What Is the Best Way to Prevent Financial Exploitation?

The Senate Republican’s inclusion of a Financial Abuse Proposal in their house budget resolution means that the question of what powers New York banks and credit unions should have to prevent the financial abuse of the elderly and disabled is sure to be part of the negotiations as the legislature and governor move to put a budget in place by the April 1st deadline.

The core of the senate’s plan would authorize credit unions and banks to refuse to execute financial transactions involving suspected financial abuse of a vulnerable adult. For purposes of this new section, a vulnerable adult means an individual who because of mental and/or physical impairment, is unable to manage his or her own resources, or protect himself or herself from financial exploitation. This power would extend to accounts including trust funds in which the vulnerable adult is a beneficiary. Institutions would also be authorized to forward account information to social service departments and law enforcement officials.

All of the powers outlined in the bill are discretionary, meaning that credit unions couldn’t face liability for refusing to block transactions. Financial institutions and their employees would receive qualified immunity from civil or criminal actions if they act in good faith in reporting incidents. Finally the Department of Financial Services would be required to develop a voluntary education program for financial institutions.

Once again this is simply a proposal. Nevertheless, it appears more and more likely that credit unions will now have additional powers to block certain types of transactions. Keeping in mind that the opinions I express in this blog are mine and mine alone, yours truly has always been an unabashed dinosaur when it comes to bills such as this one. The senate’s proposal, however, goes a long way to addressing issues involving liability and the discretion institutions should have.

One area that needs further clarification is the interplay between fiduciaries, including persons given powers of attorney authority and the new statute. The legislature already has an extensive framework in place to ensure that vulnerable adults are adequately protected from unscrupulous fiduciaries. In contrast giving banks and credit unions the power to effectively override fiduciary powers could create a great deal of confusion about what fiduciaries can and can’t do. You can find the proposed section in Part RR of Senate Bill 2006-B.

 

March 22, 2017 at 9:23 am Leave a comment

Can You Approve Mortgages in Ten Days?

For a few years I have been predicting that I would be driving a Google car to work within the next decade. The technology is evolving so rapidly that what used to be just another one of my crazy predictions looks more and more like it could come true.

The financial industry is experiencing its own transition from the fanciful to the probable and those of you who don’t ride the wave are in deep trouble.

Yesterday Experian announced that it was teaming up with FinTech start up Fincity, to radically expedite both the mortgage loan and consumer lending approval process. Whether or not this partnership lives up to the press release’s hype remains to be seen, but nevertheless it is a great case study of how radically and swiftly technology is changing the way financial institutions must operate if they expect to get a members business.

If you pay close attention to the mortgage lending industry this is not the first time you have heard about Fincity. The company, which specializes in real time aggregation of financial data, announced in December that it had raised $42 million in funding. This was followed up by the news that it was teaming up with Fannie Mae as part of the GSE’s “Day 1” certainty initiative, under which it is scaling back the scope of it representations and warranties for financial institutions that agree to adopt automated underwriting standards.

Put this all together and what you have is a structure that will allow financial institutions to instantaneously gather and verify the information necessary for underwriting, such as an applicant’s employment status and income. All this will be done with greater certainty that the information contained in loan files is correct.

In the press release Fincity predicts that “By digitizing the end-to-end mortgage process, loan approvals that take as long as 70 days might be approved in as little as 10 days.” Consumers will have a painless verification process.

I don’t know if I am going to be buying a driverless car from Google, Apple or Ford. But I will be buying one. This is not a pipe dream. Similarly, your credit union will soon be facing competitors from within the traditional banking industry as well as Silicon Valley, who can deliver on lending timelines virtually inconceivable just a few years ago and if you can’t compete, you will find yourself all but blocked out of the mortgage business.

On that happy note – enjoy your day !

March 21, 2017 at 9:06 am Leave a comment

Three Reasons Why The Gorsuch Nomination Matters To You

Today the Senate Judiciary Committee kicks off the nomination hearing for Neil Gorsuch to fill the vacancy left open on the Supreme Court when Justice Scalia passed away. Assuming he ultimately gets approved by the Senate, there are few individuals who will have as direct and immediate impact on what your credit union can and can’t do for decades to come. This is not simply because he will be the fifth (presumably more conservative) vote on the court, or because he is the first of what could be multiple Trump nominees pushing the court further to the right, but because there is a plethora of outstanding legal issues that need to be resolved in the next few years.

Here are some of the big ones:

The structure of the CFPB- As readers of this blog will know the US Court of Appeals for the DC Circuit is set to reconsider En banc, whether the CFPB as structured is constitutional. Early this year, a panel of the same court ruled that it was unconstitutional for the CFPB to be overseen by a single director, who doesn’t serve at the pleasure of the president. Late last week, the Trump Administration submitted a brief arguing that this decision should be upheld. If the court’s earlier decision is upheld, the Trump Administration will have all the authority it needs to effectively fire Director Richard Cordray. However, win or lose this case will undoubtedly be heard by the Supreme Court with Gorsuch, who is no fan of regulatory overreach on the bench.

Judicial Deference- For my money, the single most important doctrinal issue up for debate is the extent to which courts should defer to an agency’s interpretation of a statute it is charged with implementing. Expect to hear a fair amount in the hearing today about the so-called Chevron Doctrine. In recent years, members of the court’s more conservative wing have openly questioned this judicial doctrine, under which agencies are given wide latitude to interpret regulations susceptible of more than one meaning. Critics of this approach, including yours truly, argue that it has opened the door for agencies to be defecto lawmaking bodies, unconstrained by the laws they are punitively interpreting. You have been impacted by this deference if you feel that mortgage originators should properly be classified as exempt employees or if you have had to rewrite your social media policy to ensure that you don’t discriminate against employees wishing to discuss an issue of workplace concern.

Fair Lending Laws and Disparate Impact– One issue that I personally expect to keep bubbling under the legal service is the proper interpretation of Fair Lending Laws. For example, no one disputes that the Fair Housing Act outlaws intentional discrimination. In a decision in June of 2015 the court held five to four that it also outlaws practices that have a disparate impact on minorities. On one hand this decision did nothing more than uphold the traditional interpretation of the FHA. Even with this decision however, analysis of what constitutes a disparate impact is so fact sensitive that you can expect litigation involving this issue for years to come.

March 20, 2017 at 9:43 am Leave a comment

My Fearless Final Four Prediction And Some Credit Union News

With America’s greatest sporting event about to tip off, I have rankings on my mind this morning.

Yesterday, NCUA released the 4th quarter summary of the industry’s performance, and while the overall numbers are encouraging, some of NY’s stats are a bit surprising. For instance, NY ranked 42nd in Median Total Delinquency Rate and in credit union loan growth it ranked 37th nationally, with a year – to – year growth of 3.2%. Looking on the bright side, New York ranks 17th in both asset growth (4.1%) and deposit growth (4.4%).

You undoubtedly already heard the news that the Federal Reserve’s Open Market Committee voted to raise its benchmark interest rate 0.25%, and indicated that two more rate increases are on the way.

What you may have missed is this intriguing article in today’s WSJ pointing out that banks have pulled back on lending; the paper is reporting that “Total loans and leases by U.S. commercial banks are currently rising at an annual pace of about 5%, based on weekly seasonally adjusted data from the Federal Reserve. That is down from a 6.4% pace for all of last year and peak rates of around 8% in mid-2016.”

This is a trend to keep an eye on. Remember Wall Street’s rise has been fueled, in part, by a belief that increased interest rates would boost the fortunes of banks. In addition, conventional wisdom is that President Trump’s economic policies are likely to spur economic growth in the short to medium term. Why then are the banks pulling back the reigns on lending? This is one factoid to keep in mind next time you talk to your Congressman about MBL reform.

My Fearless Final Four Predictions

There is a reason why computers do a much better job at gambling than do humans. Computers take the emotions out of it. For example, anyone who has filled out a bracket for this year’s men’s basketball tournament has fantasies of riding the next Cinderella all the way to the final four. The facts tell a different story. The top 8 seeds in each region make up 85% of the final 16. When it gets to the final 16 there is an 84% chance that the final four teams will come from teams seeded 1-4 in their regions. In other words, the top 16 seeds have an 83% chance of making the final four. Finally 75% of National Champions were either a number 1 or 2 seed.

Against this back drop yours truly likes Kansas, Villanova, West Virginia and Kentucky in the Final Four, with Kentucky winning the National Championship five minutes before the entire team announces that they are quitting college to make millions playing in the NBA.

March 16, 2017 at 9:15 am Leave a comment

Get Ready for Paid Family Leave

Although efforts to repeal and replace the Affordable Care Act are getting all the attention, as New York employers, credit unions have much more immediate concerns.  The State is now accepting comments on proposed regulations implementing paid family leave. 

Beginning January 1, 2018 the state will start phasing in the new mandate under which employees will be eligible to receive some pay during the time they are away from their job in order to bond with a child, care for a close relative who has a serious health condition, or help care for family of someone who is called to active duty.  For example, starting in 2018, an eligible employee would receive 50% of their salary for a maximum of 8 weeks during a 52 week period.  When it is fully phased in by 2021, employees could receive up to 12 weeks of paid family leave in an amount equal to 67% of their salary.  However, the payment benefits are capped to a percentage of the State’s average weekly wage.  To be eligible, an employee must have been with a covered employer full time for 26 weeks or part time for 175 days.  Covered employers are those covered by the Workers Compensation Law.

If all goes according to plan, employees will pay for the expanded benefit through payroll deductions analogous to contributions that support the Workers Compensation Fund.  I have my doubts, but the time for questioning the wisdom of the proposal is over and the time for getting your HR person focused on compliance has begun.

As with all complicated regulations, the devil is always in the details, particularly when we are dealing with an area of law that interacts with existing federal mandates.  Please feel free to reach out to the Association if you spot something that needs clarification.  By the way, my kids just got their second consecutive snow day.  I understand completely why states like North Carolina and Georgia get crippled by snow storms but something is wrong when upstate New York can’t handle a two-footer.  Are we becoming a state of wimps?

March 15, 2017 at 8:27 am Leave a comment

Reach Out and Touch Someone At Your Own Risk

The long reach of the Telephone Consumer Protection Act of 1991 was highlighted last week by two Congressional hearings and a joint letter issued by our trade Associations and the bankers strongly opposing a petition to make this onerous law even more difficult to comply with. Believe it or not, this may be the single biggest compliance issue your credit union should be monitoring.  If you don’t think your credit union is impacted by the TCPA, you’re likely wrong.

The TCPA and its regulations prohibit any call to a land line or cell phone that uses an automatic dialing system, artificial or pre-recorded voice that is made without the prior express consent of the called party. According to the FCC, which administers the law, this prohibition now applies to texts.  The key to understanding the TCPA’s reach is to understand that it applies to calls made by your employees with    equipment with the capacity “to store or produce telephone numbers to be called using a random sequential number generator” and the ability to dial such numbers.  Arguably, the only phone that doesn’t meet this definition is that roto dialer wasting away in the back of your garage.  The fact that you don’t autodial your members or bombard them with prerecorded messages is irrelevant.

Traditionally, businesses such as banks and creditors could demonstrate that a member implied consent to receive calls by, for example, including their phone number on a credit application. (See In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 F.C.C. Rcd. 559, 559 (2008)).  Remember that the implied consent standard does not apply to advertisements or telemarketing.

Why has this statute become such a big issue?  Combine this level of nuanced compliance requirements with restrictions on text messages sent to an ever growing number of smart phones and you have a classic legal speed trap.  There were a mere 14 TCPA lawsuits in 2008.  This increased to more than 1,900 in 2014 followed by a 32% increase of such lawsuits to a total of 4,860, including 30 with settlements of over a million dollars.  No wonder then, as pointed out in the joint letter, the expansive definition of auto dialer has even led credit unions and other financial institutions to stop texting messages to members who previously received them.  

While some of this may ultimately be an overreaction, the issue gets even more complicated now that a petition has been filed with the FCC, which would have the effect of making it more difficult to prove that a member has consented to receive TCPA communications.  Specifically, petitioners are requesting that the FCC issue a rule requiring that all calls subject to the TCPA only be authorized with express consent from the receiving party.  The fact that a member has previously put his number on that credit application would no longer constitute consent.     

This proposal would be great for trial lawyers, but lousy for consumers for whom the cell phone has become an electronic appendage, and financial institutions which, as pointed out in the joint comment letter, often have to make live contact with members to comply with federal law.  By the way, the implied consent standards just apply to informational, as opposed to marketing, phone calls.

The good news is that the FCC is poised to take a decisive shift away from many of its more onerous interpretations, now that the Trump Administration can appoint the head of the commission.  Still, this is yet another example of how regulations have over taken the statutes that they are intended to implement.  It is time for Congress to revisit the TCPA.  The problem is that a statute was written when there was an estimated 8 million Americans using cell phones.  Today the number of cell phones exceeds the US population, with many adults having more than one cell phone.

 

March 14, 2017 at 9:24 am Leave a comment

One More Way CUs Could Help Local Communities

 

Yesterday Governor Cuomo proposed a $1.4 billion investment as part of a plan to revitalize Central Brooklyn. Just as Municipal Deposits go hand and hand with efforts to make local governments more efficient, credit unions have an off-the-shelf tool that could help further the governor’s goals, not only in Brooklyn, but across the state.

What I am talking about are Banking Development Districts. They have been around since 1997. The basic idea is that banks that agree to open branches in financially underserved areas receive a series of incentives, including the authority to accept low interest deposits from the state comptroller and tax breaks. That’s right, banks benefit from various tax breaks but that is a blog for another day.

Unfortunately, the program has not been as successful as hoped. In a 2010 report, the DFS commented that “Despite its successes, the BDD program could be dramatically improved by mandating that BDD branches provide financial education, encouraging the development of more affordable products and services and encouraging more collaboration between the BDD branches and local community groups.”

One of the most basic things the state could do is to allow credit unions to participate in the program. In fact, the Assembly has repeatedly passed legislation going back almost as long as the program has been in existence to do just that. Assembly bill A5776 has been introduced by Assembly Banks Chair Kenneth Zebrowski. With the governor’s commitment to underserved areas, maybe now is the time to let common sense prevail and let credit unions participate in BDDs. After all, many of the pavlovian banker arguments against credit union involvement in anything, even if it might help people, are even more spurious when it comes to BDDs.

This program was designed to provide tax incentives to financial institutions in return for providing expanded financial opportunities to communities in New York City and around the state. It is kind of hard for a banking industry that needs tax breaks in order to go into financially underserved areas to argue with a straight face that the tax status of credit unions should exclude them from participating in this program. This is particularly true since banker involvement in the BDD program has been less than stellar.

The continued difficulty of getting credit unions seeking to participate with banking development districts demonstrates how pernicious it is to continue to view every effort by credit unions to expand services from the perspective of the banking industry. As inequality grows in the country and in the state, people need as much access to financial services as they can get their hands on. Allowing credit unions to compete for their business can play a role in much needed economic development. In the end, the question should not be, “What is best for the banks?” But rather, “What is best for New York State consumers?”

March 10, 2017 at 10:00 am Leave a comment

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Authored By:

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

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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