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!
Since even lunatics have moments of extreme clarity, perhaps I shouldn’t be surprised that the House of Representatives came dangerously close to acting like a functioning legislative body yesterday and the result actually benefits credit unions.
The House took a break from its ideological frenzy to pass bipartisan legislation (H.R. 3309)supported by the credit union industry that seeks to deter Patent Troll lawsuits by making changes that, in the aggregate, will make plaintiff lawyers think twice before cranking out allegations of patent infringements to see who they can scare into a settlement. For example, the bill’s provisions would allow judges to make the losing party in litigation cover legal costs. In addition, parties bringing patent lawsuits will have to provide more specific information about the actual patent they claim is being infringed on. This may seem like common sense, but as someone who has seen patent infringement complaints sent to credit unions, it isn’t all that easy to figure out precisely what the claimed infringement is.
My quote of the day comes from Representative Peter Welch, Democrat of Vermont, who told fellow members that “patent trolling is a total and complete abuse of the patent system and a total rip off of hard working people.”
Listen, no one should underestimate the value of a patent, but when litigation over patents is actually more valuable than the inventions the patents are ostensibly designed to protect, the system is out of whack. No credit union or any business, for that matter, should have to buy or sell new products with such uncertainty about who owns what. . .
. . .Another example of potential bipartisanship is the news that Senator Patty Murray and Representative Paul Ryan are close to announcing a budget deal. While any news is good news, if press reports are accurate, the deal shows how far we have to go before a so-called grand bargain of spending cuts and tax increases put the country’s finances on a sustainable course. But there’s no need to be too negative here, Congress may actually pass its first real budget in years. We should know more by Monday. A potential sticking point is whether or not the plan includes an extension of unemployment benefits. If this emerges as a line in the sand issue for House Democrats, then Congress will soon revert back to its more accustomed posture of finger pointing and recriminations. . .
. . .One example where bi-partisanship is not going to happen any time soon is in the confirmation process. Politico is reporting that before it leaves town, the Senate will require a simple majority vote to approve the nominations of, among others, Janet Yellen to be the first woman Chair of the Federal Reserve, and Congressman Mel Watt — who has been smart enough not to quit his day job as a North Carolina Congressman pending his appointment — to head the Federal Housing Finance Agency. Does anyone find it strange that the Senate’s solution to ending partisan gridlock is to make itself more like the House of Representatives?
Have a nice weekend everyone and remember don’t be one of those lame neighbors who don’t get around to putting up Christmas lights.
Don’t be surprised if someone asks you that question in the coming days. The Washington Post reports that the Berkeley Labor Center will release a study today critical of the wages paid to bank tellers. According to the report, nearly a third of the country’s half million bank tellers rely on some kind of financial assistance to get by to the tune of nearly $900 million a year in public benefits including food stamps, the earned income tax credit and Medicaid/Child Health Insurance Program. The report is going to have particular prominence here in New York where it will be used by labor groups pushing for higher wages.
The minimum wage is getting a lot of attention lately. For instance, our good friends on the opposite coast in Seattle are actually arguing for a $15 minimum wage. Economists have spent years debating what effect, if any, increases in the minimum wage have on the economy and the debate won’t end any time soon. But the simplest solutions are rarely the best ones. No matter what the economists argue, it is foolishly simplistic to think that the key to helping people make a living is to have government determine a living wage. There are just too many moving pieces when it comes to figuring out how much people need to make ends meet.
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Did I ever mention that Jocoby Ellsbury was my favorite Red Sox player?
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Here’s one for your hard-core compliance people: Yesterday, FinCEN released regulations finalizing the definitions of transmittal of funds and fund transfers in the Bank Secrecy Act. The regulations were required by amendments to the Electronic Funds Transfer Act related to protections for consumers who send remittance transfers. The final regulations clarify that the new remittance transfer requirements do not require expanded record keeping requirements under the BSA.
The Wall Street Journal reports this morning that community banks are slowly fading away. In an excellent analysis of the trend, the paper reports that the number of banking institutions in the U.S. has dwindled to its lowest level since at least the Great Depression. The number of banks has now shrunk to 6,891 and with the exception of one brave — or some may argue, delusioned — group of investors, no one is applying to form new community banks these days.
I’m not highlighting these statistics to disparage community banks. Rather, I’m posting them because the trend highlighted by the article is so similar to that taking place in the credit union industry. For instance, the decline in bank numbers from their peak of 18,000 “has come almost entirely in the form of exits by banks with less than $100 million in assets. . . with the bulk occurring as a result of mergers, consolidations or failures.”
The credit union industry has long recognized that the small institution is fading away. The trend is impossible to miss. But it is one thing to spot a trend, it’s quite another to come to a consensus about what, if anything, to do about it.
Simply put, how much should the industry really care that small credit unions are fading away? I argued in a recent blog for CU Insight (shameless plug) that the decreasing number of credit unions is, in part, a reflection of regulatory overkill. But, the regulatory burden is growing and likely to continue to do so. Only large and growing credit unions are going to have the economy of scale necessary to absorb these costs.
The Wall Street Journal also notes that small banks are the most sensitive to interest rate squeezes. Again, I certainly sympathize with smaller institutions, but unless the economy makes a miraculous recovery, banking margins are going to be squeezed well into the future.
This raises one more question. Is there something that small institutions provide that larger institutions, be they credit unions or banks, simply won’t? Increasingly, I believe the answer is yes, but consumers are unwilling to pay for the better service or home-town feel that can only come from smaller institutions. To me, if I have to choose between a teller’s friendly smile and a convenient online bill payment, I’ll take convenience, especially if I haven’t had my second cup of coffee.
One more thought, with all the hurdles facing both community banks and credit unions, why in God’s name do banks waste so much of their lobbying time trying to destroy credit unions? Looking at these numbers, any community banker who believes that the key to the survival of this industry lies in altering the tax status of credit unions is about as misguided as White House officials extolling the virtues of their improved health care website. There’s so much more that needs to be done. . .
. . .Yesterday evening, the Moreland Commission begun by Governor Cuomo in July to investigate political corruption in the Empire State released a preliminary report. The executive summary recommends various campaign finance reforms, but also takes pains to stress that investigations of political corruption including possible allegations of criminal wrongdoing are ongoing.
Like a kid who slides a bad test score in front of her father on a busy Monday morning hoping he won’t notice the mark, the Obama Administration announced more bad news on the rollout of Obamacare the day before Thanksgiving. No one releases good news the day before Thanksgiving. By the time America’s tryptophan induced slumber has worn off, we are off to battle the Black Friday crowds at the mall.
So, it’s worth reminding you on Monday morning that the government announced that it would be delaying for a year the inauguration of its website for the Small Business Health Options Program, which in the words of the Department of Health and Human Services “will help curb premium growth and spur competition based on price and quality” for small businesses.
What has always intrigued me most about the impact that Obamacare could have on credit unions is how much it would entice credit unions to nudge employees into government based exchanges. Credit unions are a unique industry in that the vast majority of employers are small businesses that offer health care to their employees. This also means that they are acutely aware of how expensive health care has become.
Small employers — defined as employers with either 50 or 100 or fewer employees depending on the state in which you live — who offer qualified health plans will be eligible for various tax credits to help cover the cost of health insurance premiums. Although these tax credits are still taking effect, an Internet-based SHOP exchange was supposed to allow individual businesses to shop and compare health care plans the same way as individuals are supposed to be able to.
On Wednesday, the Administration, which of course is still struggling to get its health care site for individuals up and running, announced that it was delaying its small business website for a year. If you want, you can still shop for small business health plans and take advantage of tax credits with a broker, for instance, but really it’s the Internet that is needed to create a true marketplace where small businesses have leverage.
I have never seen any administration at any level of government self-inflict so much political damage on itself as the Obama Administration has with its health care legislation. Let’s not forget that beyond the political incompetence, there are real practical consequences for a health care system that cannot be sustained in the long run. . .
A few quick notes: The initial take on Black Friday is that consumer spending was a bit more sluggish than retailers had hoped. This is, of course, yet another piece of evidence that for the consumer, the economy remains stuck in neutral. . .
Finally, although this has absolutely nothing to do with credit unions, Amazon.com is planning to use unmanned drones to drop packages at your doorstep within a few years. Can you imagine being the first person in your neighborhood to get that delivery?
Many people, including my wife, accuse me of being a glass half-empty kind of guy. In fact, I’m just a realist. For instance, Thanksgiving is my favorite holiday, although Madison Avenue would like us to believe that the holiday is actually Black Friday eve, I think dedicating one day a year to think about how lucky we are is one of the master strokes of human ingenuity. So, I’ve reviewed my blogs from the past year and here are some of the things the credit union industry should be thankful for. . .
1. NCUA’s announcement that there will be no special assessment in 2014 to pay back the Treasury for the cost of cleaning up the corporates. As an industry we can hold our heads high. Had banks followed our lead, there would have been no mortgage meltdown. But when it came time to repay the government for its economic consequences, we paid it back in full without any subsidies from the U.S. government, which is more than many community and commercial banks can say.
2. We work for an industry that people love. Trust me, as someone who has spent a good chunk of his adult life in and around the state legislature, this is not something to take for granted. Our greatest strength as an industry remains the credit union’s brand. For tens of millions of Americans, credit unions stand for a fair deal.
The only credit unions I get angry at are the ones that don’t understand that living up to this ethos is one of the keys to the industry’s survival.
3. Credit unions are already in compliance with most of the mortgage regulations, they just don’t know it yet. At their core, the mortgage regulations are about forcing lenders to document why a borrower has the ability to repay. They are also about making a good faith effort to work with delinquent homeowners. Many of you do these things. If you start documenting your policies and procedures, you will find that you are about 90% in compliance with the new mortgage mandates.
Happy Thanksgiving everyone. See you next week!
The minutes from the most recent FED Open Market Committee meeting are getting a lot of attention (http://www.zerohedge.com/news/2013-11-24/banks-warn-fed-they-may-have-start-charging-depositors), not because of the increasingly redundant debate about if and when the FED will “taper” its bond buying program, but because of the FED’s discussion of what it will do to keep downward pressure on interest rates even after its bond buying binge ends. Specifically, this passage is getting some major banks riled up:
Participants also discussed a range of possible actions that could be considered if the Committee wished to signal its intention to keep short-term rates low or reinforce the forward guidance on the federal funds rate. For example, most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions. By contrast, participants expressed a range of concerns about using open market operations aimed at affecting the expected path of short-term interest rates, such as a standing purchase facility for shorter-term Treasury securities. . . (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20131030.pdf)
By way of background, the interest on excess reserves is the interest that FED banks pay to financial institutions for holding their excess reserves. Keep in mind that the FED has always sought to underscore its intention to keep interest rates low long after the bond buying ends. This may seem like an obvious point, but when conventional wisdom was that tapering was imminent over the summer, there was also speculation that the FED would soon raise interest rates. As a result, the FED’s comments are best understood as part of a wider discussion about how to make sure its interest rate intentions are abundantly clear.
Still, the suggestion that the FED might cut back on the interest it pays for these funds has gotten “leading banks” to publicly state that they would start charging depositors for the right to deposit their money if the FED cuts its own interest payments.
To be sure, accounts cost money. But I just can’t wait to see the backlash as bankers try to explain to the public why it simply isn’t worth it to take their money. Instead of the FED coming up with new and creative ways to unofficially cap interest rates even after the tapering has ended, why doesn’t it just continue the tapering program? It might seem like an awfully simplistic way of looking at things, but it’s not too difficult to figure out that we have a sluggish economy and a continuing need to encourage lending and investment.
On that note, have a happy Monday and remember the holiday season is just three days away.
You can tell we’re on the brink of the holiday season. Our regulators and policy makers are rushing to get stuff out the door before things slow to a snail’s pace. Here are the major things in descending order of importance that you should take a look at when you get a chance.
1. NCUA announced that, barring unforeseen developments, there shall be no corporate stabilization fund assessments in 2014. The announcement follows the Justice Department’s record settlement with J.P. Morgan over allegations of mortgage fraud which included $1.4 billion for NCUA. Let’s give credit where it’s due, the NCUA deserves a lot of credit for leading the charge on this one.
2. As you probably already know, on Wednesday afternoon the CFPB released its final regulations (http://www.consumerfinance.gov/blog/a-final-rule-that-makes-mortgage-disclosure-better-for-consumers/) replacing the Good Faith Estimate the “early TILA” and the HUD-1 with two new disclosures; one to be given at the beginning of the mortgage selection process, the other to be given three days before closing. First, the good news. The CFPB backed away from its initial proposal to increase the number of fees that would have to be included in calculating the APR on mortgage documents. This means that we don’t have to worry about learning new calculations or explaining to prospective home buyers that their mortgages aren’t any more expensive than they used to be, they just look that way. In addition, the CFPB has given us until August 2015 to fully implement these new disclosures.
The only really bad news I can find so far is that the CFPB didn’t back away from its requirement that closing notices be provided three business days before the closing, but even this has a silver lining. The CFPB gave homebuyers much greater flexibility to waive the three-day requirement.
3. Yesterday, the NCUA finalized its most controversial proposal in recent years. (http://www.ncua.gov/about/Documents/Agenda%20Items/AG20131121Item3b.pdf) CUSOs will now be mandated to file financial reports directly with the NCUA. CUSOs that engage in activities that could systemically impact the industry such as those providing information technology support and mortgage servicing will be required to provide detailed financial reports to the agency. In contrast, CUSOs that provide services such as marketing will only be required to provide basic pedigree information such as the name of the company and its tax identification number.
NCUA has no authority to directly regulate CUSOs so this new oversight power will be exercised by mandating that credit unions only contract with CUSOs that are willing to abide by these requirements. In my ever so humble opinion, this is an extremely aggressive interpretation of its regulatory powers. There is nothing that NCUA is going to accomplish through this regulation that could not have been accomplished by more aggressively holding individual credit unions responsible for lax due diligence.
4. Nuclear fall out. Yesterday’s news was dominated by the decision of Senate Democrats to exercise the so-called nuclear option (http://www.politico.com/story/2013/11/harry-reid-nuclear-option-100199.html). Before the rules change, a minority party could require that three-fifths of the Senate (60 votes) be required to affirmatively vote in favor of Presidential appointments. Reacting to Senate Republican attempts to categorically refuse to fill vacancies to the federal D.C. Circuit. the Senate majority rammed through a rules change yesterday under which presidential appointments to both the Judiciary and Executive Branch Offices can be approved by a simple majority. As it stands right now, the rule change wouldn’t apply to Supreme Court nominations or legislation. But now that the Rubicon has been crossed, it’s hard to believe you won’t see the 60 vote threshold eliminated for everything.
Several of the appointments have important consequences. For instance, Congressman Mel Watt was nominated to be the head of the Federal Housing Finance Administration, which is a hugely important position as it oversees both Freddie Mac and Fannie Mae. When Watt was nominated by the administration I blogged that it was a blatantly political choice as the Congressman had no chance of being approved by the Senate. Now, he will most likely take the helm of this important post,
In addition, although no one really thought that Janet Yellen’s nomination to be the next Chair of the Federal Reserve was in danger, the Senate’s move eliminates any possibility of last-minute glitches for Yellen to become the Fed’s first female Chairman.
And remember, all this started because of Republican intransigence over nominations to the D.C. Circuit. Don’t underestimate just how important this Circuit is. It has aggressively moved to curtail the power of agencies to promulgate regulations that go beyond the plain reading of the statute. The best example of this is, of course, the recent ruling on the Durbin Amendment. The Court is also where future challenges to CFPB rulemaking will play out.
5. Although it doesn’t directly impact credit unions, you should take a look at a guidance issued yesterday by the OCC and the FDIC (http://www.occ.gov/news-issuances/news-releases/2013/nr-occ-2013-182.html) cautioning banks against the use of so-called “deposit advanced products” without having proper underwriting procedures in place. Critics of these types of loans argue that they share many of the same characteristics as pay-day loans.