Posts filed under ‘Regulatory’

On “The Talk,” Fixed Assets, And Settlement Money

I have a potpourri of newsworthy tidbits to start your credit union day.

Viva Las Vegas – I would have gladly wagered money yesterday that NCUA Chairwoman Debbie Matz could get nothing more than polite applause out of the attendees of NAFCU’s annual convention, but that was before I knew that the Chairwoman would be using her appearance to outline some regulatory relief proposals that NCUA plans to propose at its July meeting. According to the Chairwoman, NCUA will propose “effectively eliminating” the fixed asset rule.  Currently, NCUA regulation caps at 5% of a credit union’s shares and returned earnings the amount that can be spent on fixed assets absent a waiver from NCUA.  As CUNA pointed out in a comment letter last year advocating for scrapping the cap “The rule restricts investments not only in real property, but also in technology and systems that are increasingly central to the success of all financial institutions. Overly restricting investments in these items—or subjecting the relevant decisions to a slow and unpredictable process — does not facilitate credit unions’ use of online and mobile banking technologies even though the utilization of such technologies is more important now than ever.”

Two other mandate relief proposals will deal with member business lending and updating appraisal provisions. The proposals aren’t out yet and the devil is in the details; but it’s nice to be able to compliment NCUA again. It wasn’t all that long ago that it was aggressively pushing mandate relief reforms such as the streamlining of low-income credit union designations. Maybe the Chairman should spend more time in Sin City.

Having “The Talk” – What’s the single most uncomfortable talk that parents have with their kids? It’s not about the Birds and the Bees, it’s about money. Great article in MarketWatch reporting that a recent survey indicates that “[p]arents in their 50s and 60s think they’ve done a bang-up job talking with their adult kids about their estate and retirement plans. Their kids think just the opposite. It’s the new Generation Gap. Specifically, nearly two-thirds of parents and adult kids (64%) disagree on the best time to start talking about things like wills, estate planning, eldercare and covering retirement expenses. Many credit unions do a great job providing financial education to their members and this might be one more area to highlight. Making sure everyone is on the same page when it comes to maximizing retirement assets can save a lot of heart ache down the road and is a great way of stretching those retirement savings. Besides, like the World’s Most Interesting Man, you really can give your father The Talk.

Just where does all that settlement money go anyway? Billion dollar settlements with major banks are becoming about as commonplace as low scoring baseball games. (Maybe they really are laying off the steroids after all). This morning’s article from Reuters paints a not too flattering picture of how at least some of the money – which is ostensibly sought for mortgage and foreclosure relief – is actually being spent by state and federal officials. Reuters reports that since May alone there has been $18.5 billion in settlements – $5 billion of which goes to New York. It suggests that the guidelines on how this money is to be allocated are so broad that at least some people are concerned that there are perverse incentives to drive up the size of settlements. Personally, any incentive Government has to crack down on blatantly illegal activity is OK with me.

July 24, 2014 at 8:26 am 1 comment

Are Bitcoins Always Suspicious?

As I explained in my blog the other day, for banking compliance geeks FinCEN’s annual compilation of SAR filings is a big deal that gets noticed. So when it uses this publication to highlight issues related to the filing of Suspicious Activity Reports in relation to virtual currency in general and the Bitcoin specifically, it can be assumed that this is an issue of particular importance to individuals who work at the intersection of law enforcement and banking regulation. According to its SAR Narrative Spotlight Column, “FinCEN is observing a rise in the number of SARs flagging virtual currencies as a component of suspicious activity. Like all emerging payment methods, understanding virtual currencies is key to insightful SAR preparation and filing.”
According to FinCEN useful narrative information accompanying a SAR bitcoin filing may include:
• Information on users of crypto-currency (even when their participation in the transaction is not considered suspicious). If possible, such information should be supplemented with the ACH or wire data related to transactions conducted to or from known virtual currency exchanger. An exchanger is one of a handful of platforms, one of which filed for bankruptcy, which will exchange the Bitcoin into currency.
• Information related to Bitcoin speculation. Specifically, FinCEN reminds depository institutions that the value of a Bitcoin is highly volatile and “following a rapid rise in the relative value of crypto-currency to the dollar an institution may see high value deposits originating from foreign or domestic virtual currency exchangers.” FinCEN goes on to note that speculation is not criminal activity, however, “speculation can share a transaction footprint with other activities that might be suspicious.”

Depository institutions should be mindful that virtual currencies can be used to hide the source of funds stolen by hackers and identity thieves.

I’ve used more quotes than I like to in writing this blog today because I am not sure I completely understand where FinCEN is heading when it comes to the regulation of virtual currencies. It seems to be suggesting that virtually any time a member uses funds derived from a Bitcoin or other virtual currency, a SAR filing is appropriate. The concern I have is that very little of the account activity highlighted by FinCEN is necessarily suspicious. If and when virtual currencies become more commonly used, FinCEN is going to have to issue more formal guidance clarifying when member use of virtual currency is truly worthy of a SAR.

July 23, 2014 at 8:26 am Leave a comment

Is Auto Lending The New Subprime?

That’s the question posed by the New York Times in an article yesterday in which it seeks to sound the alarm:  in a nutshell it argues that, just like the mortgage meltdown, major banks are loosening lending standards in an effort to ensure they have enough automobiles to meet Wall Street’s growing demand for securities comprised of auto loan pools. This is one of those times where I am glad that credit unions aren’t mentioned alongside the banks.

This is the type of article that gets regulators thinking that more needs to be done, so you may want to take a quick look to see how appropriate your underwriting standards are for auto lending.  Here are some things to keep in mind.

The NCUA deserves credit for raising concerns about indirect auto lending long before it was trendy.  The banks highlighted in the article are accused of hiding behind dealer practices when asked about questionable sales techniques and underwriting standards.  But remember “the dealer made me do it” is no defense.  This is particularly true for credit unions that have the added requirement of ensuring that any person taking out a car loan is a qualified member.  As summarized succinctly in this indirect lending guidance from the NCUA from 2011:

Indirect lending standards should be consistent with the credit union’s direct (internal) loan underwriting standards. The standards should be reviewed at least annually or more often if risk levels increase or if negative trends begin to surface.  Exceptions to the indirect loan policy should be infrequent. All exceptions should be approved by credit union personnel responsible for administering the indirect lending program and reported to the board of directors for their review.

One other quick point about the article.  Not all securitization is bad.  Financial institutions, and especially smaller ones, need a vibrant secondary market to sell off loans and make new ones to members.  The Times is right to highlight the negative influence that demand for higher yielding securities may be having on auto lending standards, but I just hope that regulators don’t overreact and throw the baby out with the bath water.

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I’ve done this blog long enough now that every so often I feel like Steve Martin in The Lonely Guy.  When the new phone book is delivered, he runs down the street yelling:  I’m in the book, I’m in the book.  I was excited to find out this morning that the Annual Review of SAR Filings had been published by FinCEN.  California and New York lead the way when it comes to depository institutions filing Suspicious Activity Reports.

On that note, have a nice day.

July 21, 2014 at 8:22 am Leave a comment

CFPB’s publication of narratives is a Bad idea

Those wacky kids at the CFPB are out it again. This time they want to go Wiki leaks with consumer complaints.  They are proposing that the CFPB’s consumer complaint database be expanded to include consumer narratives of complaints consumers agree to publicize. The allegedly offending company would be given the option of responding with its own competing narrative. According to the CFPB,  publishing narratives would “be impactful by making the complaint data personal (the powerful first person voice of the consumer talking about their experience), local (the ability for local stakeholders to highlight consumer experiences in their community), and empowering (by encouraging similarly situated consumers to speak up and be heard)” Let Freedom Ring!

Cut through the hyperbole and what you are left with is a debate about the value of empowerment of which I am proudly on the losing  side. Amazon just celebrated its twentieth anniversary and, in addition to providing us books and consumer goods with great service at a lower price, it gave us the consumer narrative review. I have never used one of the narratives to buy anything of value. Given the choice I will look at Consumer Reports before I buy a TV or read a book review written by an expert when deciding what to read next. To me these are more reliable than on someone so enamored or annoyed about a product or service that they actually took the time to sit down and write a review. The internet indeed can “empower” anyone to think they are an expert but that doesn’t make them one..

But I am a dinosaur . More and more people are as likely to get their news from Facebook as from the New York Times. The whole idea of an information hierarchy is viewed with suspicion. What is the big deal they say? After all if someone doesn’t find an internet review-or an association blog for that matter -credible than they can just ignore it. They can just ignore a complaint they find on the CFPB’s website.

The problem is that the mere fact the complaint is on a government database is going to be giving complaints much more credence than they deserve.  I was against the CFPB granting public access to its credit card complaint data base because I believe that the CFPB has an obligation to investigate complaints before throwing them out to the general public. Unsubstantiated allegations can do a lot more harm than good.   A Government website isn’t a free market place of ideas. Unlike those reviews on Amazon it has the government’s imprimatur.            

Not to worry says the CFPB; the accused company will always have the right to respond. But responding takes time and resources and the mere fact that a response is made to an allegation doesn’t mean that the damage is undone. For instance let’s say someone accuses XYZ credit union of discrimination after being denied a car loan. Publishing a response that the member was subject to the same race neutral criteria as everyone else won’t undue the seriousness of the allegation.

CFPB should pull the plug on this idea but it won’t. Here is a compromise: Lets recognize that not all financial institutions have the time to respond to a consumer narrative or the resources it takes to martial an effective PR campaign against serious but unsubstantiated allegations. Let’s establish a threshold for company size below which the narrative won’t be made public. It will still be sent to the CFPB which can investigate it; it will still be sent to the institution for a response and the consumer will still have all the legal rights and remedies he has today but smaller institutions won’t have to choose between letting an allegation fester or engaging in a public dispute with a disgruntled consumer at the same time they are trying to run a business. Here is a link to the proposal Institutions have 30 days after publication to respond.

http://files.consumerfinance.gov/f/201407_cfpb_proposed-policy_consumer-complaint-database.pdf

See you Monday

July 17, 2014 at 8:59 am Leave a comment

UPDATED: Busy day in DC..sort of

July 16, 2014 at 8:55 am Leave a comment Edit

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citigroup over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 9:23 am Leave a comment

Busy day in DC..sort of

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citi Bank over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 8:55 am 1 comment

Thank You Congressman McHenry

Republican Congressman Patrick McHenry’s asking questions that NCUA should have answered a long time ago in advocating for risk-based capital reform. According to our good friends at CUNA, the Republican Congressmen is asking NCUA to inform him of:

  • Any cost-benefit analyses performed by the NCUA or that otherwise form part of the administrative record in this matter;
  • The metrics used to determine what asset classifications required revisions;
  • A justification for the revised weighing associated with each individual asset class; and
  • An explanation of the extent to which NCUA examiners would be empowered to assess and make capital recommendations to credit unions that might deviate from the new RBC standards.

NCUA keeps on saying it is committed to a transparent rulemaking process when it comes to RBC reform but, aside from making the impact of the proposal on credit unions publicly available on its website, the proposal has been short on specific explanations about how NCUA settled on the specifics. When a rule of this importance is proposed, it is typically accompanied by a section by section analysis explaining in detail why an agency is proposing the specific change. I know everyone likes to bash the CFPB, but they do such a thorough job of explaining what it is they want to do and why that you know a tremendous amount of thought was put into any one of its proposals.

The same can’t be said for NCUA’s RBC proposal. If you are wondering why NCUA feels that CUSO investments should have a 250% risk weighting you won’t find much of an explanation as to how NCUA decided on this number when it developed its proposal. In fact, the preamble to the proposal contains no explanation as to why or how a magic 100 percent weighting for loans to CUSO’s was divined either.  All we are told is that “A credit union may be adversely affected by the activities or condition of its CUSOs or other persons or entities with which it has significant business relationships, including concentrations of credit. . .” and that the repayment of loans is normally a high priority in the event of a CUSO’s liquidation. I’m all for brevity but more than a few lines should be devoted to proposals that could have a major impact on the industry.

But beyond the need for more information is the nettlesome problem that the law requires regulators to do a cost-benefit analysis of the proposed regulations. I hope we get to see NCUA’s response to the Congressman because NCUA’s cost-benefit analysis is, to put it euphemistically, lacking in substance. The Chairman has repeatedly defended the proposal with the mantra that the NCUA Board has the responsibility to safeguard the Share Insurance Fund. But considering that the vast majority of credit unions survived the worst economic downturn since the Great Depression and NCUA has already put in place justifiable reforms of the corporate system, this protection hardly serves as an explanation for why the burdens imposed by this regulation are outweighed by its benefits.

To be fair, risk-based capital is complicated stuff which is why the banking industry has literally spent decades refining its framework with very limited success. The vast majority of New York State credit unions support some type of risk-based capital reforms (I don’t see the need, but reasonable minds can differ). But what we can all agree on is that credit unions deserve to know that important proposals are competently vetted and analyzed by NCUA. On this score, NCUA has fallen woefully short. In fact, seeing NCUA push a sophisticated RBC framework has been about as nerve-racking as watching a five year old with matches. Very little good can come of it unless drastic changes are made and NCUA starts explaining itself in more detail.

As it stands, this proposal is bereft of detail and its rationale is far too simplistic. In fact, I’ve come to believe that NCUA’s RBC proposal isn’t so much a capital framework as it is an examiner wish list: let’s make it difficult for credit unions to do everything we don’t think they should do and the world will be a safer place. I hope I am wrong on this last point. A thorough response to the Congressman is a step toward proving I am.

 

 

July 9, 2014 at 9:03 am Leave a comment

Pres: We Need More Banking Reform

In a recent interview, President Obama suggested that what the country needs is more banking reform. Speaking on MarketPlace Radio last Wednesday, the President was asked whether Dodd-Frank had worked since mega banks are as big as ever? After going through the usual litany of Dodd-Frank accomplishments – i.e., the CFPB and so-called “living wills,” as well as increased capital requirements, the President changed his tone:

“Here’s the problem, the problem is that for 60 years, we’ve seen the financial sector grow massively. Now, it’s a great strength of our economies that we’ve got the deepest, strongest capital markets in the world, but what has also happened is that as the financial sector has grown, more and more of the revenue generated on Wall Street is based on arbitrage — trading bets — as opposed to investing in companies that actually make something and hire people. And so, what I’ve said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them. That is an unfinished piece of business, but that doesn’t detract from the important stabilization functions that Dodd-Frank was designed to address.”

Now, to be clear, politics being politics the White House quickly got out the word that the President’s comments didn’t mean that another push for banking reform was on its way. And there was speculation as to whether the President actually meant what he said or if his comments were simply intended to preempt criticism of Dodd-Frank in advance of its upcoming anniversary.

But the President’s comments reveal an inconvenient truth of which anyone who has tried to implement Dodd-Frank is aware: Congress and the President have done precious little to prevent another financial crisis. The too big to fail banks are still too big and with finance taking on an increasingly important role in the economy as a whole, reform of the banking system – such as reinstating boundaries between investment and commercial banking – are now all but impossible to achieve. The President had his chance, and he did not go far enough. For my money, it will go down as the greatest failure of his Presidency,

Unfortunately, credit unions are still left with the financial burden of complying with Dodd-Frank inspired mandates that are making it increasingly difficult for them to provide the types of products and services that got them into the business in the first place.  In the meantime, the reality that major banks are “too big to fail” does give them a competitive advantage over their smaller counterparts. To steal a favorite political metaphor, the banks went through the car wash with the windows down and credit unions got wet.

True banking reform is not going to happen, but maybe, just maybe, with both Republicans and Democrats criticizing aspects of Dodd-Frank now’s a good time to push once again for mandate relief. At the top of my list would be an outright exemption from Dodd-Frank mortgage requirements for all credit unions. There is no evidence that credit unions caused the financial crisis, yet there is lots of evidence that Dodd-Frank is increasing costs for credit unions. There is also no good reason why credit unions should have to bear the costs for institutions that Congress doesn’t have the stomach to truly regulate.

Employment Numbers

The government reported stronger than expected job growth in June with the economy adding 280,000 new jobs. In addition, the growth was spread over a large cross-section of industries providing the best evidence yet for those of you who see the economic glass as half full. About the only negative I could find in the report is that the workforce participation rate was unchanged. People are already arguing that the jobs report is a signal that the Fed should move up its timeline for raising short term interest rates. There are some great arguments for why this approach is short sighted, but the blog has already gone on longer than I wanted.

Good luck making it through today after a nice long weekend. My advice: more coffee – lots and lots of coffee.

July 7, 2014 at 8:50 am Leave a comment

What Is An Application? Does Anyone Really Care?

The answer to the first question is that our good friends at the CFPB have provided us with a definition of application for purposes of sending out mortgage disclosures that takes effect next August.  The answer to the second question is if your credit union offers mortgages, then you should.

First, some background.  Who could forget last December when the CFPB unleashed a host of Dodd-Frank mandated regulations reshaping the regulatory framework for mortgages.  I know you all now know what a QM mortgage is, but you’re not quite done yet.  The CFPB also released regulations that integrated mortgage disclosures mandated by both the Truth in Lending Act and RESPA.  Starting next August, the GFE and early TIL will be replaced with a single document titled the Loan Estimate.  If you were like me, you looked at the 900 pages of this proposal, noted that the effective date wasn’t until August of 2015 and put it at the bottom of your to-do list.  Now, it is time to get focused.  There a lots of operational decisions that need to be made beyond simply calling up your vendor and finding out if it will be ready to send out the new disclosures.

One of the most basic and important changes made by the CFPB has to do with the definition of application.  Under existing law, lenders have to give a borrower a good faith estimate of the mortgage costs within three business days of receiving a mortgage application.  Under existing regulations, an application is received when a lender has the borrower’s name, monthly income, social security number, the property address, an estimate of the value of the property, the requested mortgage loan and — here’s the key part — “any other information deemed necessary by the loan originator.”  The catch-all provision is crucial since it gives lenders the ability to provide general loan estimates without being bound by a GFE.

Flash forward to August of next year and that catch-all provision will no longer be included in the definition of application.  Instead, any time a credit union receives the other six pieces of information, the application has been received and the GFE clock starts ticking.  Now, many lenders use more than these six pieces of information in making lending determinations.  So what are they going to do?

First, a GFE is not the same as making a mortgage determination.  If, as verifying information comes in, you determine the applicant isn’t qualified for a mortgage loan, you don’t have to give him one.  Second, you can continue to prequalify members without requesting the six pieces of information.

But there is a more subtle way in which the CFPB is still allowing lenders flexibility in terms of when an application becomes an application.  As the CFPB explains in the preamble to the regulation, “the definition of an application may not have a significant impact on a creditor’s ability to delay provision of a Loan Estimate, because the creditor can simply sequence its application process to delay collection of some or all of the six pieces of information that would make up the definition of an application.”  For example, let’s say there are two additional pieces of information beyond the six in the definition that you have to specifically ask for before providing a GFE.  The CFPB is allowing institutions to ask for those two pieces of information before the other six.  You can find this quote at the bottom of page 79766 of the Final Regulation.  I would actually save the specific page in my mortgage file.  The ability to sequence isn’t all that clear from the language of the regulation or its official interpretation.

This is just one example of operational questions that have to be considered by your credit union and then communicated to your vendor.  There are several other key compliance issues impacted by this regulation and with regulators in summer mode, I will be passing on tidbits in the days and weeks to come.  I know this is not exciting stuff, but it’s time to stop procrastinating.

 

June 30, 2014 at 8:39 am 1 comment

NCUA Gets Into the Mind Reading Business

NCUA has proposed important changes to its Chartering and Field of Membership Manual regarding how and if an Association qualifies for inclusion in a credit union’s field of membership. I know many of you have put in yeoman’s work responding to NCUA’s risk-based capital proposal and find the idea of taking a look at this proposed regulation about as tantalizing as a follow-up visit to the dentist to get a cavity filled, but there are some important issues at stake and more of you may want to comment before the June 30 deadline.

NCUA is concerned that some credit unions are forming associations for the primary purpose of gaining access to new members. In its own words, “As a threshold matter, when reviewing an application to include an association in an FCU’s FOM, NCUA will determine if the association has been formed primarily for the purpose of expanding credit union membership. If NCUA makes such a determination, then the analysis ends and the association is denied inclusion in the FCU’s FOM. If NCUA determines that the association was formed to serve another separate function as an organization, then NCUA will apply the totality of the circumstances test to determine if the association satisfies the associational common bond requirements.”

There are two basic problems with this approach. First, while NCUA has a list of criteria – which it is adding to under this proposal – to determine if a credit union meets the associational common bond requirements, the regulation provides precious little suggested criteria about how NCUA will determine if a perfectly valid association was actually formed for the purpose of increasing membership. This is another example of NCUA seeking to give itself the authority to substitute examiner judgment for the plain language of the regulation on a case-by-case basis. Second, so long as an association is a valid, legal entity separate and distinct from a credit union, the motivations of a credit union in helping to form it are irrelevant. If a credit union forms an association to Save the Amazon Rainforest, provide aid to service members, or to lobby for a moratorium on any new reality TV shows – I am a charter member of this one, so long as these associations actively further these goals by holding meetings and sponsoring events, communities are benefitting.

Right now the tireless gadfly and blog devotee Keith Leggett is one of only six people to have commented on this proposal. Even if you disagree with me, please take a look at this proposal and consider dropping NCUA a line or two if, like me, you think it is going to have important consequences for the industry.

Credit Unions Hit Hard by Target Breach

The Target Breach provided fresh evidence for why Congress and State Legislatures have to re-examine the way liability is allocated between merchants and card issuers for data breaches. Despite the fact that card issuing credit unions and banks in no way contributed to causing the Target Breach, financial institutions, particularly smaller ones, were hit hard financially by the theft, according to a report released by PULSE yesterday. The report also indicates that more and more Americans are using plastic to transact business, meaning that if you haven’t already seen a decline in your debit card income, you will probably start seeing it soon.
On that happy note, enjoy your day.

June 25, 2014 at 9:04 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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