After Taking a day off to celebrate America’s De Facto national holiday down on Long Island, where the Fortieth Annual Meier Family Super Bowl Party was held, your faithful blogger is back but still can’t get football completely out of his head.
First, I am still trying to figure out how the Denver Broncos won while demonstrating that the forward pass is overrated. Secondly, to me the most interesting banking news over the last few days was the fact that Ctitigroup announced late last week that it would be blocking debit and credit card transactions involving fantasy sports sites Fan Duel and Draft Kings in New York pending the outcome of lawsuits challenging their legality .
The decision, coming as it did right before Super Bowl 50, was the real life equivalent of Scrooge Stealing all of the Who’s presents on Christmas Eve, at least for the tens of thousands of football fans who have deluded themselves into believing that there is skill involve in playing fantasy football against a million of their closest friends.
(Incidentally who made the decision to stop denoting Super Bowl’s with Roman numerals? Could it be, as my brother-in-law suggested, that T.V, execs were afraid that the viewing public wouldn’t understand that Super Bowl L” was a really big deal?).
When last I wrote about this topic in November (https://newyorksstateofmind.wordpress.com/2015/11/16/whos-going-to-gamble-on-fantn/), NY AG Eric Schneiderman had sued to block the companies from operating in our state. NY law makes it illegal to gamble. The lottery is sanctioned by the State’s constitution for education funding. On December 11, New York Supreme Court Judge Manuel J. Mendez agreed with the AG but, moving quicker than a Payton Manning pass, which seems to take about 10 minutes to arrive in the vicinity of its intended receiver, New York’s appellate Division blocked the injunction pending its own decision which may take several months.
What perplexes me about Citi’s move is that nothing has publically changed which makes it any more vulnerable to executing fantasy sports transactions than it was a week ago. The Unlawful Internet Gambling Enforcement Act of 2006 (31 USCA Sec. 5301) banned using the Internet to make a bet or wager, but it stipulated that betting does not include participation in any fantasy or simulated sports games. (31 USCA Sec. 5362(ix)). Instead it empowered states to define gambling in accordance with their own state laws. (31 U.S.C.A. § 5362(10) (West). The AG argues that fantasy sports, as offered by these fantasy sites constitutes gambling as a matter of NY law.
Does this mean that the state legislature could preempt the court’s by passing a law clarifying that these online fantasy games are legal? Yes it does. If I were a gambling man my bet is that this is exactly what’s going to happen.
Vendor management may be boring and time-consuming but with third-party due diligence being an increasingly important component of your compliance program a well-functioning system of vendor oversight will actually save your credit union $$$. Don’t take my word for it. Instead read this article in this morning’s American Banker which explains how $990 Somerset Trust bank transformed its vendor management from a steel file cabinet and some spreadsheets to a streamlined system from which it recognized savings with software it developed in-house that organized the process for collecting and accessing documents such as SASS audits. The result:
“The bank figures the new software has brought about a 25% reduction in labor. Vendor meetings are more productive, the new vendor entry process is streamlined, data collection forms have been standardized, and tracking and monitoring are improved. Preparing for vendor meetings is easier and less time is needed to manage third-party relationships. Somerset Trust executives also say that by having internal programmers develop this technology, the bank saved five figures during implementation and thousands in monthly ongoing fees.”
King Richard is at it again.
In the latest example of the almost dictatorial powers he exercises over virtually every consumer product in the country, CFPB Director Richard Cordray yesterday took to browbeating banks and credit unions by strongly encouraging them to offer cheaper account options that don’t include overdraft protections and admonishing them to do a better job reporting information to the credit bureaus. His performance demonstrates why Congress has to work with the next president to vest the Director’s powers in the hands of an appointed board.
In a letter to the CEOS of the nation’s largest banks the Director made the case for low-cost accounts:
“Right now, much of the industry presents consumers with a binary result – either an applicant passes a standard screening process to obtain an account after identifying any credit risks posed by the applicant’s history of misuse or mishandling of some prior account, or the applicant is blocked from accessing the banking system altogether. There is, however, a third possibility, which is to offer all applicants a lower-risk account (whether a checking account or a prepaid account) whereby the applicant cannot pose the same level of risk to the institution. Accordingly, the same applicant need not be screened out of the banking system by applying the same risk thresholds that are used to determine eligibility for a standard checking account.”
(Incidentally low-cost accounts have been around in New York since 1994 when the legislature passed a law requiring banks and credit unions to offer low-cost accounts. Today consumers meeting certain conditions are entitled to accounts with at least eight fee free transactions a month. N.Y. Banking Law § 14-f ; 3 NYCRR 9.7). it’s not clear to me what exactly New York institutions should be doing that they are not doing already.)
In his speech he combined this heartfelt appeal for cheaper accounts with a warning that “Through our supervisory work, we have found that some of the largest banks lack the appropriate systems and procedures to furnish accurate information on millions of accounts” As a result, the bureau issued a bulletin warning banks and credit unions that they must meet their legal obligation to have appropriate systems in place with respect to accuracy when they report information, such as negative account histories, to the consumer reporting companies. More effort and rigor are needed to make sure that the risks consumers actually pose to potential financial providers can be evaluated correctly.”
Why do I think the CFPB went too far yesterday? It prides itself on being a data driven organization. But I find it incredibly hard to believe that the financial industry writ large is systemically ignoring the Fair Credit Reporting Act. I find it even harder to believe that this systemic indifference is so pervasive that it is a root cause for why there are so many unbanked consumers in this country.
It also prides itself on being heavily influenced by advocates of behavior economics such as Cass Sunstein the author of Nudge. But The CFPB is no longer nudging; it is telling institutions what products they should offer and why. It is becoming increasingly clear that the Bureau is driven only by the data that leads it in the direction it wants to go.
At its core , there is a lack of understanding that banking is like any other business. It costs money to safely hold people’s money and those costs have to be accounted for.
I love it when people send me emails or comments on my blog because there are many times as I sit here and comment on the news that I feel as if I am living in a parallel universe.
Case in point is the announcement that the Federal Reserve Past Payments Task Force has agreed on the criteria that will be used to “assess faster payments solutions.” It is the Fed’s hope that the 36 effectiveness criteria identified by the 320 member task force will act as a guide for innovation in the payments industry. The criteria are grouped into six broad categories addressing the ubiquity, efficiency, safety and security, speed, legal and governance of a faster payments system. Each one of these criteria comes complete with a further explanation of individual criteria.
Can someone say paralysis by analysis? Don’t get me wrong. I have been pointing out for a while that the laws and regulations surrounding the payment system are woefully outdated and growing more so by the day. But, this is an issue that requires swift and decisive leadership. In contrast the Federal Reserve is acting as if it can methodically develop a payment system that will be adopted by the industry as a whole.
In fact, the modern payment system is evolving organically and regulators can only hope to influence its development if they stop pretending like they have years to come up with perfect solutions. For example, our existing regulations don’t address viability for peer to peer lending. They were developed in an age before Smart phones made it possible for consumers to remotely deposit checks and technology companies engrafted themselves onto payment systems.
In short, there is plenty of practical work to be done and done quickly. In a best case scenario, the material being developed by the Fed will help standardize the adoption of technology by giving developers a sense of what their payment solutions are going to be expected to achieve. But even this seems like a pipe dream to me. In an age when major banks are already investing billions of dollars into developing their own block chain technology even this seems like a fanciful dream.
NYC’s medallion credit unions recently suffered another legal setback in their effort to level the regulatory playing field between the heavily regulated yellow cab industry and ride sharing companies such as Lyft and Uber.( Melrose Credit Union v. City of New York, 15-cv-9042)
This morning’s New York Law Journal is reporting that on January 26th federal judge Southern District Judge Analisa Torres rejected claims that NYC’s Taxi and Limousine Commission was violating the equal protection rights of medallion owners. In its complaint the plaintiff’s contended that, by imposing onerous requirements on medallion cabs without imposing similar requirements on ride sharing networks they were being subjected to unequal treatment under the law, which has already diminished the value of their medallions by 40%.
According to the NYLJ, “Torres said the different rules for taxis and for-hire vehicles were “rationally related” and “allow the TLC to achieve the legitimate government objectives of increasing the accessibility, availability, and diversity of cost-effective transportation.”
That same day a separate court refused to block from taking effect regulations requiring half of the city’s medallion cabs to be wheelchair accessible by 2020.
So it begins
Your blear-eyed blogger had the first of several late nights last evening watching the results of the Iowa caucuses. Bernie Sanders and Hillary Clinton essentially tied-49.6 to 49.9- for Hillary and Ted Cruz soundly defeated “The Donald” who eked out a second place finish against Marco Rubio.
The line of the night was from Republican Mike Huckabee, the former Arkansas governor and past caucus winner. He announced he was quitting the race explaining that he was not withdrawing because of the vote-he finished tied for ninth-but “because of illness…obviously the voters are sick of me. ”
My take away: both parties are in for one of the most drawn out and competitive primary seasons in modern history. The electorate doesn’t know what it’s in favor of but it sure does know what it’s against, which is just about everything. We are a nation of rebels in search of a cause.
The Next Love Canal?
While the water problems in Flint, Michigan have understandably garnered the national spotlight, the potential that toxic dumping has been taking place in Hoosick Falls, New York is beginning to impact not only the community but lenders.
On Friday, the Albany Business Review reported that Trustco Bank and The Bank of Bennington have temporarily suspended mortgages in the village. The announcement underscores that environmental problems inevitably have a banking component. Obviously, problems like this make it almost impossible for homeowners in affected communities to sell their properties. Less obvious is the fact that lenders could retroactively be made to buy back mortgages on property that is found to be contaminated.
I went back through my archives and as I explained in this blog about the potential risks of fracking, Fannie and Freddie have set up a system where lenders can be forced to buy back mortgage loans years after they were sold to the secondary market. Let’s hope for the best in the case of Hoosick Falls.
CUSO Registration Takes Effect
For years now, our good friends at the NCUA have expressed concern that they don’t have adequate oversight over CUSOs. Starting today, CUSOs, irrespective of whether they are owned by state or federal credit unions, must be registered with the NCUA. As part of this new requirement, all CUSOs must now provide information directly to the agency. I know this has been a real hot button issue for some credit unions, but the final regulation is much less onerous than what was initially proposed and, the more I look into this issue, the more I agree with NCUA. It makes sense to increase its ability to assess the impact of CUSOs on the industry as a whole.
The Most Important Election
The election that will have the most direct and immediate impact on your credit union is not the one for President this November. Governor Cuomo announced Saturday that a special election will be held on April 19 to fill the Senate and Assembly seats of Senator Dean Skelos, Republican and Assemblyman Sheldon Silver, Democrat. Right now, the Republicans hold a one seat majority in the Senate chamber, but a victory by Assemblyman Todd Kaminsky would mean that the continuing control of Republicans is dependent on the continued support of the Independent Democratic Caucus.
The latest in a series of proposed regulations in which the Government is seeking to intrude into the work place is set to be unveiled today. The Wall Street Journal reports that this morning the Equal Employment Opportunity Commission (EEOC) will be rolling out proposed regulations requiring employers to disclose to the Government a summary of pay data. This information will be used to target employers who may be violating federal law mandating equal pay for equal work. The rule would apply to employers with 100 or more employees. Lest you think you’re off the hook completely, keep reading.
The Government have been moving this direction for a while. Earlier this year, similar reporting requirements were imposed on federal contractors. On the State level, New York has already put in place new equal pay protections that could directly impact your credit union. On January 19, amendments to Section 194 of New York’s Labor Law took effect.
New York has long outlawed pay discrimination based on sex; however, it has authorized pay discrepancies so long as they are based on a seniority system; a merit system; a system that measures earnings by quality or quantity of production; or “any other factor other than sex.” As my wife just pointed out, this is a pretty broad exception. The Governor and the Legislature agreed, which is why that language has been removed. Instead, employers can now base pay on “a bona fide factor other than sex, such as education, training or experience.” Furthermore, these criteria can only be used to the extent that they are related to the job in question.
It remains to be seen how great an impact this change in language will have on New York State workplaces. Here’s a good blog on the issue posted by Bond, Schoeneck and King.
On that note, enjoy your weekend. Personally, I have to remember what people do on Sunday afternoons without football.
In the movie The Untouchables, in which Kevin Costner plays an idealistic Eliot Ness trying to take down Al Capone within the law, an exasperated, street-wise beat cop played by Sean Connery explains that to take down the mob, if they put one of your guys in the hospital, you put one of their guys in the morgue.
News Flash: The banking lobby is out to kill the credit union industry or at least maul it beyond recognition. This is one of those times when it’s important to fight back for the sake of fighting back. I am usually not a big fan of comment letters for the sake of comment letters but this is an exception. And if you get a chance, tell your Congressmen and Senators that the Bankers have gone off the deep end.
The ostensible issue triggering the latest scrap is NCUA’s proposed amendments to its Chartering and Field of Membership manual to give federal credit unions greater flexibility in expanding their fields of membership. As highlighted by an article in this morning’s American Banker, the bankers are going downright apoplectic over the proposal, implying that NCUA is trying to circumvent the law and putting tax dollars at risk. We have heard it all before. (http://www.americanbanker.com/news/community-banking/fight-over-credit-union-membership-flares-up-again-1079054-1.html?utm_medium=email&ET=americanbanker:e5995385:4561993a:&utm_source=newsletter&utm_campaign=daily%20briefing-jan%2028%202016&st=email&eid=346f8f5eef3bcd6205524af410f42291)
In reality, many of the proposed changes, though important, are not the type of fundamental changes that would provide huge benefits for all credit unions. This is not a criticism of NCUA simply a recognition of the fact that it is adhering to the laws that bankers are suggesting they are seeking to violate. The result is that the banking industry is more ginned up in opposing these regulations than the industry is about supporting it. And that has to change. There are some fights that have to be fought out of principal, and this is one of them.
I’m not suggesting that NCUA will back away from these amendments. What concerns me is that, in an age when the person who screams the loudest, no matter how incoherently he rants, gets the most attention. Banks are coming across as more upset over the proposal than credit unions are enthusiastic about it. While both reactions make some sense this is the latest skirmish in which the industry has to fight back and fight back hard.
Why is it so important? The banking industry has a two prong strategy for attacking our industry: (1) Keep it from growing by strangling credit unions within their antiquated FOM constraints; and (2) end the tax exempt status of the industry by arguing that it is putting community banks at risk and is somehow unworthy of the exemption.
The first goal can be achieved primarily with lawsuits and regulatory advocacy. The second goal is a legislative one.
The uncompromising opposition of bankers to any credit union growth already has impacted all credit unions. The implicit message the banks consistently send to politicians is that helping credit unions simply isn’t worth the hassle. And NCUA’s amendments, while helpful, are still more restrictive than they need to be. The industry has to lay the groundwork for amendments more dramatic than HR 1151. If it doesn’t use this and other opportunities to be heard above the banker noise, this is never going to happen.