Groundbreaking legislation. Political intrigue. Indecipherable regulations. If you get chills of excitement just thinking about these topics, this is the blog for you! Henry Meier is taking on the latest laws, regulations and political issues that impact New York credit unions, so read often and join the conversation!

September 6, 2011 at 9:13 am 14 comments

Will The State Be Able To Deposit Funds In CUs?

Legislation that would authorize up to $200 million in state funds to be deposited in credit unions (S.3616-Funke) took an important step down the legislative road yesterday when it was scheduled to be voted on at next Tuesday’s Finance Committee,  If the committee votes in  favor of the bill, it goes out to the Senate floor where it could be voted on by the full chamber,  A companion piece of legislation-A 774 Rodriguez- is awaiting action in the  Assembly Banks Committee. The bill would authorize the state Comptroller and  the  Commissioner  of  Taxation and Finance to deposit  up to $200 million in state funds in credit unions.  It is modeled after a similar program for community banks.

Lest we all get too excited and banking lobbyists go apoplectic on a beautiful Friday, the bill is not a municipal deposit bill.  It does not authorize municipalities in New York State to accept municipal deposits and get the best rates available (God Forbid!). It also  would not decrease the amount of state funds going to banks.  It simply puts credit unions on an equal footing with their banking counterparts.

One more point. A  faithful reader of this blog was chatting with me about this bill the other day and she correctly pointed out that, in urging legislators to act on this and similar legislation it’s always important to point out that federal law already permits credit unions to accept federal funds.  New York has made a public policy decision to block its government and localities from accessing credit unions.

This isn’t all that fair to New York State’s citizens.  The fact that the Senate is seriously considering S3616 is an incremental but important step in the right direction.


Senate moves to crackdown on subprime car lending

The Senate Banks committee will take up a series of bills next week designed to crackdown on subprime auto lending activities.

At a hearing earlier this year Ben Lawsky, the former Superintendent  of the Department of  Financial Services,  suggested that his Department needed  more authority to crack down on nonbank actors that offer car loans.

In a wonderfully concise piece of legislative drafting,  S. 5489 sponsored by Senator Klein  stipulates that  “Every sale of a motor vehicle that involves financing, whether  originated  at a motor vehicle dealer or at a lending institution, shall   be deemed to be a “financial product or service” within the jurisdiction of the department.”

A second, potentially more controversial bill (S.5490A Savino),   imposes new restrictions on the ability of car dealers to repossess vehicles. It provides that when a dealer signs a retail installment contract with a car buyer and the buyer drives the car off the lot the   buyer is the owner of the vehicle and has the right to keep the vehicle except for reasons of non-payment of the contract.  As a result dealers could no longer give themselves the right to repossess a vehicle for which they are unable to secure financing through indirect lending networks.

May 29, 2015 at 8:55 am 1 comment

Score One For The Trolls

The Supreme Court feels your pain when it comes to those increasingly ubiquitous demand letters sent to your credit union by Patent Trolls out to shakedown your credit union for using technology which allegedly  violates an obscure paten but there is not much it  can do about it.  That’s the takeaway from a case decided yesterday by the Supreme Court.  The Court is clearly frustrated with the state of patent law.  Hopefully Congress shares its frustration.

Let’s say you buy a cutting edge ATM.  If a patent holder feels that the ATM maker is using technology for which they have a patent your ATM maker could be sued not only for using the patented technology without permission but also  for inducing third party’s-like your credit union-to violate the patent  by buying the ATM.

The Issue  debated in Commil USA, LLC v. Cisco Sys., Inc., No. 13-896, 2015 WL 2456617,  (U.S. May 26, 2015)( http://www.supremecourt.gov/opinions/14pdf/13-896_l53m.pdf)  was whether a company could defend itself against inducement claims by proving that it had a good faith belief that it was not violating a patent.  The Court said no.  This means that, so long as my fictitious  ATM maker was using technology that violated a patent,  it  violated the law by inducing your credit union to buy its ATM regardless of how earnestly it believed it  was doing nothing wrong.

This clearly is a nice win for patent Trolls, those companies that specialize in buying up patents and then shaking down companies with threats of lawsuits unless they pay them. Credit unions have seen their Demand Letters.   A victory for Cisco would have made the patent trolls business model less cost effective.

In the closing paragraphs of his majority opinion Justice Kennedy almost apologetically explained that    “{S}ome companies may use patents as a sword to go after defendants for money, even when their claims are frivolous. This tactic is often pursued through demand letters, which may be sent very broadly and without prior investigation, may assert vague claims of infringement, and may be designed to obtain payments that are based more on the costs of defending litigation than on the merit of the patent claims.” He reminded the district courts that hear these cases that “If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits “and award attorney’s fees to prevailing parties in “exceptional cases. ”

When a justice really disagrees with a decision they signal their displeasure by reading their dissent from the bench.  The majority’s decision drew the ire of Justice Scalia, who complained that it “increases the in terrorem power of patent trolls” That is a bad thing.

The need to protect patents was considered so important by our Founders that they put it in the constitution.  They undoubtedly thought they were fostering innovation.  Today the law is being used to stifle innovation via the threat of lawsuits.  The system is a serious mess that is beginning to hurt our economy. It’s time for Congress to step in so that paten law furthers innovation instead of legal careers

Freddie to offer Free Underwriting

On June 1st it’s going to get a little cheaper to underwrite loans to secondary market standards.  Freddie Mac has announced that it will no longer charge $20 to run applications through its Loan Prospector automated underwriting system.

Will Fannie Mae be following suit? Not if it can help it.  This morning’s American Banker quotes a Fannie Mae spokesperson explaining that its automated underwriting service is a valuable tool whose “value to lenders is clear.” Translation: Don’t expect Fannie to follow suit unless it loses market share.  The paper points out that the price reduction is a sign of renewed competition between the Government-supported housing behemoths.

So the Alice In Wonderland World that is the post Mortgage Meltdown housing market gets even stranger.  The bailed out and bankrupt GSEs are not only continuing to act as the backbone of the secondary housing market but they are back to competing against each other.  I’m happy for those of you who are going to save money but this is an awfully strange way to make housing policy.


May 28, 2015 at 9:22 am Leave a comment

The Most Important Proposal of the Year

The most important proposal of the year has nothing to do with Risk-Based Capital or Field of Membership.  It has nothing to do with overdraft fees or payday loans.  In fact, it hasn’t even been released yet for comment.  Nevertheless, your fearless blogger is going to go out on a limb and tell you that the most important regulatory proposal you will be confronted with this year is one that is expected to be issued by the Department of Labor this summer.

What I am referring to is the release of regulations redefining what constitutes an exempt or non-exempt employee under the federal Fair Labor Standards Act (FLSA).  At the very least the regulations could impact the operation of your credit union; in a worst case scenario it will be another one of those unfunded government mandates.

Under the FLSA, employees are entitled to a minimum wage and to at least time and one-half overtime pay for every hour they work over 40 hours per week.  As many of you are aware, however, so-called exempt employees are not entitled to overtime.  As a gross over-simplification, an exempt employee is generally defined as someone whose duties involve supervising or exercising independent judgment.

In March of last year, President Obama directed the Department of Labor to scrutinize the existing DOL regulation.  To give you a sense of where this is headed, a fact sheet that accompanied the President’s directive argued that “the overtime rules that established a 40-hour work week, a lynchpin of the middle class, have eroded over the years.  As a result, millions of American workers have been left without the protections of overtime” even though they are expected to work 50-60 hours a week.

One way the DOL is expected to attack this perceived problem is to restrict the so-called primary duty test, which could have a profound impact on many smaller credit unions.  For example, let’s say you have a four person branch.  Your manager’s primary duty is to manage the entire branch.  But, on any given week, he may spend a good deal of his time pitching in at the teller window or helping out originating mortgage loans.  Under the existing regulations, you still can treat that manager as an exempt employee, but it is quite possible that the DOL will seek to limit the exempt designation solely to managers who spend the majority of their time taking on purely supervisory tasks.  You may want to take a look at 29 CFR 541.106.

Technology can also influence the DOL’s proposal.  A recent article in the Wall Street Journal reports an increase in lawsuits in which employees are suing employers who provide them cell phones with the expectation that they perform uncompensated work outside the work day.  This is an issue I have always found intriguing.  It’s one thing to send your top managers an email at 6:00 a.m., it’s another to send that same email to all of your employees irrespective of their work status.

These are just two examples of how the DOL’s regulation could impact your credit union.  Regulations haven’t even been proposed yet, so we are a long way from seeing any of my worst case scenarios become realities.  Nevertheless, given the potential scope of the proposal, you should all be keeping an eye out for the DOL regulations once published.  It could have a uniquely negative impact on small businesses like credit unions.

May 27, 2015 at 8:38 am Leave a comment

The Mouse That Roared?

The news that the proposed $19 million settlement between MasterCard and Target has been rejected, in no small part because of the vocal opposition of credit unions that complained that the proposed deal didn’t adequately compensate smaller issuers for the costs of the breach that impacted as many as 40 million cards and 110 million people, is an important victory for the industry.  It demonstrates that the concerns of smaller institutions have to be a major focus of any efforts by the courts and policymakers trying to apportion the costs of data breaches.  This may have been the moment when the little financial institutions came together and announced that, when it comes to data breaches, “they’re mad as Hell and they are not going to take it anymore.”

Under an agreement announced between MasterCard and major issuers in March, issuers would have gotten $19 million to settle claims related to the breach provided that at least 90 percent of card issuers signed off on the deal by  May 20th.  If you, like your faithful blogger, were already in long-weekend mode on Friday, you may have missed the news.  As NAFCU’s Carrie Hunt said in this morning’s American Banker, “[t]he failure to opt in to the settlement by financial institutions sends a strong signal to card companies that the current reimbursement system does not work and financial institutions need to be made whole.”

Opposition to the settlement was led by a group of small banks and CSE Federal Credit Union in Lake Charles, La.  They sued Target last year and are seeking to bring a class action lawsuit.  They complained that the settlement amounted to “pennies on the dollar” compared to the actual costs of the data breach.  They filed a motion seeking to block the settlement.  Even though that attempt failed, they lost the battle but won the war.  Their failed attempt provided a platform from which they could argue that the settlement was a bad deal.

Now what? Good question.  When you begin to parse through the legal issues and try to determine not only the cost of breaches but how they should be apportioned we get into murky water here with both sides having incentives to negotiate.  Target wants to move on and it would take years of litigation before credit unions or banks ever get a dime for the breach.

That is why, as good as the lawsuit feels, Congress and legislatures are best suited to apportion the costs of data breaches and prevent further instances.  The litigation comes at a great time for the industry.  Congress is starting to pay attention to data breach issues . . . finally.  The lawsuit shows that the existing system doesn’t adequately protect credit unions for data breach costs.

For your largest issuers, they are just another cost to be absorbed but for smaller institutions data breaches result in direct and indirect costs that, if left unabated, will push even more credit unions to merge or close their doors.

May 26, 2015 at 9:18 am 1 comment

Happy Trails Ben Lawsky

“Bank Cop Lawsky Turns In His Badge ”

That’s the headline into today’s WSJ announcing the Departure of  Ben Lawsky  as the first head of the Department of New York’s department of  Financial Services.   As its first  Superintendent  he oversaw the unification of the Insurance and Banking Departments in   the opening  act of what has been  a very impressive tenure.

In his first State Of The State address  Governor Cuomo  criticized the state’s performance  cracking down on   banker malfeasance in  the years leading up to the Mortgage Meltdown.  He wanted a Superintendent  more analogous to an Attorney General than a traditional regulator. The WSJ  headline speaks volumes about how successfully  Lawsky  carried out this task for the Governor, for  whom he had served as an a top assistant  when the Governor was Attorney General.  Lawsky brought the zeal of a former federal prosecutor  to the job and demonstrated that the state has enough jurisdiction to make itself a major player in investigations  previously thought of as the exclusive purview of the federal government,  such as BSA violations by foreign banks with New York branches.

If you think I’m exaggerating here is a trivia question for you: Who was New York’s last Banking Superintendent? Richard Neiman.  No one ever thought of him as a Hell-Hound of Wall Street.

On the more traditional regulatory front, his initiative that   I believe will have the most lasting impact-hopefully for the better but  maybe for the worse will be in the regulation of virtual currency.  New York was the first state to establish a licensing requirement for virtual currency traders.  The issue he grappled with: how to increase regulatory oversight without stifling currency innovation-will be one of the key challenges faced by his successors for years to come.

Finally and most importantly, his  tenure has also been marked by a refreshing  receptiveness to credit union issues.  The Department is increasing staff dedicated to credit unions and has expressed a willingness  to work with credit unions that may be interested  in converting to the state charter.  Plus,  its acquiescence  was crucial to ultimately getting our enhanced field of membership  bill approved by the governor.

In my ever so humble opinion this is a pretty good list of accomplishments,  He is starting his own consulting firm but my guess is that New York hasn’t seen Lawsky’s last stint on the public stage.  Pure speculation on my part but he will run for statewide office someday.

May 21, 2015 at 9:04 am Leave a comment

Lawsky: NY’s Foreclosure Process Broken

The debate over New York’s broken foreclosure system and what to do about it took a major step forward yesterday with a speech by Superintendent Lawsky in which he proposed several needed reforms.  The speech, legislation introduced by the Attorney General,  and  the announcement that several major lenders, including Bethpage Credit Union on Long Island, have agreed to adopt best practices for abandoned property-including the creation of a vacant property registry means that foreclosure reform will be a high-profile issue for the Legislature as this year’s session enters its final weeks.

First, let’s be honest the system is broken.  The average foreclosure takes over 900 days to complete after a notice of foreclosure has been filed and policymakers are growing increasingly concerned about abandoned property for which homeowners no longer take responsibility.   Unfortunately the issue has largely been framed  by housing advocates who believe that all banks are inhabited by Scrooge’s  anxious to steal homes at the first sign of delinquencies and who believe that there is no problem that can’t be solved by requiring lenders to provide just one more disclosure.

In contrast, in his speech, which was accompanied by the release of a report on New York’s foreclosure process, Lawsky was clearly trying to highlight areas of consensus when it comes to foreclosure reform:  “we believe there are some sensible and responsible changes we can make to improve our broken foreclosure process that will benefit homeowners, lenders, and our local communities.” He pointed out that “although it may not be immediately obvious; our current system hurts virtually everyone involved in the foreclosure process.”

Since 2007,  NY law has mandated that lenders and delinquent borrowers work in “good faith” to negotiate a resolution to delinquencies without foreclosure.  Last year there were 115,000 such conferences.  The problem is that these settlements can take months to schedule and when they actually do take place the law doesn’t define what good faith is.  The Superintendent is proposing defining “good faith” and authorizing specific penalties for noncompliance.

In theory these reforms make sense but I would rather see them  limited to stricter penalties for both lenders and borrowers when they don’t show up at these meetings prepared and authorized to negotiate.  To me a borrower who chooses not to show up at a court ordered conference,  or a lender whose representative   is authorized to do nothing but imitate a potted plant should be subject to swift and clear penalties.  The good faith part of the discussion will take care of itself.

On Monday the Governor announced that a group of major lenders had agreed to voluntarily deal with abandoned or Zombie property.  Under the plan as described in a press release the lenders will conduct an exterior inspection of a property within 60 days of delinquency to determine vacancy and abandonment, and then every 30 days thereafter.  If the property is determined to be vacant and abandoned, lenders will secure the home  by changing the lock, replacing or boarding up windows, posting the property with contact information, and eliminating other safety hazards.  Then, on an ongoing basis they will monitor the property’s condition to ensure it remains secure and that it complies with applicable provisions. This is similar to the AG’s proposal.

Yesterday the superintendent argued  that the creation of the registry should be coupled with a push to expedite foreclosures involving abandoned property.

“Lenders who can prove that the property is in fact abandoned will be able to fast-track their foreclosure actions. In return for taking advantage of this expedited process, lenders will be legally responsible for maintaining the property during this faster foreclosure process, rather than waiting until the process concludes.  It is a fair trade-off.”

Here are  links to the speech and the Governor’s announcement.




May 20, 2015 at 9:26 am Leave a comment

More Guidance on Guidance

When you find out a final regulation has been published, most of you do a good job of figuring out how to comply.  Let’s say a “Guidance” on the same subject came across your desk.  Do you:

  1. Place the notice in your to-do bin where it gathers dust along with that great article on mortgage lending that came out in January 2007?
  2. Skim the cover page, breathe a sigh of relief it isn’t a regulation, and toss it into the garbage?
  3. Assign someone to implement its dictates the same way you would a promulgated regulation?
  4. Use it as a place mat for your lunch?

Readers of this blog know where I am going on this one.  There is too little conformity in how regulatory guidance from NCUA is issued.  This leads to a great deal of unnecessary confusion among regulators, examiners, and credit unions about how much weight Guidance should be given and when a Guidance can be used by an agency instead of the more formal regulatory process.  The problem isn’t unique to NCUA but reflects a need to amend federal law to give regulators more guidance on Guidance.

Yesterday, the Government Accountability Office (GAO) released a report detailing the procedures used by four agencies in deciding when to issue a “significant” Guidance as opposed to a new regulation.  Although the NCUA was not among the analyzed agencies – the Agriculture Department (USDA), Education Department (ED), Health and Human Services (HHS), and the Department of Labor (DOL) – the report’s conclusions were hardly surprising to anyone who has delved into the regulatory morass and tried to make sense of the regulation/Guidance dichotomy.

The Agencies did not use standard terminology for guidance.  For instance some used a Q &A format while others used an Industry Letter format.  “They often based the decision between guidance and regulation on whether the direction was meant to be binding (in which case they issued a regulation). In some cases, issued guidance clarified existing regulations, educated the public, addressed particular circumstances, or shared leading practices.”

The problem is that there is little consistency and a dearth of criteria used when determining when an issue should be dealt with as a regulation as opposed to a guidance.  For instance, the Education Department and the USDA’s written procedures explained the approval and clearance procedures for significant guidance.  DOL officials said they did too but that these procedures “were not readily available” during the GAO audit.  I’m going to go out on a limb and say that not too many DOL employees know these procedures exist.

Like it or not, we live in a regulatory state.  Things were already bad but the Supreme Court’s decision earlier this term in Perez v. Mortgage Bankers Ass’n, No. 13-1041, slip. op (U.S. Mar.9, 2015) upholding the right of the DOL to issue an opinion letter classifying mortgage originators as nonexempt employees gives all regulators even more power and flexibility.  It may not win many votes come election time  but a constructive change that may have bipartisan support would be to amend the Administrative Procedures Act to implement standard procedures for the promulgation of Guidance and to clarify precisely how much legal weight a Guidance has as opposed to a regulation vetted via the rule making process. http://www.gao.gov/assets/670/669688.pdf


Nothing to do with credit unions, but here is a great question from Rep. Jeb Hensarling, (R-Texas) Chairman of the House Financial Services Committee, who is leading the charge against the reauthorization of the Export Import Bank.  “How are we ever going to reform the social welfare state if we can’t reform the corporate welfare state?…Success in America  ought to depend on how hard you work on Main Street not who you know in Washington.”



May 19, 2015 at 9:32 am Leave a comment

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Authored By:

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

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