Posts filed under ‘Political’
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.
The good news this morning is that there has been a notable shift in tone in the debt ceiling, government shutdown debate with Republicans talking more about the need to reign in government spending by, among other things, negotiating entitlement reform and tax code changes than the need to “defund” Obamacare, even if it means destroying the nation’s full faith and credit. This is both good news and bad news for credit unions.
The most tangible sign of this shift has been the reemergence of House Budget Committee Chairman Paul Ryan, who has been harder to find in recent days than Waldo. In an Op-Ed in yesterday’s Wall Street Journal, and in subsequent discussions with his House colleagues, Ryan outlined a plan whereby Congress would pass a debt ceiling extension and continuing resolution to get the government running again, but the ultimate scope and length of the extension would be tied to progress in ensuing budget talks.
And what type of reforms is he talking about? Well, tax code changes would definitely be on the table. As he explained in his Journal Op-Ed piece ”Rep. Dave Camp (Republican, Mich) and Senator Max Baucus (Democrat, Mont) have been working for more than a year now on a bi-partisan plan to reform the tax code. They agree on the fundamental principles: broaden the tax base, lower the rates, and simplify the code. The President himself has argued for just such an approach to corporate taxes. So we should discuss how Congress should take up the Camp-Baucus plan when it is ready.”
This is the bad news part of the story. When fundamental tax reform is on the table, that means the credit union tax exemption is potentially at risk. I still think given the schisms within the Republican Party such a “grand bargain” minus health care reform is about as likely as Miley Cyrus staying out of the news for a day or two. However, re-emergence of the idea means that credit unions should be ready to step up their Don’t Tax Campaigns another notch in the not so distant future. Tax reform was never going to get through a normal legislative process. But if it is part of a high-pressure negotiation, then there’s always a possibility, no matter how remote that Congress will get something accomplished.
NCUA Guidance On Examination Formats
As part of its efforts to foster more consistency in the examination process, NCUA released a guidance yesterday explaining how examiner reports are going to be reconfigured starting in January. Among the changes will be a requirement that examiners include more documentation when hitting credit unions with a Document of Resolution.
That’s it people, have a nice day!
I have two thoughts this morning. First, however much the merchants are paying their lawyers, it’s worth it, and my General Tsao’s Chicken just got more expensive.
On Friday, a federal district court in Manhattan struck down New York’s law prohibiting retailers from charging surcharges on credit card purchases (see Expressions Hair Design et al v. Schneiderman, No. 13 Civ. 3775 (JSR), Oct. 3, 2013). New York is one of ten states that restrict such charges. Prior to last year, the statute wasn’t all that important because surcharge bans were included in the standard merchant contract between merchants and VISA and MasterCard. Following last year’s anti-trust settlement under which Visa and MasterCard agreed to do away with this provision, a group of retailers brought a suit claiming, among other things, that the statute violated the first amendment.
The offending statute, which has been in place since 1984, provides as follows: “No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.” – See NYS General Business Law, section 518.
According to the judge, this statute is unconstitutional and vague and keeps retailers from explaining to consumers the true costs related to a transaction. For example, the existing law already permits retailers to offer discounts for individuals who pay in cash. This is why gas station owners consistently offer lower prices for people who pay in currency as opposed to a charge card. The crux of what the judge contends is wrong with what he describes as an “Alice in Wonderland” piece of legislation is that a gasoline station owner careful or sophisticated enough to always characterize the lower prices as a discount for cash is not violating any provision of the law; but if a colleague down the street described the higher price as a credit card surcharge, he has violated the law.
To the Judge, the distinction between a surcharge and a discount comes down to semantics. Very respectfully speaking, in my ever so humble opinion, semantics matter. As explained by the Oxford American Dictionary, a surcharge is “an additional charge or payment from: retailers will be able to surcharge credit-card users.” Let’s be honest, the language clearly does matter as merchants have been trying for more than 3 1/2 decades now to remove bans on surcharges, first on the federal level and now on the state level. If the New York State Legislature wants to deter discrimination against credit card users by prohibiting the use of credit card surcharges, it is free to do so and the language is well understood. The fact that from an economic standpoint there is little practical distinction between a discount and a surcharge is irrelevant to the statute’s legality.
I hope this is one the AG is going to appeal. As for my General Tsao’s chicken, when my blog, like this one, takes a little too long to write and I go out for lunch instead of relying on leftovers, I go to a Mom and Pop Chinese place down the street run by a nice couple that for years has deterred me from using my credit card by charging two dollars every time I use a card to pay. I doubt they knew they were violating the law, but now that a federal judge has told them that their free speech rights were being violated by not being able to gauge me, they can breathe a little easier.
Here is my government shut-down quote of the day from Long Island House Representative Peter King:
“I don’t consider these guys conservatives. I think the party is going in an isolationist trend. It’s appealing to the lowest common denominator in many ways. And this whole threat of defunding the government, to me, is not conservative at all,” said King, who added later: “Maybe we do live in different worlds. These guys from the Ted Cruz wing live in their own echo chamber.”
Well, it’s official. In the political equivalent of holding your breath until you get your way, so-called House Conservatives are so convinced that Obamacare should not exist that they really feel that if they keep government from spending money on itself long enough, legislators will come to their senses and decide not to implement the President’s major domestic achievement after all. While this abject lesson in political imbecility will undoubtedly do some damage to the economy, it won’t have much of a short-term impact on the day-to-day operation of credit unions or their regulators. It’s full speed ahead for Dodd-Frank’s regulations.
Yesterday, HUD came out with regulations proposing its version of a qualified mortgage. What’s more, we only have thirty days to respond to this proposed QM standard, even though regulations of this importance should have at least a 60 day comment period. In explaining why it is fast tracking the proposal, the regulator noted that unless it can get its regulations promulgated by January 10, 2014 an important source of financing for first time homebuyers and minorities will be subject to the CFPB’s QM definition. HUD is concerned that the CFPB’s QM criteria ”is not focused on, to the extent that HUD’s definition is required to be, the populations that the mission of HUD is to serve.” This is the bluntest assessment I have yet seen that Dodd-Frank may result in fewer individuals being qualified for home ownership. The problem I have with HUD’s 30-day comment period is that it has had several months to respond to CFPB’s proposal. The issues involved here are too complicated to be rushed through without an adequate public vetting and 30 days just isn’t enough time for an intelligent look for what HUD is proposing.
In the meantime, NCUA sent out a letter about the impending government shutdown. Since it is funded by fees as opposed to general fund appropriations it avoids being subject to the shutdown. And, of course, none of this directly impact’s New York State government. Yesterday, Eric Schneiderman, New York’s Attorney General, announced a settlement with a group of debt collectors in relation to their collection efforts on behalf of pay day lenders. The settlement is the latest in a series of escalating legal skirmishes between the state and pay day lenders over whether New York has the ability to clamp down on out of state pay day lenders and those based on tribal lands.
On that note, have a nice day.
Yesterday, a vote by the Senate to temporarily fund the government beyond October 1 was delayed by Republican Senator Mike Lee (Utah), a leading opponent of the health care law. This maneuver followed closely on the heels of a 21 hour filibuster by Senator Ted Cruz (Texas), again motivated by a last ditch effort to defund Obamacare.
But if you really want to know just how dysfunctional Washington has become, all you need to know is that Republican Senator Bob Corker (Tennessee) responded to Lee’s objections by saying “the reason that we’re putting this off is because they would like for people around the country that they have notified to be able to watch.” In other words, a Republican Senator is accusing another Republican of putting his interest in grandstanding to potential national supporters above the interest of his constituents, the Senate and the country.
I personally think the Senator from Tennessee has a point and I would love to see more Republicans stand up to these so-called Conservatives before they can do even more damage to the country’s economy, but increasingly that doesn’t appear to be the case, which means that the Sunday talk shows are required watching for anyone responsible for plotting your credit union’s path given the potential trajectory of the economy over the next six months to a year.
First, it appears unlikely that the House Republicans and President Obama will be able to avoid a government shut down. When this happened in the late 1990s, the economy had already picked up steam. But take a look at NCUA’s most recent video recap of current economic conditions and how they are impacting credit unions and you will realize that this is no time to be playing games. Employment rates continue to be sluggish and credit unions are already being impacted by uncertainty over interest rates. Plus, for those of you with large numbers of federal government employees in your SEG groups, make sure you’re ready to provide whatever short-term help you can to these individuals who will find themselves with no paychecks in the coming days.
This scenario is bad enough, but right around the corner, probably some time in late October, but no one knows for sure, the Government will run out of its spending authority to satisfy creditors financing the national debt. A fringe group of so-called Conservatives has somehow deluded itself into thinking that the fiscally responsible thing is to threaten to let this country default on its payment obligations if the President does not agree to a host of their most cherished reforms.
Whether you agree or disagree that government spending is out of control, ask yourself how you would respond to a member who informs you that he is no longer going to pay off his credit card bills or mortgage in the name of fiscal responsibility. That is exactly what some members of Congress are threatening to do. If the worse case scenario plays out, our members will pay the price for this stupidity.
I would like to say that the issues having the most direct impact on credit unions today has nothing to do with D.C. politics, but I’d be wrong.
New York Posts Proposed Force Placed Mortgage Insurance
As I mentioned in a blog earlier this week, New York State is proposing new force placed insurance regulations intended to clamp down on affiliate relationships between servicers and insurance providers. The regulations were officially posted September 26, which means you now have 45 days to respond to this proposal. My guess is that it will only impact a very narrow group of credit unions, but I think it’s worth taking a look, just to be sure.
On that note, have a great weekend and let’s hope that you and your friends and family get along better than the U.S. Congress.