Sometimes people there is no way to make this stuff interesting but you should pay attention nevertheless,
Reg. Relief on Privacy Notices
Our good friends at the Bureau That Never Sleeps (The CFPB) finalized regulations giving financial institutions greater flexibility when providing members those meaningless privacy notices required under federal law.
Your credit union is required to send out annual privacy notices informing members of their privacy rights in relation to the sharing of information with third parties. These notices can be confusing to members and worthless since they have to be sent out even when there have been no changes to a credit union’s third party relationships or privacy obligations. The CFPB has finalized regulations permitting you to post the required notices online in lieu of mailing them provided certain conditions are met.
It’s a win-win. Members get less confusing junk mail and credit unions get to save time money and a whole bunch of trees. Here is a link to the final regulation… On the downside, with the nights now getting cold I personally find that snail mail is a great way to spark a fire.
There are requirements to satisfy before you can begin online posting so read the regulation before you put away the stamps.
When is a restructuring a Troubled Debt Restructuring for accounting purposes? That is the question or at least the question that has vexed NCUA and other regulators since 2012. On the one hand they want to encourage institutions to provide a lifeline to members who can stay above water with a little help; on the other hand they don’t want to encourage credit unions to rearrange the deck chairs on the titanic.
As explained in a 2012 Supervisory Guidance” The credit union must provide the examiner an analysis to support its determination the extension, renewal, deferral or rewrite is, or is not, a TDR. The credit union must provide a well-documented analysis that illustrates (1) whether the borrower is experiencing financial difficulty and (2) whether the credit union granted a concession it would not otherwise consider except for the borrower’s financial difficulty. The credit union’s conclusion and rationale must be clearly stated in supporting documents.”
If this sounds like a highly subjective standard it is. The key take away is that your TDR determinations should be made in a systematic way. (By the way I love the fact that accountants are perceived as buttoned down, straight-laced Black-And-White guys and gals while attorneys get pegged as the rule benders. Accounting lends itself to more creative interpretation than a Picasso painting).
A September 30th Accounting Bulletin released by the NCUA provides further TDR clarification. The good news is that just because a loan workout has been classified as a TDR doesn’t mean it must remain so Specifically if a TDR is restructured and, “If at the time of the subsequent restructuring the borrower is not experiencing financial difficulties and, under the terms of the subsequent restructuring agreement, no concession has been granted by the institution to the borrower” the loan no longer has to be treated as a TDR.
Here is a link to the bulletin and a useful Supervisor Guidance
http://www.ncua.gov/Legal/GuidesEtc/AccountingBulletins/ACCTBUL14-01.pdfHere is the link to the bulletin
When a President has to react to a serious problem but doesn’t know what more he can do to solve it he appoints a “Czar” as in a “Drug Czar” or “Ebola Czar.“ When a President has ideas about how to solve a problem but can’t get anyone to agree to his solution, he holds a summit.
The President is a smart guy who knows that cybersecurity is a major issue about which Congress has failed to act. Last year, 100 million consumers were victims of data breaches. So this past Friday, the President announced that he would be hosting a cybersecurity summit.
While the bully pulpit only goes so far, the actions announced by the President and major retailers on Friday underscore that, for card issuing credit unions, October 2015 looms as one of the biggest compliance deadlines. As you probably already know, October 2015 is when that liability shifts for card issuers and merchants accepting Visa and MasterCard that don’t have chip-and-pin technology.
Starting in October of 2015 a merchant with a payment terminal that doesn’t use chip-and-pin technology will be liable for the costs of any unauthorized Point of Sale transactions involving a member with a chip-and-pin card. Conversely, if a card issuer can’t process EMV transactions, it is on the hook for the liability. The shift was first unveiled in 2012 to give everyone more than adequate time to adopt the new technology but, until recently, I was skeptical of just how important the deadline would be. Making the shift costs money. Issuing chip embedded plastic isn’t cheap compared to the erstwhile magnetic strip and retrofitting payment terminals isn’t cheap for merchants.
But the days of mutually assured indifference are over. Speaking before employees at the CFPB on Friday, the President unveiled an Executive Order mandating that credit cards and credit-card readers issued by the United States government come equipped with chip-and-pin technology starting next year. The President also announced that he was ordering federal law enforcement to share more information with the private sector when they discover identity theft rings.
Finally, the President announced that “a group of retailers that include some of our largest — Home Depot, Target, Walgreens, Walmart — and representing more than 15,000 stores across the country, all of them are pledging to adopt chip-and-pin technology by the beginning of next year.”
Now, I have said it before and I will say it again. Industry-wide adoption of chip-and -pin is no panacea. The technology is already old and does nothing to prevent online fraud. But the events of Friday underscore that it is time to get moving on adopting this technology if you haven’t done so already.
Here are some links for additional information:
Is the Bankruptcy Code to blame for difficulties students experience modifying their private student loan obligations? That is the implicit question posed by the CFPB in its annual report analyzing the student loan industry. According to the report, which summarizes data from complaints received by the CFPB over the previous year, students seeking repayment options for private student loans are facing many of the same obstacles homeowners face after falling behind on their mortgages.
According to the report, since the Bureau began accepting private student loan complaints in 2012, the most common complaint comes from borrowers seeking to avoid default when they face financial hardship. According to the Bureau, its findings suggest that lenders and servicers “have yet to address the need for loan workout in a fulsome manner.”
What would the CFPB do? In 2005, one of the changes made to the bankruptcy code was to make private student loans non-dischargeable in bankruptcy. At the time of this change, similar protections had already been granted to federally subsidized student loans. The CFPB is recommending that Congress revisit the PSL exemption “to determine whether the special bankruptcy protection afforded to lenders should be limited to those who offer certain loan modification options.” Remember, the CFPB has already put in place a regulatory framework mandating that lenders work in good faith with homeowners who are struggling to make their mortgage payments.
The nation’s rising level of student loan debt is a serious and growing problem. As I’ve pointed out in a previous blog, there is even growing evidence that student debt is holding back the housing recovery by making it more difficult for people to afford their first house. What concerns me about the CFPB’s recommendation is that it adds fodder to an increasingly ideological and divisive debate about the root causes of student debt.
Let’s look at issues surrounding education finance. But let’s not analyze the issue in isolation. College tuition has skyrocketed and shows no signs of letting up. Looking at the amount of debt being amassed in this country to get an education and focusing exclusively on lenders is tantamount to blaming the woes of the NY Jets on their quarterback, Geno Smith: it might be comforting, but there are some issues for which there are no easy solutions.
Well I’m off to enjoy my morning yogurt. It’s going to taste extra good now that Governor Cuomo has signed legislation naming it the official state snack.
In today’s blog I come not to criticize the CFPB, but to praise it.
Earlier this week, it proposed further amendments to its Integrated Disclosure requirements that take effect August 2015. These Dodd-Frank mandated amendments replace the erstwhile Good Faith Estimate with a Loan Estimate. The amendments proposed this week are not big deals. They are tweaks that won’t keep you from cursing Dodd- Frank; but the very fact that the amendments are being proposed speaks volumes about the good side of the CFPB.
Does the CFPB have too much power? You bet It does. Does the Bureau That Never Sleeps pay too little attention to the burdens it is imposing on industry? Absolutely. But a good regulator is like a good umpire: You might disagree with the dimensions of his strike zone but a good umpire like a good regulator approaches regulations and their enforcement in a consistent manner so that everyone knows when they have missed the strike zone. By this standard, the CFPB is doing a great job.
Under the integrated disclosure requirements that take effect in August 2015-remember, they combine the separate disclosures currently mandated under TILA and RESPA-lenders are permitted to redisclose Loan Estimates when a mortgage interest rate is locked. For the redisclosure to be valid, the regulation currently provides that it has to be made “on the day the interest rate is locked.”
When the integrated mortgage proposal was put forward the rate-lock provision did not get all that much attention; the Bureau assumed that requiring same day redisclosure was not a big deal for lenders because they knew the rate they were going to charge. The CFPB could have obstinately refused to reconsider the regulation after it issued them in final form. Instead, it continued to listen to affected industry participants, was convinced that the requirement would be more difficult for lenders to comply with than it originally assumed and is now proposing to amend the final regulation to authorize a revised Loan Estimate to be issued no later than the next business day after the rate is locked.
A second proposed revision announced this week is targeted towards new construction loans. It permits creditors who reasonably expect settlements to occur more than 60 calendar days after initial disclosures have been issued to state on Loan Estimates that they may issue new disclosures.
The political environment is so weighed down with justified cynicism that the CFPB often catches the institutions it regulates off guard by remaining true to its mission. Before it changes a regulation its primary question is: will the change benefit, or at least not diminish, consumer protections? For example, in the preamble to these proposed amendments the CFPB argues that giving lenders until the next business day to redisclose loan estimates will benefit consumers by giving them more time to accept loan offers.
Then there is the intangible benefit of dealing with a regulator that writes and explains regulations more clearly than any other. You may not agree with its mortgage regulations but it has provided material designed to help even the smallest lender comply with them.
I apologize but I am still thinking about the Kansas City Royals crashing into over and under walls to make catches and I can’t get baseball metaphors out of my head. The bottom line is that the CFPB has a consistent strike zone. Its overriding mission is to protect consumers. When commenting on one of its proposals, it is incumbent on industry participants to quantify regulatory burdens with concrete operational examples and to suggest alternatives that will not diminish consumer protections. I will continue to disagree with the parameters of the Bureau’s strike zone but also give it much-deserved credit for the consistency and diligence with which it is carrying out its mission. Here is a link to the proposal which also includes other technical changes..
My good friend Otto von Bismarck once said that “the nations of the world are on a stream, which they can neither create nor direct, but upon which they can steer with more or less greater skill and success.” This quote came to mind this morning, not just because this is International Credit Union Week, but because the economic environment in which your credit union operates is increasingly impacted not just by the U.S. economy but by international events as well. If you want to know why the stock market is more inconsistent than the Giants, all you have to do is look at what’s going on in the world.
- The slow-down in the German economy is directly impacting the rates you get for your mortgages. The German economy has been the one bright spot of the Euro Zone for the last several years. It has used the pulpit given to it as a result of its economic performance to demand that other Euro Zone countries, most notably Greece, put fiscal discipline ahead of short term economic growth. It has also made German bonds an attractive option for investors looking for safe but solid returns. But recently, Germany’s run of economic good fortune seems to be coming to an end. Its exports, which have been the key to its economic growth over the last decade, are declining. What does all this mean for your credit union? Don’t expect longer term bonds to rise any time soon. A weakening German economy makes U.S. Treasuries that much more attractive. Yesterday the yield on the benchmark 10-year treasury note fell to 2.206, the lowest closing level since 2013 and the 30-year bond’s yield dropped to 2.957, which, according to Dow Jones Business News, is its lowest closing level in 17 months.
- China is still experiencing a rate of economic growth that would be the envy of any politician seeking re-election here next month, but its decline in GDP growth is already impacting countries like Germany and if its slow-down continues, China’s economic woes will take momentum from our tepid economic recovery.
- Another country to keep an eye on is Brazil. Along with India, China and Russia, it comprises the so-called Bric nations that exemplify the growth of emerging markets. However, Brazil’s economy is now in recession. Considering that, according to the Federal Reserve, 47% of total U.S. exports go to emerging markets, the slow down in these countries will impact America’s economic growth, the only question is by how much.
- Finally, the world is a lot more interconnected than it was in 1976 when a young Belgian researcher discovered of a new virus. This morning the CDC confirmed that a second health care worker contracted the Ebola virus. If the virus continues to spread, don’t underestimate the potential economic impact. For example, it is estimated that the SAR virus cost the world economy $50 billion in 2003.
Of course, it isn’t just bloggers that are paying attention to these trends. In a speech before the IMF last weekend, Stanely Fisher, the Vice Chairman of the Federal Reserve, remarked that “if foreign growth is weaker than anticipated, the consequences for the U.S. economy should lead the Fed to remove accommodation more slowly than anticipated.” In other words, the international climate is already impacting just how low short term interest rates are going to remain and for how long.
For financial industry junkies today is like a total eclipse of the sun. Third quarter earnings reports kickoff for the major banks and J.P. Morgan, Wells Fargo and CitiGroup are all announcing their earnings on the same day. (Incidentally, because of a computer glitch J.P. Morgan’s results slipped out earlier than their 7:00 AM release time and it reported positive results. What a coincidence.)
One thing for you to keep an eye on is the extent to which credit cards boost the bottom lines of these behemoths. If the conventional wisdom is correct credit cards present both a growth opportunity and a challenge for your credit union. As the WSJ explains in an article yesterday:
“The U.S. credit-card industry has found its sweet spot: a combination of moderate economic growth, low-interest rates and consumers who have struck a balance between spending more and paying their bills on time”
Even for those of us who look at the U.S. economy and see a glass half empty the facts tell you that people are once again taking out the plastic and that there may be some low hanging fruit for credit unions with the right cross-sales pitch.
The bank making the most aggressive push is Wells Fargo. As explained in this recent article in the San Francisco Business Journal , its CEO John Stumpf has groused that the bank has the largest network of branches in the country but ranks seventh among card issuers “ Of our 25 million customer households, how many do you think have a credit card?” They all do, but only 35 percent have their credit card with us.” He is out to change this.
Then there is the fact that, even though the CARD Act outlawed some of the most unseemly consumer credit practices, the low-interest rate environment more than makes up for the lost fee income. In addition, some executives sheepishly admitted to the WSJ that the legislation might actually end up being good for business since it makes it easier for people to manage their existing debt.
How does all this help credit unions? Even though the explosion of vehicle loans is getting the lion’s share of the attention credit unions have also seen solid growth in the credit card business. CUNA Mutual reported in its July Credit Union Trends Report that “ Credit union credit card loan balances are expected to grow 7% in 2014 even though some consumers are still leery of debt after the Great Recession and others are hesitant to take on higher-interest rate debt. Better pricing, easier access to credit and lower fees have boosted credit unions’ market share of the consumer installment credit market.”
Of course continued growth is predicated on the assumption that the American Consumer has climbed out of the bunker and now is confident that the worst is over. Consumer confidence is still shaky and no doubt even shakier after the market gyrations of the last few days. Still, given how low-interest rates are and the fact that the unemployment rate is falling how well you cross sell your members on credit cards will be one of the keys to your growth in the year ahead. After all if you don’t close the deal one of the behemoths probably will.
When I saw that the CFPB was holding a conference on the use of account screening companies by credit unions and banks, I thought I had a slam-dunk for today’s blog. First, I could provide you with news you needed to know to start your day and second, I had a strong opinion as to whether or not the CFPB was engaging in appropriate use of its time, energy and resources. The news is still important, but the issues CFPB raised aren’t as clear-cut as I first thought.
First, the part you need to know. The CFPB is zeroing in on the use by banks and credit unions of what it describes as specialty consumer reporting agencies to determine whether or not to open a checking account or provide membership. As many credit unions know, these companies provide information on a consumer’s check writing and account history. According to Director Cordray:
First, we are concerned about the information accuracy of these reports. Second, we are concerned about people’s ability to access these reports and dispute any incorrect information they may find. Third, we are concerned about the ways in which these reports are being used.
The way the CFPB works, you can assume that regulations and or legal actions will be forthcoming, imposing greater consumer access to these reports and scrutinizing the accuracy of the information provided by these companies.
Here’s why I originally thought the opinion part of this blog was going to be a slam dunk. The CFPB is coming dangerously close to crossing the line between deterring illegal and/or deceptive practices that harm consumers and instead substituting its judgment for that of banks and credit unions. Banks are in business to make money and there is nothing wrong with that. Credit unions are not-for-profit institutions operating in a free market system. They have an obligation to maintain and grow assets if they are going to be around to meet member needs. Contrary to popular belief, accounts cost institutions money. This is why legislators should consider secondary capital reform and why regulators need to be careful with risk-based capital regulations, but those are blogs for other days. In an era when fees are being restricted, a strong argument can be made that it is prudent business practice for financial institutions to figure out if someone can handle an account responsibly before extending the opportunity.
But here is why I am so conflicted about today’s blog. Most importantly, credit unions have a unique ethical and legal obligation to extend banking services to employees and community members looking for access to financial services. The industry must never lose sight of the fact that its creation on the federal level was a direct reflection of the fact that Depression ravaged consumers, first and second generation immigrants and Dust-Belt migrants from rural communities were being intentionally excluded from the financial system. We aren’t in a Great Depression today, but as the CFPB press release noted, there are 10 million people without access to a banking account (this is probably a very conservative estimate).
In addition, whenever I tried to distinguish a community credit union from its banking counterpart down the street, to me, the difference comes down to the extent to which the credit union and its employees are willing to give people a second chance and more affordable products that they may not get at other financial institutions. This does not mean that someone should automatically be given access to loans simply because they have joined a credit union. In addition, credit unions have the authority, and they should use it, to restrict the privileges of a member who has caused them a loss. In the end, all members are entitled to is a share and a vote. But, if the Director is correct, and a substantial number of credit unions are effectively pre-screening individuals for membership, what they are doing runs counter to the very purpose that the credit union charter was created for in the first place.
How can these two conflicted views be reconciled? First, the CFPB prides itself on being a data-driven organization. Let’s find out how widespread the use of these account screening services are and, more importantly, how large a role they are playing in keeping people unbanked. My guess is that these services play a miniscule role in keeping people from opening bank accounts or becoming credit union members. Second, those credit unions that see the need for these services should establish criteria through which they weed out only those individuals who have a history of chronically abusing membership services. I don’t know where exactly this line would be drawn, but common sense tells you there is a distinction between the individual who bounced checks prior to declaring bankruptcy three years ago and the individual who has opened two previous accounts with other credit unions only to close them down after causing those institutions losses that had to be born by the membership.
On that conflicted note, I am going to be taking a long weekend, so I will see you back in the blogosphere on Tuesday. Remember, the views I express are mine alone.