Posts filed under ‘New York State’

NYS: Dot I’s and cross T’s when collecting Zombie Debt

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

http://www.nycourts.gov/RULES/Consumer-Credit-Rules-Affs-Notice-091614.pdf

   http://newyorksstateofmind.wordpress.com/2014/05/01/beware-of-zombie-debts/

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.

http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm

 

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.

http://www.cityandstateny.com/2/politics/new-york-state-articles/new-york-state-senate/long-island-will-determine-balance-of-power-in-senate.html#.VBefWy5dVXI

 

http://www.nycourts.gov/RULES/Consumer-Credit-Rules-Affs-Notice-091614.pdf

 

September 18, 2014 at 9:06 am Leave a comment

Courts Split on Legality of Surcharge

As readers of this blog know, last Fall a federal district court in Manhattan ruled that New York’s law banning merchants from imposing surcharges on credit card purchases violated the First Amendment of the Constitution. An appeal of that decision is currently pending. (In the interest of full disclosure, the Association has filed a friend of the court brief urging the Second Circuit to side with New York’s Attorney General and reverse this ruling).

New York isn’t the only state where laws prohibiting credit card surcharges are being challenged. As the Second Circuit prepares to decide whether New York law violates the Constitution, a recent decision in Florida upheld a Florida statute that also caps credit card surcharges. The decision underscores that, although surcharge litigation may have started in New York, it won’t end there. The Second Circuit decision will set precedent for other states where this issue will be litigated. In addition, the surcharge litigation deals with issues beyond the propriety of surcharges. The litigation will help delineate the boundary between the protections guaranteed by the First Amendment and the rights of regulators and legislators to place restrictions on how information is presented to consumers.

On the off chance that you haven’t been paying much attention to the issue, here is a quick recap. Section 518 of NYs General Business Law prohibits merchants from imposing surcharges on credit card purchases. At the same time, it permits merchants to offer cash discounts. In Expressions Hair Design v. Schneiderman, 975 F. Supp. 2d 430, 435-36 (S.D.N.Y. 2013), Judge Radcliff held that the distinction prohibited merchants from informing customers about the true cost of credit. In addition, he argued that the surcharge prohibition made all consumers pay for the increased cost of credit transactions by making it impossible to restrict the extra charge to customers paying with credit cards.

But, most importantly, the Judge concluded that:

Under the most plausible interpretation of that section, if a vendor is willing to sell a product for $100 cash but charges $102 when the purchaser pays with a credit card, the vendor risks prosecution if it tells the purchaser that the vendor is adding a 2% surcharge because the credit card companies charge the vendor a 2% ‘swipe fee.’ But if, instead, the vendor tells the purchaser that its regular price for the product is $102, but that it is willing to give the purchaser a $2 discount if the purchaser pays cash, compliance with section 518 is achieved…. this virtually incomprehensible distinction between what a vendor can and cannot tell its customers offends the First Amendment and renders section 518 unconstitutional.

Conversely, one could argue that there are fundamental differences between prohibiting surcharges, as New York and other states do, and allowing merchants to surcharge credit card purchases without restriction. After all, in Australia where surcharge bans were eliminated, consumers are now demanding that they be re-imposed. Furthermore, legislators and regulators place restrictions on how information is presented to consumers all the time. If restrictions such as New York’s run afoul of the Constitution then an important tool for consumer regulation is being removed.

Which brings us to the impetus for today’s blog. Recently, a Florida court upheld Florida’s surcharge ban against claims that it violated the Constitution.

This statute is no more a First Amendment violation than are the Truth-in-Lending Act, which restricts how a lender can pitch its interest rates, and the Fair Debt Collection Practices Act, which restricts how a creditor can present its claim for repayment. A whole host of statutes impose similar restrictions on the relationships between businesses and their customers, and many implicate communications.

The Florida case is Dana’s Railroad Supply, et al V. Pamela Jo Bondi (CASE NO. 4:14cv134-RH/CAS).

The fact that two courts came to such different conclusions underscores that the issues raised in these cases are going to be litigated for years to come as higher courts try to reach a consensus on if and when surcharge bans violate the Constitution.

On that note, have a great weekend, even if you, like me, feel an obligation to watch the Giants game.

September 12, 2014 at 8:56 am Leave a comment

Five Thursday Tidbits

Since I didn’t do a blog yesterday, I have too much to talk about today. So, with the caveat that you may see me expand on anyone of these subjects in the future, here are some tidbits to consider as you start your credit union day.

Greetings Congressman Nussle — I’m sure CUNA is relieved to know that I think they did a great job in hiring former Republican Congressman and Budget Director Jim Nussle. First, the political winds are blowing to the right and if the industry is to get big-ticket items done on a national level it needs a guy who can get Republicans listening. Plus, Nussle knows the budget as well as anyone, and given his bona fides as an advocate of deficit reduction he is well positioned to swat away tiresome complaints about the credit union tax exemption and keep Congress focused on issues that help credit unions help members. Welcome to the fight.

http://www.cutimes.com/2014/09/09/cuna-names-jim-nussle-new-ceo?eNL=5410236b140ba09202dff0dd&utm_source=Daily&utm_medium=eNL&utm_campaign=CUT_eNLs&_LID=127666171

 How much should foreclosure’s cost? Earlier this week, Benjamin Lawsky, the Superintendent of the DFS, sent a letter to Melvin Watt, the head of the FHFA urging him to quash a proposal for Fannie Mae and Freddie Mac to charge more for buying NY mortgages. Specifically, the FHFA is considering increasing the guarantee fee  “g Fees” GSE  charge on New York mortgages as well as those of four other states by 25 basis points to account for increased foreclosure costs. The other impacted states would be Connecticut, Florida and New Jersey. The DFS argues that the FHFA is relying on data that negatively skew the cost of foreclosing in New York and that, by penalizing New York and others, it is penalizing states for providing enhanced protections for homeowners. Here is the thing: the GSEs have a point, as well-intentioned as some of NYs foreclosure laws are, every new procedural hurdle or mediation delay makes owning a house more expensive for everyone. There are real costs involved in keeping someone in a house they can’t afford. Conversely, is it fair to make New York homeowners, the vast majority of whom won’t default, pay an increased burden? The real solution is for the Legislature to reexamine some of the protections it has put in place and see what steps can be taken to make the foreclosure process more efficient. I’m not holding my breath. Here is a link to the letter: http://www.dfs.ny.gov/about/press2014/pr140909-ltr.pdf.

The CFPB announced inflation adjusted thresholds after which Regulation Z will not apply to consumer transactions. Specifically, the Bureau that never sleeps announced, “[t]ruth in Lending Act and the Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less in 2015 – an increase of $1,100 from 2014. However, private education loans and loans secured by real property (such as mortgages) are subject to the Truth in Lending Act regardless of the amount of the loan.“ Here is a link to the announcement:

 http://www.consumerfinance.gov/newsroom/agencies-announce-increases-in-dollar-thresholds-in-regulations-z-and-m-for-exempt-consumer-credit-and-lease-transactions/

Here is an earlier blog I did on the topic:

http://newyorksstateofmind.wordpress.com/2013/01/03/do-foreclosures-cost-too-much/

Judging by the interest generated by this topic at yesterday’s Legal and Compliance Conference, many of you are aware that even if your credit union is not unionized, your employers have a right to use social media to complain about workplace conditions where such   employees are deemed to be taking  taking concerted actions against work place conditions. Just how broadly this right can be interpreted is underscored by this blog post from Bond, Shoenick & King. It summarizes a recent administrative ruling by the NLRB in which it held that restaurant employees were wrongly terminated after complaining about sloppy paperwork by the owners that cost employees increased taxes. referring to your boss as an “Ass” on Facebook is not grounds for dismissal so long as other employees join in your complaints For more information on just how much employees can bad mouth their employers with impunity, here is the post.

http://www.nylaborandemploymentlawreport.com/2014/09/articles/national-labor-relations-board/nlrb-holds-that-discharge-of-employees-for-facebook-conversation-was-unlawful/?utm_source=Bond%2C+Schoeneck+%26+King%2C+PLLC+-+New+York+Labor+And+Employment+Law+Report&utm_campaign=5aab769511-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_2ab9a4cab2-5aab769511-70137121

Lost in all the hype about the new Apple product roll out was the tidbit that banks have agreed to pay Apple a fee for every transaction made on its Mobile Systems program. Apple’s technology may not be game changing, but its potential to change the payment system model is. The details are still sketchy. More on this in the future.

http://www.reuters.com/article/2014/09/10/apple-payment-idUSL3N0RB25420140910

 

 

 

 

September 11, 2014 at 9:13 am Leave a comment

Three Things To Ponder As You Start Your CU Day

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.

 

 

 

 

September 3, 2014 at 8:27 am Leave a comment

Some More Good News About Prize-Linked Savings Programs

As many of you already know, New York credit unions support legislation (A.9037a Robinson/S.6805b Lanza) that would authorize credit unions and banks — if and when they get regulatory approval — to offer prize-linked savings accounts. As I mentioned in a previous blog, prize-linked savings programs allow credit unions to run lotteries for members who agree to deposit money into a certificate of deposit.

As an extremely positive article in the New York Times reported over the weekend, credit unions are being authorized to offer these savings/lottery plans across the country. In addition, Congress is taking a look at removing federal regulations prohibiting banks from offering such programs. Why are they popular? They appeal to conservatives as a free market mechanism to encourage saving and they appeal to liberals who complain that state lotteries are, effectively, highly regressive taxes.

The country has a savings rate of slightly more than 5% of income, which is less than half what it was 40 years ago. These programs can play a small but important part in getting people to save money and to do so through a credit union.

When I first heard about these programs several years ago, I was skeptical that they could really make a difference. But, over the years, I have become a true believer. For example, the other day I took a taxi to work. The driver was telling me how he was down on his luck but how a local church had a program where they offered temporary free housing for individuals who had jobs but needed to save money while looking for permanent housing. He was putting aside money for the anticipated cost of one month’s rent but he was also “investing” in two lottery tickets every day for a month. He also keeps a pack of cigarettes in the coffee holder that he keeps for puffs in between passengers. Do the math: assuming that each ticket costs $1.00 he is spending a minimum of $14.00 a week gambling. With the state minimum wage at $8.00 an hour and employers actively discouraging employees from working overtime, the lottery takes about 4% of his $320 salary before taxes; add on a state cigarette tax of $4.35 per pack (not including the additional tax that some localities impose) and you see just how regressive a tax system can be and how difficult it can be to save.

Contrast that with this vignette about the experience of North Carolina credit unions: “Seven credit unions in North Carolina joined the program last year after the State Legislature cleared the legal obstacles. Altogether, they counted 1,908 participants, who saved an average of $1,246 each, for a total of $2.38 million. The lure was 26 monthly prizes ranging from $25 to $100, a few quarterly prizes of $500 to $1,500 and one $30,000 jackpot. “

If the Governor signs the bill later this year, it will be up to credit unions to put in the time and effort necessary to make prize-linked savings programs a reality. Given the benefit to our members and the great example they provide of credit unions helping people get ahead, you should all take the time to seriously consider offering the program at your credit union.  I usually don’t use the blog to promote Association activities, but at next week’s Legal and Compliance Conference, we will be dedicating a session to explaining to credit unions how they can start these programs. 

  

September 2, 2014 at 9:16 am Leave a comment

Who Rules The Bond Market?

There are some issues that represent such an important shift in the way the broader financial sector operates that they are important to know about even if they don’t impact credit unions directly. Besides, they are just interesting.

One of these developments comes in the form of news that Argentina is on the verge of defaulting on its government bonds. This is no run of the mill default as it could be precedent-setting by giving U.S. courts the upper hand in enforcing judgments against nations. Not only that, it underscores just how powerful those information subpoenas you receive are, provided they are valid.

There is a long history of foreign governments refusing to enforce judicial rulings by U.S. courts seeking to enforce money judgments. As far back as 1832 when Chief Justice John Marshall ruled that the federal government and not the states had authority to negotiate with tribes to purchase land owned by Indian tribes in Georgia  (Worcester v. Georgia (1832), President Jackson allegedly responded with his famous retort, Marshall made his ruling, now let him try to enforce it.

Similarly, when it comes to bonds issued by a foreign nation the conventional wisdom has been that there is only so much bondholders can do to redeem assets to pay off bond defaults. So when the Argentinian government defaulted on its bonds in the first years of this century, the vast majority of bondholders took the reduced payouts reasoning that it’s better to get half a loaf than no bread at all. However, a handful of bondholders held out for full payment.  With the aid of some of the best lawyering you are ever going to see, these holdouts have backed the Government of Argentina into a corner.

Typically, Argentina would pay the American bondholders who accepted the modified payouts independent of what it owes to the hold outs. However, Judge Gleason of the Federal Court for the Southern District of New York issued an order mandating that, as explained by the New York Law Journal,   “the next time the ‘exchange’ debt holders are paid by Argentina, and the country is expected to pay them $900 million, the country must pay one of the hold outs $1.3 billion, plus interest, or about $1.5 billion.”  Presumably, if Argentina chooses to ignore this order, the holdouts could attach any payouts to other bondholders.

In addition, the legal wrangling underscores just how powerful those third-party information subpoenas are. In a 2012 case before the Second Circuit, which has jurisdiction over New York credit unions, The holdouts argued that subpoenas against third-party banks holding assets in a foreign country are valid-even if the money sought is ultimately out of the creditors reach. Why does this matter? Because as the Court explained, “New York State’s post-judgment discovery procedures, made applicable to proceedings in aid of execution by Federal Rule 69(a)(1), have a similarly broad sweep. The New York Civil Practice Law and Rules provides that a “judgment creditor may compel disclosure of all matter relevant to the satisfaction of the judgment.” N.Y. C.P.L.R. § 5223; see David D. Siegel, New York Practice § 509 (5th ed. 2011) (describing § 5223 as “a broad criterion authorizing investigation through any person shown to have any light to shed on the subject of the judgment debtor’s [**6] assets or their whereabouts”).

But remember, an information subpoena under NY law is only valid if it is properly issued and that includes mandating that the creditor have a good faith reason for thinking that money may be stowed away in your accounts.

By the way, I would still bet that the issue will be resolved sometime today short of default, but no matter what happens the power of U.S. courts and creditor subpoenas have been given a big shot in the arm. Can you imagine if Europe had to negotiate with New York judges before restructuring Greek debt? This is the type of power we are talking about. As former Presidential Advisor James Carville once quipped, when he comes back to life he wants it to be as the bond market.

 

July 31, 2014 at 9:40 am Leave a comment

In What Order Do You Process Your Checks?

There are some issues that are hanging over the industry like a sword of Damocles.  This morning an article in the Wall Street Journal provides further evidence for those who feel that the CFPB should do more to regulate overdraft fees. 

According to a survey conducted by the paper, hundreds of small, regional banks, and credit unions are “clinging to the practice” of processing checks on a high to low basis.  The paper’s survey revealed that smaller depository institutions are continuing this practice even as larger institutions are backing away from it.

What exactly to do about overdraft fees has been debated for more than a decade now.  In 2010, the Federal Reserve promulgated regulations requiring that members opt in to bank payment on debit card overdrafts.  I was silly enough to think that this would put the issue to a close, but it hasn’t.  For example, in a statement accompanying a 2013 report on overdraft processing, CFPB warned that if “policies and practices do not protect consumers in accordance with consumer protection law, it will use it authorities to provide such protection.”  

The more I look at the issue, the more I feel that overdraft fees are the most misunderstood practices engaged in by depository institutions.  Do they represent an important source of income for many banks and credit unions?  Absolutely, but I bet if you asked your average consumer if they are willing to pay more to make sure that their mortgage or car payment doesn’t bounce, they’d agree.  In other words, overdraft fees are a product that some consumers want and need.

Regulatory Update

I’ve been AWOL for a couple of days and based the volume of work that regulators pumped out over the last week it’s obvious that many of our regulatory overlords intend on being AWOL for most of August. Here are a couple of regulatory proposals to review in preparation for Fall.

CFPB’s HMDA Proposal  Empowered by the Dodd-Frank Act , the Bureau that never sleeps is proposing revisions to the Home Mortgage Disclosure Act. It may not sound like a page turner, but for those credit unions that have to comply with it, properly reporting mortgage loan information can be one of the great compliance headaches. If the regulation goes forward as proposed the types of mortgages subject to reporting requirements will be expanded to include “all mortgage loans secured by a dwelling, regardless of the purpose of the loan” including HELOCS and commercial loans secured by a home.  Here is a link.

NYS moves to regulate Bitcoin New York State’s Department of Financial Services is rushing ahead of federal and state regulators by proposing licensing requirements and a comprehensive regulatory framework for institutions that buy, sell, transfer or store virtual currencies. Here’s a link to NYS’s proposal.

July 29, 2014 at 8:20 am Leave a comment

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Authored By:

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

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