Posts filed under ‘Political’
Well, it’s all but official that no major tax reform, let alone tax reform putting the credit union tax exemption at risk, will take place this year. Not only is the credit union tax exemption not to be included in draft legislation but no lesser an authority than Senate Minority Leader Mitch McConnell took tax reform off the table for this year. While this is, of course, good news, given the amount of time and energy that the industry has devoted to the issue over the last several months, the bankers have still scored a partial victory. We’re in a mid-term election year and we have yet to get serious traction on what I consider the single most important issue facing the industry: the need for secondary capital.
Why is secondary capital so important? Let me count the ways. First, it simply makes no sense for credit unions to be penalized while growing in popularity. This is precisely what happens every time a member opens an account in this low interest, moderate growth economy where it is extremely difficult to make money off other people’s money. If credit unions are going to grow then they need the ability every other financial institution has to seek out investors.
Second, any doubt as to the crucial need for secondary capital has been dispelled by the NCUA’s Risk Based Net Worth regulatory reform proposal. In its simplest form, there are two ways a credit union can improve its risk weighting. It can either reduce its assets or increase its capital. But unlike the nation’s largest banks, our largest credit unions don’t have the opportunity to seek out additional capital. In short, if NCUA’s proposal goes forward it will put the brakes on the growth of credit unions whose only sin is to be large.
I understand how divisive the secondary capital debate is within the industry. Credit unions are, at their core, mutual institutions. They have to remain that way if they are going to continue providing members a unique financial experience. But secondary capital reform can be introduced in ways that maintain the essence of the credit union movement, which is one person one vote. If an institution is willing to invest in a credit union it would only do so against the backdrop of restrictions that give it no more or less influence than any other member of a given credit union.
Let’s keep in mind that low income credit unions can already take secondary capital and no one can seriously suggest that these institutions, in the aggregate, do not advance the core missions of the credit union movement.
Tax reform is like one of those Friday the 13th movies. The villain never really dies. The industry must, of course, remain vigilant. But, we don’t want to win the battle and lose the war by letting concerns over the credit union tax exemption crowd out other important pieces of the credit union agenda.
We’ve come a long way and not for the better since Barak Obama electrified the nation with his speech before the Democratic National Convention proclaiming the need for politicians to unify the nation. Last night, now President Barak Obama, who taught constitutional law at the University of Chicago, put forward a mix of proposals emphasizing his ability to act unilaterally in furtherance of his goals with or without the help of Congress.
However, even though the President can make headlines by relying on initiatives to better coordinate activities with state government and can push the envelope of regulatory rulemaking authority, in the end there is very little he can do to fundamentally change the nation’s public policy without Congress. The result is that we can expect another year that will once again feature gridlock and limited opportunities for credit unions to advance their objectives. But this isn’t all bad. Here’s what we can take away from last night’s State of the Union Address.1) There is no chance of the type of grand bargain tax and budget reform that would endanger the credit unions’ tax-exempt status. The only mention of tax reform made by the President was of changing the tax code to make it more attractive for companies to bring foreign investments back home to U.S. Government coffers. Don’t get me wrong, of course credit unions have to be on the lookout for efforts to eliminate our tax exemption. But there is nothing about the current political dynamics in Washington indicating that this concern should crowd out other legislative priorities.
2) Patent reform might be the area where credit unions have the best chance of getting movement on an important legislative priority. The President mentioned patent reform relatively early in his address and the polite applause it receives indicates that there may be bi-partisan support for legislation in this area.
3) Are we going to see reform of Fannie and Freddie this year? Who knows? In his speech, the President said that “since the most important investment many families make is their home,” Congress should send him “legislation that protects tax payers from footing a bill for a housing crisis ever again and keeps the dream of home ownership alive for future generations.” This incredibly vague passage is the only reference to the banking crisis and continuing need for financial reform. The passage is noteworthy because the President seems to be acknowledging that not enough had been done to keep Americans from having to bail out banks in the future. For many of us, this is fairly obvious, but for years both the President and Congress have argued that Dodd-Frank put an end to too big to fail banks.
4) In the coming days you will be hearing about a new pension program called the MYRA Guarantee Program. According to the President it will be a new kind of saving bond that will encourage Americans to build a nest egg.
5) State of the Union Addresses are legislative wish lists wrapped loosely around a theme. This year’s theme is the need to attack what the President and many others in the Democratic Party believe is deepening economic inequality. The President aruged that “upward mobility has stalled. . .The cold, hard fact is that even in the midst of the recovery, too many Americans are working more than ever just to get by, let alone get ahead, and too many still aren’t working at all.”
For those of you visiting Washington in the next few months, the increasing focus on economic inequality gives credit unions a great opportunity to highlight the central role they play in mitigating inequality. More affordable mortgages and reasonably priced financial products mean more money in the pockets of Americans.
If Governor Cuomo has his way, New York State will soon be requiring title insurers to be licensed for the first time. The proposal, which was included in the Governor’s budget package released yesterday, could impact your credit union if, for example, you have an ongoing relationship with a title insurance company. It includes a new, more detailed disclosure that would have to be provided to your members. You can find the language related to this proposal in Part V of the Article VII language bill for the Transportation, Economic Development and Environmental Conservation budget (TED).
The proposal got a surprising amount of attention yesterday. It was highlighted in yesterday’s New York Post and by New York State’s Budget Director Bob Megna. The administration is highlighting the proposal as a way of clamping down on New York’s closing costs, which are among the most expensive in the nation. I’m not quite sure if the proposal will have the dramatic impact on closing expenses that the Governor is suggesting. However, it makes little sense on a policy level not to license title insurers.
Now, for a little inside baseball. Because the proposal was included as part of the Governor’s spending plan, the Legislature won’t get an opportunity to take an up or down vote on it. Instead, it will be amended, if at all, in the context of budget negotiations. A series of court cases dating back to the Pataki Administration have given the Executive Branch enormous power to force the legislature to adopt programmatic bills, which previously had been considered outside the budget process. The Governor noted yesterday that this year’s budget negotiations may be a bit more contentious than his previous submissions because of the number of legislative proposals integrated into the spending plan. Still, we are in an election year and I would strongly suspect that we see another budget pass by the April 1, 2014 deadline.
By the way, it’s cold out there. Stay warm.
Good morning my credit union brethren. Here are some news items to ponder as you start your day.
The Wall Street Journal is reporting that consumer spending made solid gains in December fueling hopes that consumers will help strengthen the economy this year. According to the Journal, retail sales gained 0.2% in December and jumped 0.7% when auto sales are excluded. Considering that retail spending drives a little less than 70% of the nation’s economic output, this is, of course, good news.
I’m curious how many of you are seeing evidence of this spurt in consumer confidence in the activities of your credit union members, particularly given the persistence of high unemployment, but this skeptical view of the nation’s economic malaise may just reflect the fact that I haven’t had my second cup of coffee yet.
Another day, another Empire State office holder calls it quits
Almost all of you will be meeting with newly elected officials in the year ahead. Plattsburgh Democrat Bill Owens announced that he will not be seeking re-election to the Congressional seat that he has held since 2009. Owens will go down as one of the luckiest or craftiest politicians in the history of New York State. In 2009, he made national news when a divide within the Republican party helped him become the first Democrat to hold the seat since the Civil War. His Departure gives the Republicans a prime opportunity to pick up an open seat and you don’t have to be Charlie Cook to expect an awful lot of national money being poured into the race.
Owens joins Long Island Congresswoman Carolyn McCarthy (Democrat), who recently called it quits. It will be interesting to see if McCarthy’s departure triggers a new round of political musical chairs. Republican Lee Zeldin from Long Island has already indicated that he is foregoing another term in the State Senate to run against Congressman Tim Bishop. Zeldin’s departure coupled with the recent retirement of Senator Charles Fuscillo means that the battle for control for the State Senate where Republicans combined with an independent caucus of four Democrats to control the chamber promises to be the biggest political fight of this election cycle.
Incidentally, not all the departures have been completely voluntary. Earlier this week, Bronx Assemblyman Eric Stevenson lost his seat after he was convicted of taking $22,000 in bribes. This followed on the heels of Assemblyman Dennis Gabryszak resigning under pressure following accusations of sexual harassment. There are now eleven open legislative seats.
Tales of QM Mortgage Woes
Yesterday, the concerns of credit unions and community banks regarding the qualified mortgage regs were highlighted at a hearing of the House Financial Services SubCommittee on Financial Institutions and Consumer Credit. Speaking on behalf of NAFCU, Orion FCU CEO Daniel Weickenand, explained in his testimony that “when you take into account the additional legal liability associated with non-QM loans, this margin will be even narrower. While some institutions may start charging a premium on their loans to account for the additional risk associated with non-QM’s, we do not feel that this is in the best interest of our credit union, our members, or our community. Consequently, we have decided to cease to offer non-QM loans at this time.”
Reasonable minds can, of course, differ and I wholeheartedly agree that Congress should consider extending greater QM relief for credit unions and smaller lending institutions. In addition, each credit union has to make its own decision based on its own unique circumstances. However, I’ve said it before and I’ll say it again: before your credit union starts exclusively offering QM mortgages, do an analysis as to whether or not the cost associated with the perceived risk of potential legal liability are outweighed by the loss of credit union revenue from refusing to do perfectly legal non-QM mortgages.
Governor Cuomo’s fourth State of the State address yesterday was overshadowed by news that high ranking members of Governor Christie’s staff exacted political revenge on Fort Lee’s mayor, who had the audacity not to endorse the Governor’s re-election bid, by creating traffic on the George Washington Bridge.
Personally, I don’t know what Republicans viewing the New Jersey Governor as a potential Presidential nominee should find more disturbing: the fact that his staff has such callous disregard for New Jersey commuters or the fact that they are so politically incompetent that a traffic jam on the GW can be directly attributable to their actions. It’s kind of like highlighting a needle in a haystack and then denying its existence.
Still, the Governor’s speech is important for credit unions for what it tells them about the state of New York’s regulatory environment. Most importantly, there is not a single mention in the Governor’s State of the State or his accompanying 200 page booklet of initiatives for this year’s legislative session referring to the word foreclosure, bank, or financial crisis. This demonstrates that, like the federal government, regulators and elected officials have put all the regulatory and legal structures in place that they feel they need to in response to the Great Recession and mortgage meltdown and are now ready to carry on with the new normal.
Don’t underestimate the significance of this shift in tone. When the Governor took office, his first State of the State criticized lax financial enforcement and advocated for the merger of the State Banking and Insurance Departments. He even put one of his most trusted aides, Benjamin Lawsky, in charge of the project. Fast forward to yesterday, and what we have is a Department of Financial Services that more aggressively pursues financial malfeasance than the old Banking Department ever did and that is more willing to regulate on issues such as mortgage modifications and debt collection practices than was the case a mere seven years ago. And, of course, much of what the nation as a whole is going to start grappling with tomorrow when it comes to what constitutes a good faith effort to keep someone in their home has already been grappled with by New York State credit unions for several years now.
All this means, bottom line, is that if you missed the State of the State, there was nothing tucked away that could potentially impact your credit union’s operations but as you rush to make sure that you are complying with the latest federal mandates, your credit union would be well advised to keep an eye on what the Department of Financial Services is doing, as well.
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.
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?
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.