Close But No Cigar on BDD’s

As succinctly summarized in this morning’s Albany Times Union, the 2017 Legislative session fizzled out late Wednesday night with no grand finale. Unfortunately our Banking Development District Legislation bill was also victimized by this inaction.

Although the Assembly passed a bill that authorized credit union to assist underbanked communities, in the end the Senate Rule Committee didn’t pull the trigger, failing to put the bill on the floor for a vote of the full chamber. The result is disappointing, but remember the legislative process is a marathon not a sprint. The fact that one house has passed the legislation and the senate has now seriously considered it is progress we can build on for next year.

It appears that many of the highest profile bills dealing with employment also withered on the vine. For example, legislation passed by the assembly which would have prohibited the use of consumer credit history in hiring employment and licensing determinations as well as legislation prohibiting inquiries about an applicant’s salary history, didn’t make it through the gauntlet .

On that note yours truly is taking tomorrow off and selling lemonade at my daughters lemonade stand- I have to pay for college somehow. I will be back on Monday.

June 22, 2017 at 9:01 am Leave a comment

And down the stretch they come…

With the legislative session scheduled to end sometime tomorrow, this is the time when most of the really important stuff is voted on, amended, or left to wither on the vine until next January.

While there are a bunch of bills that I will be talking about in the coming weeks there is of course one that continues to grab the attention of all faithful bloggers; I am talking about the Banking Development District bill which continues to advance. Yesterday it passed the Assembly without being laid aside for debate. The final tally was 83 to 9.

Remember now is the time to be contacting all those Senators and debunk all the nonsense the banks have been telling them. For one thing, credit unions do pay taxes, lots of them. You may also want to point out that this bill does nothing more than allow credit unions to participate in a program that would assist areas with a dearth of banking services.

A second issue that came up yesterday doesn’t deal with legislation, but it is a pressing concern not only in NY, but to anyone who offers mortgage loans across the country. State Comptroller, Thomas DiNapoli, issued a report calling for enhanced state/federal coordination of water quality standards. This gives me the opportunity to sound off on one of my personal pet peeves.

No one is ever going to accuse me of being a tree-hugger, but my research of issues surrounding the water contamination in Hoosick Falls and the potential ramifications of hydro-fracking has demonstrated to me that lenders must get clearer guidance from the federal government and the GSE’s in particular about baseline environmental standards including water quality.

As it stands right now any time a mortgage is sold to the secondary market the seller is making strict liability guarantees regarding the environmental safety of the area in which the property is located. If these warranties are breached the lender can be made to repurchase the mortgage. Obviously, this makes sense if someone is selling land in love canal, but most environmental issues are not as clear cut as the extreme cases that get national attention. The result is that lenders who work with the GSE’s are forced to make tough decisions about the long term environmental impacts dealing with issues such as water quality and mediation, often with little guidance from the Federal Government.

Furthermore, many of the areas in need of environmental remediation are already suffering from economic decline. The hesitancy of lenders to lend in these areas (even for a short time) makes these declines even more dramatic.

I applaud Comptroller DiNapoli for highlighting the importance of this issue, but I would suggest that any comprehensive analysis is incomplete unless it also highlights the need for the GSE’s to work more closely with lenders, lending in areas where the water quality is in need of mediation. One of the most basic things they can do is limit the scope and or length of warranties.


June 20, 2017 at 9:44 am Leave a comment

Banking Development District Bill Gains Traction

Legislation that would allow credit unions to participate in Banking Development Districts (BDD) (S.6700 -Hamilton)/A.6494B -Zebrowski) for the first time in two decades is gaining traction in both houses of the Legislature as we enter the final week of session. This is good news for anyone in need of greater access to financial services. The bill has advanced to the Assembly floor and has been introduced by the Senate Rules Committee, which means it can be voted on at any time by the full legislature.

The BDD program has been in existence since 1997 with the first district authorized in 1999. The basic idea of the program is that localities and financial institutions jointly apply to the DFS for designation as a BDD. In return for opening up a branch in an area underserved by banking institutions, banks and other depository institutions are eligible for low interest deposits.

The program is a great idea since it makes it more cost effective for financial institutions to provide banking services in areas which are currently lacking access to depository institutions. Unfortunately, as the DFS noted earlier this year, banks and other financial institutions “have submitted a modest number of applications over the last twenty years.” In addition, a 10 year review of the program by the Banking Department concluded that it could be “dramatically improved.” Allowing credit unions to participate in the program could provide the jolt it needs to be truly effective.

Shock of shocks, the usual suspects are trying to kill the bill. The kneejerk opposition of the banking industry, while utterly predictable, is even more cynical than usual. Despite the fact that the industry has demonstrated a lack of interest in participating in the program for almost 20 years, it is fighting to keep credit unions from enhancing the program.

This is the latest example of banks being so opposed to credit union that they are putting their own perceived interests above consumers. Despite the fact that we live in one of the wealthiest states in the nation, there are millions of New Yorker’s who have no choice but to turn to check cashers and payday lenders. Anything the Legislature can do to encourage and help persons of modest means get their monies deposited in to a financial institution is in everyone’s best interest.


June 16, 2017 at 9:23 am Leave a comment

In Defense of Debt Collectors

My gripe with consumer advocates is that they posit a kumbaya world in which there are no tradeoffs between consumer protections and access to credit. The CFPB scrutinizes debt collection practices and payday lending, and Congress mandates that lenders offer “Qualified Mortgages” without any acknowledgement of the fact that these restrictions will result in fewer people owning houses, fewer people in desperate need of short-term financing getting a loan and an increase in the number people who could but simply don’t want to repay a debt getting more legal protections.

It’s not that the evidence isn’t out there, it’s that they choose to ignore it. Recently the New York Fed published a paper which analyzed the impact on state laws regulating third-party debt collectors and the availability of credit. According to the researchers, there is “consistent evidence that restricting collection activities leads to a decrease in access to credit and a deterioration in indicators of financial health.” Moreover this impact is concentrated primarily among borrowers with the lowest credit scores.

By the way, their finding are not some research anomaly but are broadly consistent with other research findings. This will come as no surprise to those of us in the credit union industry. The more members consistently and promptly pay back their loans, the easier it is to keep the branch lights on and the more money there is to provide reasonably priced loans to other members.

This is common sense, but all too often it’s a point that legislators and regulators just don’t get or choose to ignore. New York and other so-called progressive states reacted to the mortgage crisis by providing delinquent homeowners with a panoply of additional protections ranging from 90 day pre-foreclosure notices and stringent lender affidavit requirements, to making larger lenders responsible for maintaining abandoned property on which they haven’t foreclosed. In isolation, all of these are defensible and well-intentioned, but in the aggregate they make home-buying a more expansive proposition for those on the lower end of the economic ladder.


Fed raises rates

As expected, the Fed raised the Federal Funds Rate again yesterday. I wanted to pass along this article from the Economist arguing against the Fed’s latest move.

June 15, 2017 at 9:22 am Leave a comment

News Flash: Treasury Report is Worth Reading

No administration is truly complete without at least one Treasury Department Report calling for radical reforms to the banking system. They are like a Sean Spicer press conference: they generate lots of headlines and are sometimes entertaining, but they are almost always meaningless exercises.

The report released by the Trump Administration on Monday however proposes a series of changes for credit unions that are worth paying attention to. First, many of the proposals can be implemented without legislative action; Secondly, with the Trump administration being able to pick a new director of the CFPB next July, these proposed changes could be viewed as a blueprint for the type of reforms we could see under a Trump chosen director. Here is a best- of- list in which I am highlighting the reforms that would both impact credit unions positively and are actually achievable.

  • The report calls on NCUA to apply its risk based capital requirements only to credit unions with $10 billion or more in assets. Instead credit unions of all sizes should have a single leverage test.
  • Currently RBC requirements are scheduled to be imposed on credit unions with $100 million more in assets, starting in 2019.
  • The proposal calls for the CFPB to raise the threshold for compliance with Dodd-Frank’s ability to repay/qualified mortgage requirements from institutions with $2 billion in assets to those with assets somewhere between $5 and $10 billion. This is an example of the type of change we could see with a new director.
  • Treasury calls for the coordination of cybersecurity requirements.
  • Amen to that. Do we really want 50 different state and competing federal cybersecurity requirements?
  • The report endorses the expanded use of supplemental capital by credit unions. This clearly will provide further support to NCUA as it considers what authority it can give credit unions to use supplemental and secondary capital.
  • If I had to list one warning sign in the report, it is Treasury’s call to consider streamlining and coordinating regulatory activities. While this sounds harmless in theory, in practice it could open the door to elimination of the NCUA.
  • The report recommends raising the threshold for mandated credit union stress testing from institutions with $10 billion to $50 billion in assets.

On that note enjoy your day!


June 14, 2017 at 9:11 am Leave a comment

The ABC’s of MBL

Those of you who do MBL loans or who are thinking about doing MBL loans should take a look at this recent FAQ released by the NCUA in its Quarterly Report.

As readers of this blog know, on January 1st NCUA instituted a radical new approach to MBL regulation under which credit unions are given greater flexibility in shaping their MBL programs while examiners still retain the responsibility for making sure that credit union programs are designed and implemented in a safe and sound way. This approach is certainly worth trying, but it is a work in progress that requires credit unions not only to embrace their increased flexibility but their increased responsibility and examiners to distinguish between an inappropriate MBL program and a creative one.

As such, this FAQ is an important guidance which should be read in conjunction with NCUA’s Examination Guide. Most importantly, the guidance reiterates that there are baseline elements that examiners are expecting to see in an MBL program. For example, credit unions are not just expected to have relevant policies and procedures commensurate with the sophistication of their MBL programs but also personnel qualified to manage these programs.

I continue to get questions about whether NCUA expects credit unions to continue to get personal guarantees when making commercial loans. So I was happy to see NCUA explain that “in those cases where there are strong mitigating factors” a credit union is not required to get a personal guarantee, but should detail in writing why it decided that a guarantee was not necessary.

Curmudgeons like myself have always been concerned that, just as credit unions now have greater flexibility in administering their MBL programs; examiners also have greater flexibility in curtailing credit union practices on safety and soundness grounds. As a result clear and consistently applied guidance is absolutely crucial if this bold experiment is going to succeed. The FAQ explains that the primary sources for credit unions implementing MBL programs are the proposed and final rules and their preambles, as well as the updated commercial and MBL section of the examiners guide.

The NCUA also explains what steps credit unions should feel free to take when they disagree with an examiners assessment pertaining to their MBL program. I have been around credit unions long enough to know that some of you read that last sentence and snickered out loud (SOL), but seriously, for this new approach to regulatory oversight to work credit unions can’t be afraid to engage in a dialogue with their examiners about their MBL practices.

SC Decides Important Debt Collector Case

Yesterday, the Supreme Court unanimously upheld a narrow interpretation of the Fair Debt Collection Practices Act (FDCPA). The court ruled that Santander Bank was not subject to the FDCPA after it purchased delinquent car loans.

Incidentally, for you legal geeks and grammarians the decision was the first written by Neil Gorsuch and included a discussion of the past participle.

June 13, 2017 at 10:24 am Leave a comment

Three Things To Ponder In the Week Ahead

Here are three things you should know as you snap back from reality following a sunny and dry summer weekend;

  • The Washington Post is reporting that Fannie Mae will begin raising its maximum debt to income ratio from 45 percent to 50 percent, beginning July 29, 2017. This is of course big news for those of you who provide mortgages because it expands the pool of member mortgages that can be sold to the secondary market. Also, remember that under the Dodd-Frank Act any mortgage that qualifies for sale to either Fannie Mae or Freddy Mac is a qualified mortgage. This is a big deal because without this, under the qualified mortgage requirements, the debt to income ratio cannot exceed 43 percent per the CFPB.
  • If all goes as expected, the Federal Reserve will once again nudge interest rates higher when its policy making committee meets later this week. Personally, I am really looking forward to Federal Reserve’s Chair Janet Yellen’s press conference following the festivities. The economy continues to send out a string of mixed signals and it will be interesting to see how much she hedges her bets when it comes to the possibility of future rate hikes later in the year.
  • The Wall Street Journal is reporting that the Treasury Department may release as early as today, a 150 page blue print for Regulatory Relief. Among the executive orders signed in the early days of the Trump Administration, was one requiring that the Treasury Department report on potential areas of regulatory reform. While the report has no legally binding impact, it will provide an indication about the top regulatory relief priorities of the administration. Incidentally, the report will not call for the elimination of the CFPB’s single-director structure, but will instead propose that the position be answerable to the president. If it comes out today, I will of course be skimming it as I watch game 6 of the NBA finals, to tell you what is in there about credit unions tomorrow morning. I hope the anticipation doesn’t keep you awake tonight.

On that note enjoy your day!

June 12, 2017 at 8:19 am Leave a comment

Older Posts

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.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 442 other followers