New GSE Application Can Help With HMDA Compliance

I had a great time the other night hanging out with the Association’s Young Professionals Commission.  I even got to celebrate the birthday of one of their newest members.  Regardless of age, one of the questions that always comes up at such gatherings is what issues are lurking out there to sneak up on the unsuspecting credit union.  The one I keep coming back to is HMDA and yesterday Fannie and Freddie took a huge step to help those of you who have to comply with this data reporting regulation be ready when the expanded mandate becomes effective in January of 2018.

The uniform residential loan application which you may know as either Form 1003 or Freddie Mac Form 65 is a standardized document that has been around for 20 years.  So many mortgages are connected in some way to Fannie and Freddie that the application is used by almost all lenders in the country.  Yesterday, the GSEs announced that they have created a new, redesigned URLA form.  Most importantly, for my purposes, the form includes the expanded data fields that impacted lenders will have to fill out to comply with the HMDA regulation.  In addition, if the GSEs are correct, the new form will be easy to integrate into your existing lending systems and better suited for an online application process.  For those of you dinosaurs who still rely on paper, the updated URLA will still be available in a hard copy.

Even though the form doesn’t become effective for over a year, you can use it as an easy way to cross reference the information you collect now against the information you will need to gather in the relatively near future.  Don’t underestimate just how much more information you will have to collect.  According to a summary provided by the CFPB, the new HMDA reporting requirements include data points for applicant or borrower age, credit score, automated underwriting system information, unique loan identifier, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features, interest rate, and loan originator identifier as well as other data points. The HMDA Rule also modifies several existing data points.

The good news is that the CFPB narrows the scope of the institutions to which HMDA applies.  Starting in 2018, if your institution didn’t originate 25 covered mortgage loans in each of the preceding two years, or at least 100 open-end lines of credit in each of the preceding two calendar years, HMDA doesn’t apply to you regardless of your asset size.  Still, this is not the type of regulation you want to keep to the last second.  The CFPB and Congress want this additional information for a reason and I doubt regulators are going to have much patience for those of you who aren’t prepared for this mandate.  The new and approved application is a great way to get ready to comply.

August 24, 2016 at 8:23 am Leave a comment

Can Better Training Reduce Workplace Harassment?

In a previous life,  I was working in the legislature when New York became one of the first states to mandate the schools do more to not only respond to but prevent school yard bullying.  I was skeptical that Government could do anything about bullying.  After all, some kids are just jerks.

A generation later  bullying hasn’t been eliminated but  it’s no longer acceptable for school administrators to sit idly by as students get taunted and teased. Kids are much more sensitive to the fact that other kids are being mistreated and are much more likely to tell a teacher or administrator than they would have been a generation ago.   I was wrong.  New policies and new approaches made a difference.

What’s the tie-in? In June  the chairs of a task force appointed by the EEOC   to investigate work force harassment issued a report with several recommendations.  Bond Shoeneck & King suggested in their blog yesterday that HR people should give it a read:  They have a point.  Although the report is designed to prevent harassment, and as such includes recommendations that go beyond existing legal requirements, it has been my experience that today’s recommendations   become tomorrow’s mandates.  Plus,  while you probably won’t agree with all of its conclusions and recommendations, it does have some ideas worth considering.

This brings me back to my bullying discussion. Anyone who doesn’t know for example that sexual harassment  is illegal is beyond help.  The bigger question is what is the best approach to minimizing it? We’ve all sat through those  sessions on preventing harassment replete with nervous snickers from the back of the room and awkward sideways glances.  While they are good to have from a legal perspective,  I was pleasantly surprised that the report’s authors acknowledged that “much   of the training done over the last 30 years has not worked as a prevention tool – it’s been too focused on simply avoiding legal liability. We believe effective training can reduce workplace harassment, and recognize that ineffective training can be unhelpful or even counterproductive. However, even effective training cannot occur in a vacuum – it must be part of a holistic culture of non-harassment that starts at the top.”

One of their suggested improvements intrigues me: “Workplace civility trainings focus on establishing expectations of civility and respect in the workplace, and on providing management and employees the tools they need to meet such expectations. The training usually includes an exploration of workplace norms, including a discussion of what constitutes appropriate and inappropriate behaviors in the workplace. The training also includes a heavily skills-based component; including interpersonal skills training, conflict resolution training, and training on effective supervisory techniques.”

Would this really make a difference? I don’t know but providing a mechanism for employee’s to understand and discuss workplace norms and expectations is worth a shot. Done properly,  employees would better  understand that a harassment free workplace is not simply based on obeying the law but on proactively treating those around you with a baseline of respect and professionalism, expecting the same in return, and not being afraid to intervene when these norms aren’t being followed.

Am I concerned that we may be seeing the scope of harassment claims expanding ever so slightly? You bet.   But it’s clear that there are workplaces where employees and employers just don’t get the message.  If our kids can foster create school environments where bullying is frowned upon than maybe we should expect more of ourselves to foster harassment free environments in the workplace

August 23, 2016 at 9:37 am Leave a comment

UPDATED Three Things All The Cool Kids Should Know

Another Day, Another Merchant Data Breach

In case you missed it, on Thursday, outdoor clothing retailer Eddie Bauer announced it was a victim of a data breach involving point-of-sale credit and debit card transactions between January 2 and July 17, 2016.  And here you outdoor types thought your biggest worry was the Zika virus.  Here’s the good news.

The general public has clearly caught on to the fact that merchants and not financial institutions are often the parties responsible for the data breach. Why else would Eddie Bauer explain that the security of customer information is a “top priority” and that they have been working closely with the FBI and cyber security experts to resolve the issue?

It wasn’t too many years ago when the merchant playbook was to barely acknowledge that a breach occurred let alone suggest that it bore some responsibility for mitigating its effects. I’m in an optimistic mood this morning.  Now that the public understands that merchants share in the responsibility to protect data breaches it should be easier to convince legislators that merchants should pay their fair share when it comes to the costs imposed on card issuers every time a store is breached.

Get off of my cloud.  I’m dreaming?

Uber Class Action Settlement Rejected

With apologies to those of you who hate football metaphors, the various pending lawsuits against Uber are the legal equivalent of a hurl into the end zone with time expiring. That being said, those of you hoping to derail ride sharing, or at least put it on equal footing with the traditional taxi industry, received at least a temporary stay of execution last week when a federal judge threw out a proposed settlement of a class action lawsuit alleging that ride sharing services were violating the labor law by treating drivers as independent contractors as opposed to traditional employees.

According to the Washington Post, U.S. District Judge Edward Chen concluded that the proposed $100 million settlement was only 10% of what lawyers for the drivers estimate that Uber could owe them and provided only $1 million towards state penalties that could add up to more than one billion dollars.

This lawsuit against Uber is absolutely critical.  If a precedent is established imposing traditional labor obligations on Uber then the ride sharing model crumbles quicker than a Ryan Lochte robbery allegation.  By the way, the proposed settlement is yet another great example of the class action system disproportionately benefitting lawyers, precisely when the CFPB is on the verge of institutionalizing such litigation.

Where Has U.S. Productivity Gone?

It is an article of faith among politicians, along with truth, justice and the American Way, that America has the most productive workforce in the world. This may still be true, but Federal Reserve Vice Chairman Stanley Fisher used a speech on Sunday to highlight worrying signs that something is going wrong with productivity.  For example, business productivity has declined for the last three quarters, its worst performance since 1979.  Furthermore, output per hour increased only 1-1/4 percent per year between 2006 and 2015 as opposed to gains over 2 1/2% per year between 1949 and 2005.

Why does this matter? For one thin we won’t see the economy really takeoff as long as productivity is sluggish and  your members won’t be seeing meaningful  wage.  Furthermore, a long-term decline in productivity translates into greater wage inequality.  The Vice Chairman would like to see Congress do more to stimulate the economy.  I would like to see the Yankees make the playoffs.  Both events are theoretically possible, but highly unlikely.

August 22, 2016 at 8:51 am Leave a comment

Three things All The Cool Kids Should Know To Start Their Week

Another Day, Another Merchant Data Breach

In case you missed it, on Thursday, outdoor clothing retailer Eddie Bauer announced it was a victim of a data breach involving point-of-sale credit and debit card transactions between January 2 and July 17, 2016.  And here you outdoor types thought your biggest worry was the Zika virus.  Here’s the good news.

The general public has clearly caught on to the fact that merchants and not financial institutions are often the parties responsible for the data breach. Why else would Eddie Bauer explain that the security of customer information is a “top priority” and that they have been working closely with the FBI and cyber security experts to resolve the issue?

It wasn’t too many years ago when the merchant playbook was to barely acknowledge that a breach occurred let alone suggest that it bore some responsibility for mitigating its effects. I’m in an optimistic mood this morning.  Now that the public understands that merchants share in the responsibility to protect data breaches it should be easier to convince legislators that merchants should pay their fair share when it comes to the costs imposed on card issuers every time a store is breached.

Get off of my cloud.  I’m dreaming?

Uber Class Action Settlement Rejected

With apologies to those of you who hate football metaphors, the various pending lawsuits against Uber are the legal equivalent of a hurl into the end zone with time expiring. That being said, those of you hoping to derail ride sharing, or at least put it on equal footing with the traditional taxi industry, received at least a temporary stay of execution last week when a federal judge threw out a proposed settlement of a class action lawsuit alleging that ride sharing services were violating the labor law by treating drivers as independent contractors as opposed to traditional employees.

According to the Washington Post, U.S. District Judge Edward Chen concluded that the proposed $100 million settlement was only 10% of what lawyers for the drivers estimate that Uber could owe them and provided only $1 million towards state penalties that could add up to more than one billion dollars.

This lawsuit against Uber is absolutely critical.  If a precedent is established imposing traditional labor obligations on Uber then the ride sharing model crumbles quicker than a Ryan Lochte robbery allegation.  By the way, the proposed settlement is yet another great example of the class action system disproportionately benefitting lawyers, precisely when the CFPB is on the verge of institutionalizing such litigation.

Where Has U.S. Productivity Gone?

It is an article of faith among politicians, along with truth, justice and the American Way, that America has the most productive workforce in the world. This may still be true, but Federal Reserve Vice Chairman Stanley Fisher used a speech on Sunday to highlight worrying signs that something is going wrong with productivity.  For example, business productivity has declined for the last three quarters, its worst performance since 1979.  Furthermore, output per hour increased only 1-1/4 percent per year between 2006 and 2015 as opposed to gains over 2 1/2% per year between 1949 and 2005.

Why does this matter? For one thin we won’t see the economy really takeoff as long as productivity is sluggish and  your members won’t be seeing meaningful  wage.  Furthermore, a long-term decline in productivity translates into greater wage inequality.  The Vice Chairman would like to see Congress do more to stimulate the economy.  I would like to see the Yankees make the playoffs.  Both events are theoretically possible, but highly unlikely.

 

August 22, 2016 at 8:38 am Leave a comment

PEW-IE Survey Distorts Arbitration Debate

I’m more than a little surprised by the amount of attention research released earlier this week by the Pew Charitable Trust is getting.  Survey results indicate that overwhelmingly consumers across genders, generations and the political spectrum want access to the legal system and believe that banks should not be allowed to deny it.

Incidentally, the Web page reporting the results provides a link for persons to support the CFPB’s proposed regulations forbidding financial institutions from including arbitration clauses that forbid consumers from joining class action lawsuits.  What a coincidence. 

Its survey of 1008 people reveals that 95% of respondents want to be able to be heard by a judge and jury if they find out that they have been charged a fee for a service for which they are sure they didn’t sign up.  Keep in mind that the opinions I express are mine and mine alone, Pew does some great work, but this one really misses the mark. 

First, the premise of the question is all wrong.  Of course, 95% of respondents want access to the courts, just as I am sure they’d like the option of buying a Mercedes-Benz.  But the real question is if they could choose between a system that encourages swift, equitable and cost-effective solutions or one in which trial lawyers can potentially make millions of dollars for settling similar cases while the class member receives almost enough money to go to the movies, which would it be?

What annoys me so much about the arbitration debate is not the attempt to deal with arbitration’s inequities, but the CFPB’s pig-headed belief in and glorification of a class-action system that is far from perfect and at best is a very crude instrument to incentivize consumer protection.  For instance, legal fees based on a percentage of the amount awarded to a class of plaintiffs creates an incentive for attorneys to settle before trial so as not to run the risk of getting nothing for their efforts.  Furthermore, I don’t believe that the vast majority of consumers are anxious to go to court every time their financial institution does something they don’t like.  What they want is to be treated fairly and equitably. 

This is why I continue to believe that there is a middle ground in this whole debate.  Financial institutions should be able to mandate that disputes get settled through arbitration as opposed to class action.  But only if the arbitration provisions provide basic due process protections.  Courts reviewing these protections should have more flexibility to invalidate arbitration findings based on inadequate due process.  Unfortunately, both sides are speaking past each other with the only result being that the only big winners in this whole dispute will be plaintiffs’ lawyers.

Anyway, for the type of changes I’m talking about, Congress would have to act.  It’s so much easier to simply have the CFPB handle consumer protection on its behalf.

August 19, 2016 at 8:49 am Leave a comment

More Bad News For Taxi Credit Unions

Bad news continues to trickle out about the taxi medallion industry.

Section 39 of New York’s Banking Law gives the DFS authority to regulate “unsafe and Unsound practices.”   In the last couple of days there have been several reports about a supervisory order issued on July second by the NY  DFS in consultation with the NCUA,   which orders Melrose Credit union to swiftly take several steps to improve management oversight and develop a plan to reduce its exposure to medallion loans.

Most importantly, the credit union, which has specialized in making taxi medallion loans for several decades, was given 90 days to develop a plan, that must be approved by the regulators , to “prudently reduce and manage its taxi medallion loan concentrations in New York Philadelphia and Chicago to the extent feasible given market conditions, the existing loan portfolio and the credit union’s authority to restructure or refinance loans. “

In addition, the credit union is tasked with developing a classified action plan to reduce the credit unions portfolio of poorly performing  assets.  Specifically the credit union must either reduce charge off selloff or improve these  classified assets.

With the order regulators also have taken firm control of the credit union’s management structure, including mandating that it hire a new CEO (which it has already done) and s senior lending officer.  All senior hires are now subject to DFS  approval.

While the order has understandably gotten a lot of attention, it also underscores just how far we still have to go before its even clear how the medallion issue will resolve itself.  For instance,  any plan to  reduce medallion concentrations,  no matter how well researched, will be little more than glorified guesswork until the medallion industry stabilizes. That won’t happen until we know just how big an impact  Lyft and Uber are likely to have and we won’t know that until we know what the legal framework for the ridesharing industry is going to be.

In the immortal words of Mike Tyson “everyone has a plan till  they get punched in the face” It’s likely that the last punch hasn’t been thrown.

Fed Minutes Released

I’m less interested in reading the minutes of the Fed Open Market Committee meetings then I used to be. To me,  they show just how uncertain the guardians of stable economic growth are about the state of the economy.

It’s a lot like going for a checkup and  being told by your doctor that he’s pretty sure you’re in  great shape… but, then again,  you just might be  at  Death’s Door depending on how healthy you really are…which is anybody’s guess.  The doctor says he   should  know more in  a couple of weeks, which is the same thing he told you two weeks ago.

For those of you who are interested in the minutes here they are.

 

August 18, 2016 at 9:24 am Leave a comment

Court Gives NCUA Green Light to Sue Investment Banks Over Faulty Securities

NCUA notched another important legal victory in its quest to have the investment banks which  sold  residential mortgage backed securities to the corporates prior to the Mortgage Meltdown  pay up for allegedly  not adequately warning of the risks involved in buying these securities. The NCUA announced in April that it had recovered more than $3 billion in settlements.  But remember that the lawyers have to be paid and the litigation could still drag on for many years.

To understand yesterday’s decision it’s necessary to take a not so pleasant trip down memory lane. In 2009 NCUA took over Wescorp, then the second largest corporate credit union, after the RMBS’s  it had purchased tumbled in value.  Remember that these bonds are pools of packaged mortgages and investors are paid off from the stream of mortgage payments.   When homeowners stopped paying their mortgages these securities  became almost worthless, necessitating a lifeline from the Treasury  Department and the creation of the Stabilization Fund that all credit unions had to pay into.

NCUA became the first federal agency to sue the investment banks. Its basic argument is that they failed to properly disclose the risks of buying the securities to the corporates because they knew that many of the packaged mortgages were destined to tumble faster than Donald Trump’s poll numbers.

A central issue in this litigation has been whether or not federal law gives NCUA six years to bring these lawsuits under what’s called the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) or at most  three years under the Securities Act of 1933. If the Securities Act applies  NCUA’s claims are time barred.

Yesterday,  the Court of Appeals for the Ninth Circuit reversed a lower court ruling and ruled that the longer period applied. NCUA can  continue its suit against Wachovia Trust  and Nomura Home Equity.  (NATIONAL CREDIT UNION ADMINISTRATION BOARD, as Liquidating Agent of W. Corp. Fed. Credit Union, Plaintiff-Appellant, v. RBS SECURITIES, INC., FKA RBS Greenwich Capital Markets, Inc., Defendant, & NOMURA HOME EQUITY LOAN, INC., Defendant-Appellee., No. 13-56620, 2016 WL 4269897,  (9th Cir. Aug. 15, 2016) The decision means that two federal circuits have now upheld the right of NCUA to bring these suits which translates into more money for credit unions.  The Tenth Circuit reached a similar conclusion in Nat’l Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., 727 F.3d 1246 (10th Cir. 2013).

Of course, everyone wants to know how this is going to impact their bottom line but  the truth is no knows yet.  This litigation could drag on for years.   For instance, the investment  firms could appeal yesterday’s decision to the Supreme Court and the core allegations still haven’t been litigated. But give NCUA credit.  It’s already had more success than many people, including this blogger, thought it would when it decided to call in the lawyers.

August 16, 2016 at 9:12 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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