Posts filed under ‘Compliance’
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.
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.
Much of what the CFPB has done so far is mandated by Congress. We will start to see just how far reaching its powers are when it comes to promulgating changes to regulations that aren’t mandated by Congress but harm the Bureau’s sensibilities. I’m concerned that the Bureau is asking itself how a statute would have been implemented had it only been around.
Which brings us to the CFPB’s request for information about debt collection practices under the Fair Debt Collection Practices Act (FDCPA) in a wide-ranging ANPR published in the Federal Register on November 12 (https://www.federalregister.gov/articles/2013/11/12/2013-26875/debt-collection-regulation-f). Judging by its questions and the tone of the ANPR, there is a very real risk that a new regulatory regime on debt collection practices will impose mandates similar to those already burdening mortgage servicers and originators.
Most troubling to me is how the Bureau feels that regulations have to be promulgated to curb the alleged excesses of creditors — meaning your employees who have the audacity to call up members behind on their car payments and mortgage loans. As explained by the Bureau:
Congress excluded such creditors in 1977 because it concluded that the risk of reputational harm would be sufficient to deter creditors from engaging in harmful debt collection practices.[FN51] However, experience since passage of the FDCPA suggests that first-party collections are in fact a significant concern in their own right. For instance, the FTC receives tens of thousands of debt collection complaints each year concerning creditors.[FN52] The Bureau likewise has brought a debt collection enforcement action against a creditor,[FN53] and it recently issued a supervisory bulletin emphasizing that collectors, including creditors, need to ensure that they are not engaging in unfair, deceptive, or abusive, acts and practices. . .
What kind of regulations would creditors face? Judging by the questions posed in the ANPR, virtually everything is on the table ranging from the federal registering of debt collectors to enhanced notice requirements for the debtors.
All this has been proposed in the name of protecting people who have steadfastly refused to repay their debts. Furthermore, with or without regulations, pop FDCPA into any legal database and you quickly find out that there is no shortage of lawyers willing to extend protections to debtors who are wronged by an overly aggressive debt collector.
We are just in the preliminary stages of the regulatory process and I know you have a million other thing to do. But, please do yourself a favor and weigh in on the ANPR both to educate the CFPB about how credit union creditors don’t need more regulations and how this is no time to be imposing a whole new regulatory regime on financial institutions.
People are justifiably outraged by the incompetence with which the Government has rolled out the Affordable Care Act. From cancellation notices to botched websites, the Government has played right into the hands of those who argue that it isn’t competent enough to get too involved in people’s lives.
But what I am more than a little bemused by is why the American public hasn’t saved at least a little of its outrage against the elected officials and regulators who have done next to nothing to address the core issues that led to the financial crisis. Millions of people were thrown out of work as a direct result of activities carried out by some of our largest banks and more than five years after the meltdown began, the Government has still not done enough to implement even the relatively modest reforms Congress was able to agree to.
This is not blogger hyperbole. The GAO concludes in the first of two reports it will be releasing analyzing Government support for the largest bank holding companies, that while agencies have made progress, key regulations intended to limit the “too big to fail” safety net for our largest banks have yet to be fully implemented (http://www.gao.gov/products/GAO-14-18). In addition, it is yet to be determined how effective these regulations will ultimately be even if they are implemented.
Isn’t it great that there’s more of a political consensus, at least within the Republican Party, for cutting food stamps and unemployment benefits than there is to making fundamental changes to the way our largest banks are regulated? If you really believe in the free market, then the only way to truly regulate these behemoths is to put their share holders and executives on notice that they are not too big to fail. According to the GAO, the largest four U.S. holding companies each had at least 2,000 separate legal entities as of June 30, 2013. Does anyone really think an entity that big can be effectively managed, let alone regulated? Does anyone really think that if these banks are allowed to stay this large that they will be allowed to fail if and when they mess up again?
Meanwhile, credit unions, and to be fair, many small banks, are bombarded with a never-ending supply of CFPB initiatives. Something’s not right here. I’ve said this before, and I’ll say it again. No credit union or bank should be subject to any new regulations issued by the CFPB until all the Dodd-Frank provisions and regulations intended to be imposed on the nation’s largest financial institutions are actually implemented and operational. I know this could never happen, but even getting a proposal like this introduced would show just how much the country has missed he mark with it comes to cleaning up the financial industry.
When Congress passed the Telephone Consumer Protection Act (TCPA) in 1991, a smart phone was an oxymoron and automated recordings were as grating as fingernails running across a chalkboard. Fast forward to the Siri world of 2013. Even though it was intended to protect consumers from being inundated with automated solicitations, it is now emerging as the latest legal speedtrap used by plaintiff’s lawyers willing to nickel and dime businesses that have the audacity to try to collect on a debt owed them.
If you think this is an exaggeration you might be interested in knowing that Bank of America agreed to a $32 million settlement for alleged violations of the TCPA, and that a recent decision by the federal Court of Appeals for the Third Circuit, if followed by other courts, will make the TCPA into another one of those nettlesome consumer protection statutes that marginally benefit consumers and make compliance more expensive, but help plaintiff lawyers send their kids to college.
First, everything I’m talking about just applies to the use of automated phone calls. If you just reach out and touch your debtors the old fashioned way, the TCPA doesn’t apply to you. Plus, the prohibitions I’m talking about don’t apply to informational phone calls. So the recorded message I just listened to reminding me of an upcoming doctor’s appointment aren’t affected by the statute, nor would a phone call to a member informing them of a low account balance or suspicious credit card activity.
The TCPA makes it unlawful for any person to make any call using any automated telephone system or artificial or pre-recorded voice to any land line phone, cell phone or pager (remember when pagers were cutting edge technology?). The prohibition does not apply to consumers who have voluntarily consented to receive phone calls from businesses by, for example, giving a credit union their land line telephone number when they open an account. The FCC has interpreted the statute as putting the burden on the business making a phone call to prove that the consumer has consented to be called. Violators can be slapped with statutory damages equal to $500 for every single negligent violation of the statute or $1,500 for every willful violation of its provisions.
In mid October, regulations took effect which are important to your marketing department if you ever plan on sending out one of those obnoxious autodialer advertisements. Most importantly, members must now provide clear and conspicuous consent to receive autodialed marketing pitches. This means that simply getting a member to give you his or her telephone number as part of the account opening process is no longer adequate to demonstrate your compliance with the law. Instead, there has to be a written consent on the part of the member. If you get this consent either with an in-person signature or in conformity with the E-Sign Act, you can rest easy.
Everything I’ve said clearly applies to members who provide you with a traditional land line number. But what happens if the member gives you a cell phone number instead? Here’s where the courts are beginning to make things a little dicey. First, in that Bank of America settlement referred to above, the Bank decided to settle a class action in which the plaintiffs contended that the Bank or its agents “illegally contacted” debtors via their cell phone with a pre-recorded message. In other words, the fact that Bank of America was willing to settle is an indication that there are special risks when reaching out to someone’s cell phone and this is why you are beginning to see lawsuits in which alleged violations of the federal Fair Debt Collections Practices Act are coupled with allegations of TCPA violations.
Another troubling example of this trend is Gager v. Dell Financial Services, in which a delinquent debtor claimed that the company was violating the TCPA by continuing to send pre-recorded messages to her cell after she told the company she no longer wanted to be contacted. The company pointed out that she had previously consented to being called but the Court ruled that this consent could be withdrawn at anytime and that the exception for robo-dialing members with whom you have an established relationship only applied to land line phones.
If you are in Third Circuit’s jurisdiction your credit union has fewer collection options for the consumer who relies on her cell phone as compared to the consumer who continues to cling to the increasingly antiquated land-line phone. The good news is that this ruling is inconsistent with at least two New York federal court rulings, which have held that the TCPA doesn’t give consumers the right to revoke automated phone calls. Unfortunately, the FCC’s regulations didn’t address the issue of if and when a member can revoke prior consent. However, the preamble material clearly strengthens the argument that the existing business relationship exception does not apply to cell phone usage.
This is one of those arcane areas of law where mistakes are both easy to make and easy to avoid. If your credit union contracts with third party debt collectors, I would reach out to them and see what precautions if any they are taking to make sure they don’t get tripped up by the TCPA.
Since the CFPB unveiled its Qualified Mortgage regulations that take effect in January, a once esoteric question obsessed over by legal geeks has been the following: can a lending institution exclusively provide mortgages that constitute Qualified Mortgages under the CFPB’s regulations and violate fair lending laws? Yesterday, several agencies, including the NCUA, answered this question with a qualified no, but their guidance underscores why fair lending laws are going to be a prominent area for compliance officers and lawyers in the months and years to come.
Since many of you read this blog when you get to work and have not yet finished your second cup of coffee, I’ll provide you a quick primer on the QM ability to repay distinction one last time (promises, promises). All mortgages must now be granted only after the lender can document why the borrower has the ability to repay the mortgage loan. While so-called ATR mortgages receive no special legal protections in the event that a borrower contests a foreclosure, so long as the credit union can document that it has taken basic underwriting criteria into account, the credit union will be on solid legal ground. In contrast, qualified mortgages are mortgages that meet specific criteria outlined by the regulations. For example, to be a QM a borrower must have a maximum debt to income ratio of 43%, points and fees that generally exceed no more than 3% of the mortgage loan (although this varies depending on the size of the mortgage), or be eligible for sale to Fannie or Freddie. QM mortgages receive important legal protections, at least in theory, for which ATR mortgages do not qualify. If the system works as envisioned, a delinquent home buyer will have no defense to a foreclosure on a documented QM mortgage.
Which brings us to the nub of today’s blog. The Equal Credit Opportunity Act outlaws credit practices and procedures that have the effect, whether or not intended, of disproportionately impacting people on the basis of, among other things, race, sex, national origin and age. Now, let’s say you’re a bank or credit union that decides that the best way to comply with all these new Dodd-Frank requirements is to just make QM mortgages. The simple truth is that this policy shift would have a disparate impact on minority groups since the more stringent criteria puts groups of people who have, in the aggregate, less financial means at a disadvantage. Will lending institutions be violating the law by shifting to QM only mortgages? At least according to this group of regulators, the answer is probably not. Specifically, the guidance provides as follows: “the Bureau does not believe that it is possible to define by rule every instance in which a mortgage is affordable to the borrower. Nevertheless, the agencies recognize that some creditors might be inclined to originate all or predominantly Qualified Mortgages, particularly when the Ability to Repay rule first takes effect.”
This is great language, but as with almost all things legal, it comes with the type of twist that helps keep people hooked on attorneys and compliance officers. In almost a throw-away line in the memo, the agencies state that they “believe” that the same principles apply to the Fair Housing Act, another federal law that outlaws housing discrimination more broadly than does the Equal Credit Opportunity Act.
Why the hesitation? For one thing, the Supreme Court will be hearing a case later this term in which it will decide whether disparate impact analysis is even authorized under the Fair Housing Act. In addition, the FHA has independent authority to interpret the Fair Housing Act and it, noticeably, did not sign off on this memo. This is particularly important since the FHA has highlighted the continuing importance of disparate impact analysis by promulgating regulations on this issue earlier this year. This raises the very real possibility that while one set of regulators will be sanctioning QM loans, another regulator will seek to discourage their use, at least when such practices have the impact of depressing home ownership for protected classes.
I’ll be blogging more about this in the future. In the meantime, have a nice day.
Flood insurance is in the news. The cost of obtaining it is rising; new federal regulations are under consideration; and so-called “super storms” like Sandy — which is nearing its first anniversary — have underscored the importance of the product to both consumers and lenders. Unfortunately, I get the sense that at least some credit unions make the issue of mandatory flood insurance more difficult than it has to be.
For example, let’s say a member comes to you for a mortgage. The map says he’s in a flood insurance zone, but the member claims he isn’t. Your credit union is violating federal law if it knowingly gives a mortgage on property in a flood zone. In other words, you aren’t doing your member any favors by overlooking this requirement. You are simply putting your other members at risk for the potential cost of uninsured flood damage.
I know that there are circumstances where there are reasonable disputes as to whether or not a given piece of property actually requires flood insurance to qualify for a mortgage. Remember, there are already mechanisms in place where an aggrieved member can contest mandatory flood insurance with the federal government, specifically our good friends at FEMA. This may be little comfort to your member, but the bottom line is your credit union simply does not have a dog in this fight.
Finally, keep in mind that the insurance is actually mandated to protect the lender. The member whose contesting the need for flood insurance today will undoubtedly forget this fact if his house becomes flooded tomorrow. The cost of flood insurance is rising, but your credit union faces potential liability if it fails to require flood insurance for mortgages where it is necessary.
These are all basic steps, and for those of you already taking them, I apologize. But for those of you who aren’t, and I know you’re out there, it’s time to re-examine your approach.
If the Bureau was a creation of the twentieth century, we could all breathe a sigh of relief this morning. The Bureau released the first of its Dodd-Frank mandated reports analyzing the CARD Act, which was passed in 2009, and the Bureau’s overall assessment is that the legislation has worked pretty much as Congress intended. Specifically, credit card over limit fees, and arbitrary repricing of the cost of credit “have been largely eliminated” because of the Act. What’s more, young people are no longer getting solicitations for credit cards they cannot afford.
The credit card industry will never be perfect for the consumer protection champion, but with so many other regulations being imposed in the coming months, surely the overall effectiveness of the CARD Act means that credit unions can take their open-ended disclosure vendors off speed dial, at least for a while.
But alas, this regulator is not a relic of the twentieth century but a cutting edge regulator born in the twenty-first century dedicated to the proposition that every regulation impacting consumers should be rewritten to reflect the way it would have been promulgated had the CFPB been in charge. So even though the CARD ACT has been generally successful, here are some of the issues highlighted by the CFPB that could ultimately impact credit union operations in the months or years ahead.
- Portal transparency issues. With more and more people paying their bills online, “it is unclear how easily the full set of required disclosures . . . could be translated into an online payment screen.”
- Deceptive add-on products. While the Bureau isn’t going to do away with add-on products such as debt and identity theft protection, it’s more than a little miffed, let’s say, at what it considers the deceptive way in which some of these products are advertised. Be as clear as possible when advertising these additional services.
- The dreaded grace period. How well do you disclose your grace period? For instance, do you explain if and when members are assessed interest between the beginning of a billing cycle and the date in which payment is due in full?
Now, I am not saying that the CFPB will be proposing new regulations in these areas tomorrow, but, let’s face it, for consumer advocates, the reworking of Regulation Z’s open ended lending regulations is the holy grail. With the CARD Act, Congress went further than I ever thought it would in placing substantive restrictions on credit card issuers. For the CFPB, these restrictions are a nice start, but I doubt they go far enough.
Governor Cuomo took the lead in announcing regulations yesterday intended to crack down on force-placed insurance practices. The regulations are the culmination of a two-year investigation by the Department of Financial Services, which oversees both the insurance and banking industries in NY. They seek to address what the state feels are excessive premiums and insurer-servicer relationships that pose conflicts of interest. The regulations should not have much of a direct impact on credit unions, particularly since most of the notice requirements can be satisfied by complying with the notice requirements the CFPB has already put in place (12 CFR 1024.17(k)), but you should definitely be mindful of these new restrictions.
The regulations outline several prohibited practices that also apply to mandated flood insurance. For example, insurers are prohibited from:
- issuing force placed insurance on mortgage property serviced by a servicer affiliated with the insurer;
- paying commissions to a servicer or a person or entity affiliated with a servicer; or
- splitting premiums on force placed insurance with a servicer.
The regulations take effect 30 days after their publication in the State Register.
On that note, enjoy your weekend and let’s hope the Giants win one for the Gipper.