reviews on Amazon it has the government’s imprimatur.            

Not to worry says the CFPB; the accused company will always have the right to respond. But responding takes time and resources and the mere fact that a response is made to an allegation doesn’t mean that the damage is undone. For instance let’s say someone accuses XYZ credit union of discrimination after being denied a car loan. Publishing a response that the member was subject to the same race neutral criteria as everyone else won’t undue the seriousness of the allegation.

CFPB should pull the plug on this idea but it won’t. Here is a compromise: Lets recognize that not all financial institutions have the time to respond to a consumer narrative or the resources it takes to martial an effective PR campaign against serious but unsubstantiated allegations. Let’s establish a threshold for company size below which the narrative won’t be made public. It will still be sent to the CFPB which can investigate it; it will still be sent to the institution for a response and the consumer will still have all the legal rights and remedies he has today but smaller institutions won’t have to choose between letting an allegation fester or engaging in a public dispute with a disgruntled consumer at the same time they are trying to run a business. Here is a link to the proposal Institutions have 30 days after publication to respond.

http://files.consumerfinance.gov/f/201407_cfpb_proposed-policy_consumer-complaint-database.pdf

See you Monday

July 17, 2014 at 8:59 am Leave a comment

UPDATED: Busy day in DC..sort of

July 16, 2014 at 8:55 am Leave a comment Edit

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citigroup over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 9:23 am Leave a comment

Busy day in DC..sort of

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citi Bank over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 8:55 am 1 comment

Court clarifies timeframe for unauthorized withdrawals

How much time do members have to inform you that they have spotted an unauthorized withdrawal from their account after receiving their statements?

The UCC gives consumers a year but that timeframe can be reduced by contract. Just how much that window can be closed has remained an open question in New York for decades until a narrow but an important ruling in New York’s Court of Appeals in May (Clemente Bros. Contracting Corp. v Hafner-Milazzo) held that business accounts opened by sophisticated large businesses could provide companies with as little as two weeks to report unauthorized withdrawals provided they receive adequate notice of account activity.

Clemente Brothers opened business accounts and a line of credit at NorthFork Bank which was subsequently gobbled up by CapitalOne; In order to open up the account it had to pass a corporate resolution specifying who could draw from the accounts and sign an account agreement that provided in pertinent part:

“That unless [Clemente Brothers] shall notify the Bank in writing within fourteen calendar days of the delivery or mailing of any statement of account and cancelled check, draft of any claimed errors in such statement, or that any such returned Instrument was forged…or that it was raised or otherwise altered … “ the account shall be considered correct for all purposes and said Bank shall not be liable for any payments made and charged to the account

All good unauthorized withdrawal cases seem to start with wayward employees and in this case a bookkeeper had been forging Clemente’s signature on certain CapitalOne Bank documents, including drawdown requests on the line of credit and checks paid from one of Clemente Brothers’ accounts. The company claimed she embezzled approximately $386,000 over the course of approximately two years, from January 2008 through December 2009. The withdrawals were discovered in 2010. They claimed that these were unauthorized withdrawals and that the Bank had to make them whole. You probably haven’t looked at the statute in a while. It provides that

1) When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (1) the customer is precluded from asserting against the bank.

 N.Y. U.C.C. Law § 4-406 (McKinney)

 

The court bifurcated its ruling into two parts. The court did not dismiss the case in relation to the unauthorized draws against the line of credit. Even though the company was put on notice that money was being drawn on the line it wasn’t given copies of the actual drawdown requests. Therefore a trial court had to decide if the bank provided adequate notice to the company; chances are it did.

The more interesting question was whether or not the 14-day notice period could be enforced. The Court ruled that:

“Clemente Brothers had numerous employees, regularly moved hundreds of thousands of dollars in and out of its operating accounts, and had the resources to make an informed decision about opening accounts at CapitalOne. Critically, Clemente was fully aware of the terms of the agreements with CapitalOne because Clemente Brothers passed a corporate resolution acknowledging its obligation to notify CapitalOne of any irregularities within 14 days of each statement of account.”

Does this mean that all your account agreements should have a 14-day window? No. The court stressed that its ruling applied to a sophisticated large corporation. It might reach a different result if it was deciding a case involving an elderly account holder or a less sophisticated small business.

So what should you do? Don’t have the same window for members that you do for businesses and make sure you don’t rely on the UCC’s one-year language. The more sophisticated your business account members are, the shorter their notification window can be. No matter what number you decide on, make sure your policy is reflected in the account agreement and that your frontline staff gets the necessary paperwork as part of opening accounts.

Here is a link to the decision and an earlier blog I did on the case:

http://law.justia.com/cases/new-york/court-of-appeals/2014/64-0.html

http://newyorksstateofmind.wordpress.com/2013/07/09/when-does-your-responsibility-for-forged-checks-end/

July 15, 2014 at 9:21 am 1 comment

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Authored By:

Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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