Posts filed under ‘Economy’
I was surprise by how much attention news that New York’s Office Of Court Administration has finalized new debt collection requirements got in yesterday’s papers. I was also kind of embarrassed that I missed all these articles, since I try to bring you the news and information most relevant to your work day. So with an embarrassed “My bad” here is what you need to know about New York’s new debt collection procedures.
Most importantly the new requirements only apply to a narrow but important part of debt collection process. Specifically it applies to creditors seeking default judgments on delinquent open-ended consumer loans pursuant to New York’s CPLR 3215. They do not apply to medical services, student loans, auto loans or retail installment contracts. The way this regulation is drafted it’s possible that courts will expand the type of debt excluded from the new requirements as they begin to interpret the requirements
If a debtor simply refuses to pay a debt, can’t pay a debt or has gone AWOL and the credit union sues her the first step is filing a summons and complaint putting the debtor on notice that they are being sued for the money. Often debtors don’t respond and the next step in the process is to go to court and get a “default judgment”- basically a legal ruling that the debtor owes the credit union. These new requirements are in response to concerns that default judgments are being granted based on inaccurate or incomplete information.
Starting on October 1st, “Original creditors”-that’s you- will have to submit two affidavits when seeking default judgments. The first must be sworn to by someone with knowledge of the facts surrounding the delinquency-i.e. that an open-ended consumer loan was entered into for “X” amount and is now in default. Credit unions should use the “original debtor” affidavit included in the link to the regulations I am providing at the end of this analysis. You will also have to file an additional affidavit attesting to the fact that the statute of limitations has not run out for collecting the debt. These affidavits can’t be combined.
If you sell your debt to third parties, or put third-party collectors in charge of delinquencies headed for court these third parties are required to fill out different affidavits and the effective date for these requirements vary. Give your debt collector a call and make sure he knows about these requirements and how he plans to comply with them…
Here is a link to the regulation and a previous blog I did on the proposal
No news is good news from the Fed
No big news came at of the two day meeting of the Fed’s Open Market Committee and that means that the Grand Mufti’s of the economy have concluded that, since the economy is not going gangbusters, they don’t expect the type of surprises that could cause a sudden spike in interest rates no matter what NCUA is saying.
The Fed is reducing to $5 billion its purchases of mortgage backed securities. At the same time it led its statement on the meeting with its assessment that “economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant under utilization of labor resources.” This is Fed speak for holding the line against interest rate rises anytime soon. There are still lots of room for economic growth before inflation kicks in.
For those of you who like watching the inside baseball a fissure is officially out in the open. Recently installed Vice Chairman Stanley Fisher voted against the Board’s statement on future economic growth. He believes that “the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation.”
Here is the statement.
As Long Island goes so goes the state
Former Assemblyman and longtime state political observer Jerry Kramer has a nice analysis of the outsized part Long Islanders will play in determining if Republicans maintain a piece of control over the Legislature’s Senate Chamber this November or are relegated to the sidelines of state Government . All nine Long Island seats are controlled by Republicans but with two open seats and other competitive races Long Island is no longer a bastion of suburban Republicans. it’s anyone’s guess what the Long Island delegation is going to look like when the Senate shows up in January.
Here is the article.
Your average member isn’t humming “Happy Days Are Here Again” even though the economy is doing much better on paper.
One of the reasons is the increasingly widespread use of stock repurchases. Corporations buy back their own shares, often taking advantage of low interest rates to borrow the purchase money. Stock repurchases provide one more talking point the next time you talk to your local legislator about why credit unions are important sources of localized economic development or, try to explain to your neighbor what a cooperative is before their eyes glaze over and they edge toward other more interesting conversations at the neighborhood party. Incidentally Banks have not been immune from this trend.
The WSJ is reporting this morning that corporations used 31% of their second quarter cash flow on stock repurchases. This week’s Economist takes a look at the trend and dubs it “Corporate Crack” contending that it may be of short-sighted benefit to investors by creating another financial bubble.
Why should you care? For one thing every dollar spent on a share buyback is money not spent investing in new infrastructure or new employees. Corporate America is sitting on more than $1 trillion in cash and the economy really won’t heat up untill it starts spending it. As former Reagan White House Budget Director David Stockman commented in a blog post this past July:
“During the “difficult” economic times since the financial crisis began gathering force in Q1 2008, the S&P 500 companies have distributed $3.8 trillion in stock buybacks and dividends out of just $4 trillion in cumulative net income. That’s right, 95 cents of every dollar they earned—including the huge gains from restructurings, downsizing and job terminations—was flushed right back into the Wall Street casino.”
The trend also underscores why the cooperative financial structure is so important. I like to tell people that credit unions are the last remaining true community banks, I’m no wide-eyed idealist: the simple truth is that credit unions make money by lending it out or investing it. There is no share price to worry about . In contrast, that so-called community bank down the street is probably owned by an increasingly large Bank Holding Corporation thinking of new and creative ways to prop up its share price. So long as the share price and economic growth align this is fine but as Wall Street gets more and more skilled at creating its own economic reality no one can be sure this is really the case.
News of the weird
I had to do a triple take as I was going over some clips last night and read that the National Association of Realtors is getting a proverbial “seatt at the table” as the FAA crafts rules regulating the use of drones. It appears that in a profession dominated by ultra aggressive sales people always looking for a competitive edge some realtors have turned to unmanned aircraft to get a birds-eye view of the latest property for sale. I guess the smell of freshly baked bread to coverup the smell wafting up from the basement just doesn’t cut it anymore
I am exaggerating slightly but I have to do something extra to get your attention after getting my post out late this morning.
Yesterday the Federal Reserve released a report detailing payment trends. When one compares how quickly and dramatically the payment system is evolving with how slowly stake holders and regulators are moving to react, it’s obvious that this is yet another area where technology has outpaced the capacity of regulators, legislators, banks and credit unions to respond to changes in the marketplace.
Why should you care? For the same reason, you should care about the potholes that you have to avoid on the way to work, or the dilapidated train tracks on which you may commute. At some point, these cross the line from being inconveniences to impacting your ability to provide the services members expect. Think of it this way: our payment system is basically a cutting edge version of the Pony Express at a time when virtual currencies, for all their defects, demonstrate that there are cost-effective ways to facilitating instantaneous clearing of payments without the intervention of third parties.
Paper checks are headed for an exhibit in the Smithsonian within a couple of decades at the latest. My five-year old didn’t know what a pay phone was when she saw one A couple of months ago and am positive that her daughter will be equally amused that people used to pay for things by promising to pay for them in writing with paper checks and popping these contracts in the mail. The report confirms that more personalized payment person-to-person payments are beginning to make a mark
One of the trends recognized “in The 2013 Federal Reserve Payments Study is the replacement of check writing as a form of noncash payments to customers’ use of alternative bill payment methods. One alternative to check writing was direct payment to the biller through ACH transactions or via general-purpose cards. Another popular alternative, online or mobile bill payments, was estimated to have 2.5 billion transactions in 2012. Online or mobile person-to-person (P2P) transfers, yet another popular alternative offered by depository institutions, totaled 138.0 million transactions in 2012.”
This is a great example of where our payment system is so out-of-date. Remember that a person paying with a mobile wallet or making a person-to-person transfer has generally not created a “check” sine the item being created was not converted from a paper check. Since 2011 the Fed has considered updating its regulations to provide that a bank receiving and electronically created item has certain warranty claims against a prior bank such as stipulating that a bank that sends an electronically created image “as if” it were a check makes the same promises or warranties that it would if the image was a check. A formal regulation was proposed late last year. To date this hasn’t been finalized. and although it a good first step is only a first step in hashing out the obligations of financial institutions that are going to play an increasingly passive role in the payments process.
Another example is Remote Deposit which is being advertised heavily these days. Do you have remote deposit or are thinking about offering it? Another issue that this regulation is seeking to address for the first time is the liability of parties where a member cashes the paper version of a check that he has also electronically deposited. There are a multitude of issues involved with this technology, and if you want an excellent overview of just how complex and far-reaching they can be get a hold of the December 13 issue of Clocks’ Bank Deposits And Payments Monthly which includes an excellent analysis by the Senior counsel for Wells Fargo. We need an ongoing and quick-moving process where stakeholders look at the most basic premises of our payments system and start from scratch. The Fed is moving in this direction but not fast enough.
One more thought when it comes to virtual currencies. It’s important that regulators not throughout the baby with the bath water. What the bitcoin demonstrates is that, if we were all creating a payment system today, it would put nothing like the one we are trying to retrofit for the 21st century. These changes are coming whether banks and credit unions want them to or not, because consumers are going to demand them. I’d rather have a better regulated modern payment system as opposed to seeing credit unions at a competitive disadvantage because they are constrained by the requirements of an antiquated one.
The links to the Reg CC proposal and the Fed Report are available right here.
This is a huge day for the Meiers and millions of other families across the country. My five year old daughter starts kindergarten today and my 11 year old begins 7th grade. So, don’t get me wrong, I am extremely excited, but forgive me for the gnawing question in the back of my mind: just how the hell am I going to pay for all this?
The USDA recently released its annual report on the cost of raising a child. Since 1960, the report has provided a crude but important snapshot of what it costs to take part in the great American middle class, Nationally, it costs $245,340 to raise a child through age 17 in a middle class household. Families in the urban Northeast incurred the highest cost at a mere $282,480. In contrast, it cost $223,610 to raise a child in the urban South. In 1960, it cost $25,229 nationally or $198,560 adjusted for inflation. This number does not take into account the cost of higher education and all those community-based extracurricular activities we sign our kids up for — soccer, swimming, dance, etc. (you get the idea).
And this statistic also assumes that my children are going to fend for themselves starting at age 18. They’ve already been told I expect them to go to college. As the report points out, this is not a minor expense. In 2013-2014, the College Board anticipates the annual average tuition and fees to be $8,893 for a public 4-year institution with in-State tuition and $30,094 at private, not-for-profit 4-year institutions with an additional $9,498 to $10,823 in room and board expenses. That’s just the average, folks. There are non-Ivy-league schools that are charging $50,000 tuition per year with a straight face.
I always laugh at parents who actually think that the way they are going to pay for college is with a sports scholarship. Statistically speaking, that’s not going to happen. By the same token, I am fooling myself if I think just getting my kids into college is good enough. As this excellent blog from the New York Federal Reserve points out, college pays off but not for everyone. So, as my daughters start school today, I hope they enjoy themselves, learn a lot, and prepare for the life competition that has, for all intents and purposes, already begun.
Here are some things to ponder as you help your kids slip back into reality.
The credit union industry had real, solid growth in the second quarter. I’ve tried to find a soft underbelly to the industry’s economic performance and I can’t find one. The loan to share ratio is up to 71.66 from 70.88 last year, led by rising demand for car loans. In addition, student lending and mortgage loans have also showed marked improvement. The overall trend shows the industry lending out more of its money. There is even a slight decrease in the amount of long term investments but, of course, NCUA says that the current net long term asset ratio of 35.4% remains a “serious threat.” Never mind that interest rates remain at historically low levels, that demand in American bonds will keep yields down for the foreseeable future as Europe continues to struggle, and that there is still plenty of room for growth in the US economy. NCUA is right — someday interest rates will rise and when they do NCUA will say I told you so.
How important is fee income to your credit union? There is an extremely interesting article in the WSJ on fee income. (The very fact that I consider fee income interesting is a sure sign that I should have taken more time off this Summer). The paper is reporting that “As a percentage of total noninterest income, deposit-account fees dropped to 14.1% in 2013, the lowest level since 1942, according to the FDIC data. From 2000 through 2009, those fees accounted for an average of 17% of such income.”
Redlining in Buffalo? Yesterday, the Attorney General accused Evans Bank, a regional bank in Western New York, of intentionally discriminating against African-Americans in Buffalo. This is not a claim based on a disparate impact analysis but a no holds barred claim that the bank had a policy of intentionally denying loans to credit worthy individuals because of their race. “Evans has redlined the predominantly African-American neighborhoods, intentionally excluding these neighborhoods from its lending area; developing mortgage products that it made unavailable to these neighborhoods, notwithstanding the creditworthiness of the applicants; and refusing to solicit customers, market mortgages, or provide banking facilities in those predominantly African-American neighborhoods.” If these allegations are true, good luck to the AG’s office. This is America, not apartheid South Africa.
Janet Yellen gets it even if the markets don’t. How much richer do you feel today with the news that the SAP 500 Index reached record highs yesterday? The ostensible reason for the burst in enthusiasm is that with the Fed Chairman, at best, luke warm to the idea of raising rates anytime soon, the stimulus provided by these artificially low rates will keep the economy growing or so the theory goes.
But I would suggest a more cynical reason for the latest burst of enthusiasm: low interest rates delay the moment when the latest stock market rally comes to an end as people find safer places to put their money that provides them yield.
Which brings me to the point of today’s blog. Increasingly, there is a disconnect between Wall Street and Main Street which is distorting economic incentives and creating a system of haves and have nots where fewer and fewer of your members join in the nation’s economic growth. Chairman Yellen hints at this when she repeatedly points out that the economy, while improving, isn’t nearly as strong as the traditional indicators say it is.
The simple truth is that corporations aren’t investing the way they should at this point of an economic rebound. Talk to your tellers: are members happier or still fretting about economizing? Look at your mortgages: Are members rushing out to get their piece of the American dream? Not even close. Why then is there such a disconnect between the stock market and reality?
One of the research papers sited by Chairman Yellen in her speech on Friday points out that labor’s share of national income has declined dramatically over the last 25 years. Between the end of WWII and the mid-80s, the employees’ share of national income was 64%. Today that share has dipped as low as 58%. The trend was interrupted in the mid 90’s but since then has picked up with a vengeance.
What’s going on? When capitalism is at its best, increased production raises demand to increase wages. The company wins and so does its employees. But today, companies are sitting on record amount of cash and stock buybacks are at an all-time high. In other words, it’s cheaper to invest in markets than it is to invest in employees.
Don’t take my word for it. As the OECD concluded in a research paper last year:
Right now the incentive structure implied by very low interest rates, which may be sustained for a long time, together with tax incentives, works directly against long-term investment. Debt finance is cheap, while the cost of equity capital needed for risky long-term investment is still high (unaffected by low rates). This combination provides a direct incentive for borrowing to carry out buybacks.
Of course, more is going on here than cheap money. The causes of these trends are complex and varied, ranging from a global marketplace to tax policy to an uneven education system, but let’s not ignore the reality that something is going on that will likely impact the prosperity of your members and the growth of your credit union for the foreseeable future.
In the meantime when the stock market goes down, and I mean really down, for a week or two it will actually show the economy is getting better. Companies will have to start investing in real growth again and your average worker will benefit.
NY’s Homestead Exemption has been around since1850 but wasn’t big enough to provide much of a concern to creditors until the last decade. This exemption, like others across the country, shields equity in a principal dwelling up to a statutorily prescribed dollar amount from application of a judgment lien. A recent decision by the Court of Appeals for the Second Circuit that retroactively applied homestead exemption increases further puts creditors on notice that they may not have as much equity to go after as they thought.
Just how much has NY’s homestead exemption increased? It was increased from $10,000 in 1977 to $50,000 in 2005 and now stands at a baseline of $75,000 in 2010 with regional differentials that make it as high as $150,000 in certain counties.
So, you all should take note of a decision by the Court of Appeals for the Second Circuit which answered the following question: Does the 2005 Amendment’s increased homestead exemption apply to judgment liens perfected prior to the amendment’s effective date? The answer is yes.
When Tanya Calloway filed for Chapter 7 bankruptcy in 2009, her house was valued at $110,000 with $85,000 remaining on her mortgage. If the pre-2005 homestead exemption applied then there was still money the creditors could go after but if the $50,000 exemption applied then the creditors were out of luck. 1256 Hertel Ave. Associates, LLC v. Calloway, 12-1603-BK, 2014 WL 3765864.
Deciding the issue for the first time, the Court concluded that “[a]lthough the Legislature made no specific pronouncement as to the 2005 Amendment’s effect on pre-enactment debts, the statute’s legislative history reflects a clear sense of urgency that the homestead exemption limit be immediately adjusted to bring it in line with modern home values.”
This ruling just applied to the retroactively of the Legislature’s 2005 homestead exemptions; however, I would work on the assumption that if you have a judgment lien on someone’s principal dwelling, the court will apply the exemption in effect at the time you move to enforce the judgment. Given how high NY’s homestead exemption is now, your liens may not be worth the paper they are printed on.
European News Impacts Your Search For Yield
News out of Europe this morning that Germany’s GDP shrank and that Europe’s nascent economic recovery ground to a halt will further complicate the search for yield. Here’s why.
First, the yield on the German 10-year bond has actually fallen below 1% for the first time in history. At first blush, this makes no sense. Since interest rates and bond prices have an inverse relationship, why should the cost of buying a German bond increase? Because, like U.S. Treasuries in the dark days of 2008, when the economy is bleakest, investors ultimately want to put their money in the economy where it is safest. This is kind of interesting, Henry, you may be musing, but how does it affect me?
Because, as explained in this article, “low yields in Europe remind us that the current 2.4% yield on the 10-year [U.S.] Treasury Note is actually relatively high.” In other words, if there is no lack of demand for U.S. debt at current rates, then don’t expect that to change in the near future.