Do Vacation Policies Help Prevent Fraud?

In 1996 New York’s Banking Department issued a guidance strongly encouraging financial institutions to mandate two weeks of consecutive vacation for employees holding sensitive positions.  Its rationale was that two weeks would provide adequate time to uncover malfeasance on the part of employees who would not be able to cover up their mismanagement away from the office. 

It seems that about for as long as the policy has been in existence, state chartered credit unions and banks have argued that the guidance is an outdated relic of a bygone era which needlessly burdens financial institutions and does little to accomplish its laudable goal of detecting insider abuse. 

So yours truly was pleased to see that on January 4th DFS issued this request for information seeking feedback from financial institutions about potential changes to this guidance.  The Association has already talked to some of our state charters and will certainly be commenting to the DFS as it considers changes. 

Just rereading the guidance demonstrates how outdated it truly is.  For example, it explains that mandatory vacation policies should apply to “… those officers and employees involved or engaged in transactional business or having the ability to change the official records of the institution. This policy should also cover all other staffers who are capable of influencing or causing such activities to occur.”

Suffice it to say that a lot has changed since 1996.  Many of us still did not know what the internet was, let alone conceived of online banking.  It was 11 years before Steve Jobs introduced the iPhone!  And today, average consumers can electronically deposit checks and expect almost immediate access to their funds.  As a result, virtually every employee can, on some level, be considered a key employee who holds a sensitive position and a fraudster can do in a matter of minutes what used to take two weeks. 

The NCUA manages to address the same issues that New York addresses without adopting a stringent two week requirement.  It’s time DFS follows suit.  The existing guidance hinders both big and small institutions. 

January 20, 2022 at 9:22 am 1 comment

NCUA, Gov Hochul Outline Key Spending, Supervisory Priorities

When you combine unprecedented spending by the federal government, huge bonuses for the Wall Street crowd and an economy running at inflationary speed resulting in revenue for local governments, what you end up with is an unprecedented opportunity for New York State to devise a budget which incorporates a $5B surplus.  Yesterday the Governor released her proposed spending priorities that provides the framework for budget negotiations over next year’s spending plan. 

New York’s budget process gives a tremendous amount of power to the Governor because it gives the Executive broad discretion to include legislative programs in the budget, provided they are tied to an expenditure of public funds.  In addition, the Legislature can’t simply ignore the Governor’s proposal.  It must either accept it, get the Governor to agree to amend it or override the Governor’s plan which requires a 2/3 vote of the Legislature.  This last scenario hasn’t happened since the waning days of the Pataki administration. 

We will be going through the budget for the next several days, but one proposal that we already want to highlight would increase the ability of Community Development Financial Institutions to participate in the Excelsior Linked Deposit program.  According to the memo accompanying the proposal, the legislation “amends the state finance law to include CDFIs as eligible borrowers under the Excelsior Linked Deposit program and to allow CDFIs to subsequently make loans to small businesses using funds borrowed.” [pg. 104, Part BB of this  bill]

Needless to say, this could provide one more reason for eligible credit unions to consider becoming CDFI’s.  I will keep you posted.

NCUA Outlines Supervisory Priorities

Yesterday, NCUA issued its annual guidance detailing its supervisory priorities for the coming year.  This is a must-read for anyone reading this blog. 

Credit Risk Management tops the list of concerns this year.  This should surprise no one.  Inflation is at a 40 year high, we can expect a series of interest rate hikes and we still have members struggling as a result of the pandemic economy.  Many of these trends are accentuated in New York State.  On the one hand we have members who can afford to buy houses even as housing prices have increased by as much as 20% in some areas.  On the other hand, New York City has an unemployment rate well above the national average.  If your member is a bartender, waiter or hotel worker, they are still struggling.  Make sure you have reasonable policies in place so you can demonstrate to your examiners the steps you are taking to help struggling members while ensuring that your credit union has the resources to withstand sudden changes to the economy. 

On that note, enjoy your day.  Have fun keeping all those balls in the air.

January 19, 2022 at 9:27 am Leave a comment

Are You Responsible for “Take Home” Covid?

Although the decision by the Supreme Court to block OSHA’s implementation of an emergency vaccine mandate/ testing requirement for businesses with 100 or more employees has understandably gotten a lot of attention, all employers should remain mindful of their ongoing responsibility to ensure a safe workplace during the pandemic. A case pending in California demonstrates precisely what I am talking about.

Rose Gomez vs LOGIX Federal Credit Union, et al. involves a credit union employee who is suing the credit union for negligently protecting its employees against Covid resulting in the death of her relative after she contracted the virus. The plaintiff alleges that despite the known risks of Coronavirus spreading after the declaration of local, state, and national emergencies, the Credit Union continued to group employees close together. This case and another in California dealing with a closely related issue are being scrutinized nationally as courts begin to examine employer responsibilities in responding to the pandemic.

Among the issues that are being litigated in New York and other states are the extent to which Worker’s Compensation laws block employees from making claims such as the one being brought against the California credit union and the extent to which these laws also shield employers against the claims of third parties who claim to have been made ill after an employee “took home the Coronavirus.”

And of course because New York is New York there are increased legislative and regulatory requirements of which New York credit unions should be aware. As I have explained in previous blogs, New York’s HERO Act mandates that employers promulgate baseline protocols in response to airborne infectious diseases and authorizes employees to sue over the violation of these protocols.

In other words, if you think yesterday’s decision by the Supreme Court made your life easier you are sadly mistaken. Employers have an ongoing obligation to respond to the Covid pandemic and the courts will be defining the contours of those obligations for years to come.

January 14, 2022 at 9:23 am Leave a comment

NCUA Dips Its Toes Into The cryptocurrency Waters

In late December, NCUA issued its most significant guidance to date on cryptocurrency, explaining in this letter to credit unions that federally insured credit unions can facilitate third-party relationships between cryptocurrency providers and their members pursuant to the incidental powers of federal credit unions. At the same time, however, it detailed some of the classic third-party considerations that credit unions must consider when establishing relationships offering non-depository financial products and reminded state-chartered institutions that NCUA’s green light is subject to state law.

In recent months, yours truly has used this space to urge NCUA to follow the lead of other financial regulators and detail the conditions upon which financial institutions can enter the cryptocurrency space. While a much more rigorous framework needs to be provided, this opinion letter clarifies that credit unions can start working with third parties who may be approaching them about marketing various cryptocurrency services. The good news is that credit unions can approach these discussions the same way they approach any other discussions with third parties, but the guidance makes clear that this is an area to handle with care. Credit unions are expected to adhere to a documented, rigorous third-party oversight process that demonstrates an awareness of the compliance and legal risks associated with cryptocurrency. 

Accordingly, I would pay special attention to these following reminders offered by NCUA:

When selling, advertising, or otherwise marketing uninsured digital assets to members, members should be informed that the products offered:

  • are not federally insured;
  • are not obligations of the FICU;
  • are not guaranteed by the FICU;
  • are or may be heavily speculative and volatile;
  • may have associated fees;
  • may not allow member recourse; and
  • are being offered by a third party.

One final note: Don’t be penny wise and pound foolish. Have an attorney involved in the contract drafting process and make sure the credit union is adequately protected in the event that the crypto craze ends up being the modern day equivalent of the Tulip Frenzy.

January 13, 2022 at 9:19 am Leave a comment

New York Introduces Further Remote Notarization Changes

In the closing days of December, Governor Hochul signed legislation permitting the use of remote notarization in New York, but coupled her signature with an announcement that further changes had been agreed to.  Yesterday, the Legislature introduced these proposed chapter amendments.

Although I am not quite ready to take a deep dive into the updated framework, if the Legislature passes these amendments, it means that starting January 31, notaries will be authorized to use remote ink notarization (RIN) to notarize a wide variety of documents, including the recording of mortgage documents that is required pursuant to Article 9 of New York’s Real Property Law. 

In the meantime, the effective date for the use of Remote Online Notarization (RON) will be pushed back to January 2023.  For more detail on the distinction between the two, read this recent blog.

Those of you interested in taking advantage of this increased flexibility should take a close look at this legislation, which, if acted on by the Legislature, will provide the guidelines for using this technology.

New York Clamps Down on Real Estate Agents, Fair Lending Violations

In 2019, Long Island Newsday reported on the results of a multiyear investigation into the area’s real estate practices.  It outlined disturbing evidence of widespread Fair Lending violations such as steering minorities to only certain communities.  In one of her last acts in December, Governor Hochul approved a series of measures passed in response to these allegations and subsequent legislative hearings. 

The bottom line is that the package is narrowly focused on additional education and training for the real estate industry, as well as providing increased funding for testing for Fair Lending violations.  As a result, these measures will not have a direct impact on your credit union, but don’t be surprised if you see a noticeable increase in the number of Fair Lending challenges to which lenders are subject in the coming years.

January 11, 2022 at 9:03 am Leave a comment

Use This Flexibility While You Have the Chance

Yours truly has been under the weather, but now that I’m back in the saddle, there’s a lot to talk about. 

My sleeper pick for the most important regulatory amendment that no one is talking about is the NCUA’s decision to extend for another year the increased flexibility given to credit unions during the pandemic to purchase eligible obligations and loan participations. 

Loan participations, which allow credit unions to purchase parts of loans they did not originate, and eligible obligations, which permit credit unions to purchase entire loans, provide an essential means of liquidity for the industry.  When used properly, they allow credit unions to avoid excessive concentration risk by selling all or portions of some loans and permitting other credit unions to get into the action by purchasing these loans. 

There are, of course, important restrictions on both of these products.  First, when it comes to loan participations, federal regulations limit the amount of participations that can be purchased from any one lender.  Secondly, when it comes to eligible obligations, the borrower must either be a member of the purchasing credit union or the loan must be refinanced within 60 days of purchase so that the borrower is a member. There are exceptions to this rule for qualifying credit unions purchasing the assets of liquidating credit unions. 

Let’s not forget that in March 2020 the economy was put into a self-induced economic coma.  The NCUA responded by, among other things, temporarily raising the maximum aggregate amount of loan participations that a FICU may purchase from a single originating lender to the greater of $5,000,000 or 200% of the credit union’s net worth and temporarily suspending certain limitations on the types of eligible obligations that a FICU may purchase and hold. In one of its last acts of 2021, the Board concluded that the continued economic uncertainty justified continuing these regulations for another year.  This conclusion has already been vindicated as the economy continues to produce contradictory smoke signals on a weekly basis. 

These temporary amendments provide potential benefits that go beyond the immediate economic situation.  The existing eligible obligation regulations are too restrictive now that more and more platform lenders are getting into the business of facilitating loan participations and eligible obligations.  While the explosion of these services offers expanded opportunities, particularly for smaller credit unions looking for a way to use all those deposits, credit union membership requirements continue to place restrictions on the use of these platforms by the industry.  By extending flexibility for another year, credit unions can further demonstrate that traditional regulations are needlessly restrictive and actually inhibit safety and soundness.

On that note, stay warm and enjoy your day.

January 10, 2022 at 9:31 am Leave a comment

New York Readies for Electronic Notarization

In the closing days of 2021, the Governor signed legislation that will authorize the use of electronic notarization in New York State.  But even as she signed the bill, the Governor announced that she had reached agreement with the Legislature on additional changes that will both delay the effective date of Remote Online Notarization (RON) and in the interim, permit the use of Remote Ink Notarization (RIN) as outlined in this March 2020 Executive Order (I can’t believe this has been going on for almost two years).

I just re-read that paragraph and I realize my blog skills are a bit rusty after taking more than a week off, so let me unpack what I just said.  A notary is an individual authorized to swear to the authenticity of a signature.  Traditionally, this function has been carried out by the signor physically appearing before the notary with appropriate identification.  When Governor Cuomo was given Emergency Powers in March 2020, one of the measures he promulgated was an Executive Order permitting notaries to perform notarizations remotely.  This authority ended this past June. 

Now I have to go into the weeds a little.  There are two types of electronic notarizations.  There is Remote Ink Notarization (RIN) and Remote Online Notarization (RON).  The Legislation signed by Governor Hochul at the end of last year establishes a RON system under which a notary is authorized to electronically stamp documents online in real time.  In contrast, under RIN, a notary watches the signatory signing a document but is then sent the document or a facsimile for his traditional ink notarization.

In her approval memo accompanying the signing of the bill, the Governor indicated that amendments had been agreed to under which the State will be given a year, as opposed to six months, to prepare the RON framework and, in the interim, the RIN framework reflected in the Executive Order will once again be permitted.

We will still have to see precisely what the amendments say but once the legislation is approved we will be able to give you a more definitive timeline.

One more thing, remember that even with the passage of this legislation, you are still authorized to notarize documents the old fashioned way.

January 4, 2022 at 9:18 am 1 comment

OSHA Mandate Alive and Well, For Now

Usually I dedicate my last blog of the year to highlighting what’s best about the credit union movement, but recent events have made me feel like an extra in a movie where Scrooge meets Groundhog Day. Here’s more news on the OSHA mandate with which employers of 100 or more individuals must be in compliance with, starting January 10th.

On November 5th OSHA issued an Emergency Temporary Standard (ETS) generally requiring employers with 100 or more employees to either mandate all of their employees wear masks and agree to get tested on a weekly basis or mandate all of their employees get vaccinated.

Groups opposed to this standard ran to court quicker than the Omicron variant is spreading. The Court of Appeals for the Fifth Circuit issued an order banning OSHA from enforcing the emergency standard. On Friday, the Court of Appeals from the Sixth Circuit reversed this ruling meaning that you should be preparing to comply with OSHA’s mandate. The next stop is the Supreme Court.

Remember that the core legal issue that the courts are ultimately deciding is not whether employers can mandate that their employees get vaccinated or wear a mask but whether OSHA has the legal authority to issue health and safety standards related to a pandemic. In the meantime none of this has any impact at all on New York City’s mandate requiring employers to mandate that employees working in an office be vaccinated starting December 27th.

This is not a very merry note on which to end my last blog of the year, so Merry Christmas, Happy New Year, thanks for reading and let’s hope that 2022 is a heck of a lot better than the last two years that have preceded it.

December 22, 2021 at 9:09 am Leave a comment

High Noon for Key Legislative Priorities

Good morning, folks.  Under New York State law, as interpreted by its Court of Appeals, all bills passed by the Legislature must be presented to the Governor by the end of the year. As a result, while many normal people are getting ready to take a long winter nap, those involved in the legislative process are experiencing an outburst of legislative activity. I wanted to highlight some of the key bills we are still keeping an eye on as we head into the Christmas break.

Later this week, we will find out whether the Governor has approved legislation which will legalize remote online notarization [S1780-C Skoufis] for New York State starting next April. This legislation has been a major priority of the industry. If it is signed by the Governor it will allow New Yorkers to get documents notarized without leaving their homes while permitting those credit unions that choose to do so to continue to provide notary services the old fashion way. In addition to being a huge benefit for the disabled and elderly, as well as individuals who live in communities that lack access to notaries, this legislation will bring us one step closer to a virtual mortgage transaction.

On the negative side of the balance, the Governor has yet to act on legislation which would reduce to 2% the amount of interest that can be charged on money judgments involving consumer debts. [S5724-A  Thomas]

Let’s say your credit union offers credit cards.  A member goes delinquent and ultimately your credit union gets a legal judgement against her for the outstanding debt. Under existing law you can charge up to 9% interest on that debt. If the Governor signs this law it will impact this process in two ways:

First, it will reduce the maximum interest rate from 9% to 2%. Even more controversially, however, the 2% cap would retroactively apply to judgements that have been entered but not yet executed. Operationally, I haven’t heard a good explanation yet of how this is going to be implemented.

Last but not least, the Governor is considering what action to take on Senate bill S1579A Parker which would require lenders and mortgage servicers to take responsibility for maintaining homes subject to delinquent mortgages earlier in the foreclosure process. Specifically, under the law, servicers and lenders would be responsible for maintaining property that is or becomes vacant or abandoned at the commencement of a foreclosure. Currently lenders and servicers must take on these responsibilities only for vacant and abandoned property after approximately 90 days.

December 20, 2021 at 9:54 am Leave a comment

RBC Reg Highlights End of Year Conclave

Like all those college kids rushing to get their term papers in, even though they had the entire semester to work on them, the NCUA Board’s last meeting of the year included the approval of next year’s budget, and a range of regulations dealing with subordinated debt, mortgage servicing rights and risk based capital.  The risk based capital (RBC) regulation is the one I find the most intriguing. 

First, for those of you nowhere near $500M in assets, you do not have to worry about a word of what I am about to say.  Since 2013, NCUA has worked on developing an enhanced RBC framework for federally insured “complex credit unions.”  The rule was originally finalized in 2015.  This has been quite the saga.  Along the way, we have seen debates over what constitutes a complex credit union, the legal authority for NCUA to implement this framework, the policy rationale of its supporters, and ultimately, when it should take effect.  I am here to report that all these debates are finally over.  Starting on January 1, 2022 the RBC rule will take effect.

This is big news in itself.  This means that federally insured credit unions with $500M or more in assets must either abide by a the RBC framework or opt in to a complex credit union leverage ratio (CCULR) which the NCUA just approved yesterday.  Under this alternative framework, credit unions otherwise subject to the RBC requirement will have to meet increased capital requirements of 9% or more.  Effectively, NCUA is giving complex credit unions the option of either complying with the enhanced RBC framework or stash away more capital.  Of course, this is a simplistic overview and someone on your team should be taking a break from holiday merriment to go over the nuances of this new framework as well as assess the impact that last second changes to some of the risk ratings could have on your credit union.

What surprises me so much about yesterday’s announcement is not that this regulation was finalized but that NCUA is so determined to get the RBC framework up and running that it is going to take effect without a further delay.  Keep in mind, however, that your credit union is not bound by its initial decision.  You can opt in and out of the competing frameworks on a quarterly basis.

On that note, yours truly must get on with the rest of his day.  I still can’t believe that Christmas Eve is next Friday.  Don’t tell my wife I haven’t gotten her present yet.

December 17, 2021 at 9:20 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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