What SpongeBob And The Overhead Transfer Rate Have To Do With Your CU Budget

Image result for Mr. KrabsAt yesterday’s November meeting of the Board, credit unions notched another important victory, albeit with a huge assist from NASCUS.

For years the overhead transfer rate (OTR) has been one of those things that everyone complains about but no one does anything about. Plus, the NCUA has traditionally guarded the formula as jealously as Mr. Krabs of SpongeBob guards the secret formula for Krabby Patties. For those of you who don’t have an 8-year-old at home or are simply too mature or embarrassed to admit you find SpongeBob amusing, all you need to know is that we are dealing with a top-secret formula.

NCUA is unique among federal financial regulators in that its Board is responsible for the regulation of federally chartered credit unions and oversees the Credit Union Share Insurance Fund. Imagine the OCC also having the FDIC’s responsibilities. The result is that when NCUA makes its budget, it not only collects fees on the federal charters it oversees, but transfers money from the Share Insurance Fund to cover the cost of regulating state charters for Share Insurance purposes. This creates a potential conflict of interest. After all, the more money taken from the Share Insurance Fund, the less money has to be collected for federal charters.

As a result, if you look back over the history of the Share Insurance Fund – I bet you didn’t know your faithful blogger was an armchair Share Insurance Fund historian – there have been periodic spasms of criticism directed at how NCUA determines the OTR. The latest such outburst started approximately three years ago when NASCUS obtained a legal opinion letter accusing NCUA of manipulating the formula to subsidize federal charters at the expense of state charters. In addition, Chairman McWatters who was then, nothing more than the resident gadfly on the Board, criticized NCUA for its lack of transparency.

Which brings us to yesterday’s Board meeting. According to NCUA’s press release, the OTR used for the 2018 budget will result in a dramatic reduction in the amount of money chipped in by state chartered, federally insured credit unions via the Share Insurance Fund from 67.7% in 2017 to 61.5%. In addition, NCUA is proposing a regulation which will make the process more transparent.

Since I’m a huge fan of transparency and I think the potential of OTR abuse is always going to be there, this is a step in the right direction. At the same time, I don’t think we’ve seen the last of the OTR debates. Given the structure that Congress handed the NCUA an impossible task that not even Solomon could definitively settle.

 

November 17, 2017 at 9:44 am Leave a comment

Goodbye, Good Luck, and Good Riddance

Image result for Richard CordrayYesterday, Richard Cordray, the benign dictator of consumer finance, announced that he is resigning at the end of the month. There are few industries that have as much to gain and as little to lose from his departure as do credit unions.

It didn’t have to be this way. I’ve been looking back at my old blogs and when I first started listening to Mr. Cordray, I heard a man who understood that credit unions didn’t engage in the shenanigans which lead directly to the great recession and indirectly to the creation of the CFPB. Instead, we were the good guys whose policies and practices could be an example for the larger banking community. As he explained at his Senate confirmation hearing, “. . . one of the things that we absolutely will not do at the bureau, at least under my leadership, is to impose further burdens on the community banks and credit unions. . . [that] have different constraints, have different abilities to comply with excessive regulation and that’s something we will not do on my watch.  We can exempt them, we can have a two-tiered system and we can listen closely to their concerns, which I will do.”

But his rhetoric has become increasingly hollow. Rather than using the power given to him under Dodd Frank to exclude almost all credit unions from many of its mandates, he and his troops of self-styled pseudo-technocrats contented themselves with subtle distinctions which made it difficult for many credit unions to figure out precisely what they had to comply with and penalized credit unions that had the audacity to grow.

When credit unions correctly pointed out that Dodd Frank empowered the Bureau to more aggressively exempt them, they were met with increasingly condescending responses from the former Supreme Court Clerk and Jeopardy champion. He actually told a room full of industry representatives that it was time for them to “drink the coffee” and realize that the Bureau was their friend.

The problem is, with friends like this we don’t need enemies. With a new Director, we can once again make our case; simply put, if we aren’t part of the problem then we shouldn’t be subject to regulations designed to deter the larger lenders who’s activities pose the greatest potential threat to consumers.

Then there is the larger issue of how the CFPB sees itself. It loves to describe itself as a data driven regulator for the 21st Century. In fact, it is no more or less than a hugely powerful regulator, which has cherry picked data to reach predetermined outcomes. If you think this is too harsh, take the time to read the Bureau’s report on arbitration clauses which conveniently downplays the costs of a class action system gone wild.

But in the end the problem is not Mr. Cordray, who strikes me as an earnest, intelligent, and hardworking guy with whom I vehemently disagree; it’s with the CFBP itself. Increasingly both Republicans and Democrats are circumventing the legislative process by using unelected regulators to gut laws they don’t like and implement policies Congress won’t support. The CFPB with its single Director and its exemption from the appropriations process is exhibit 1A of this disturbing and ultimately undemocratic trend.

In my dream world, Republicans and Democrats would use this pending interregnum to seriously discuss ways to make the Bureau more accountable by instituting a Board of Directors and scaling back the Bureau’s enforcement powers under UDAP. But in this increasingly partisan world in which compromise is viewed as treason, I know this won’t happen and that’s too bad.

 

November 16, 2017 at 9:22 am Leave a comment

Why Proposed Reform Bill Is A Good Deal For Credit Unions

Unless you have been living under a rock, you have probably heard the news that on Monday, a bipartisan group of Senators announced an agreement on a package of regulatory reform measures that will benefit credit unions and other lenders. With the caveat that I have not yet seen a copy of the actual legislation, here are some of the highlights:

Most importantly, the bill would amend the Credit Union Act to clarify that credit unions can make loans on second residences without such loans being subject to member business loan requirements. Specifically, I’m assuming the provision is based on S.836 which amends the current restriction limiting mortgage lending to primary residences. I love this change. One of the earliest issues that I dealt with when I entered credit union land full time was trying to help a small credit union that was being given a tough time by an examiner for providing a mortgage on a member’s second home without having a member business loan policy in place.

A second thing the measure would do is raise the level for compliance with the Home Mortgage Disclosure Act so that the regulations would only apply to institutions that make 500 closed-end mortgage loans or less than 500 open-end lines of credit in each of the two preceding calendar years. The CFPB has grudgingly raised the exemption threshold for HELOC’s to 500 hundred on a temporary basis.  Currently any institution that makes 25 or more closed end mortgage loans in each of the two preceding calendar years and meet Reg. C’s other criteria  comply with the new HMDA regulations

While the agreement doesn’t go quite as far as I would have liked it to with regard to mandated TRID disclosures, it would give lenders greater flexibility to reissue disclosures without triggering a new three day waiting period in instances where a creditor extends to a consumer a second offer of credit with a lower annual percentage rate.

There is also a provision providing protection to individuals who, in good faith and with reasonable care, disclose the suspected exploitation of a senior citizen to a regulatory or law-enforcement agency. This last provision is actually worthy of its own blog and I will be talking about it in greater detail later in the week. I’m sure you can’t wait.

Finally, let’s keep in mind how important it is to see Congress working in a bipartisan fashion in a way that helps credit unions. This is real progress and any momentum is good momentum given the hyper-partisan dysfunction that has gripped our political system. Take the time to tell your Senator and Congressman that you support this regulatory reform package.

November 15, 2017 at 9:26 am Leave a comment

Albany County Latest To Ban Wage History Inquiries

Image result for job interviewWith apologies for the late start, I wanted to give a heads up to all of you HR people out there, particularly if you are situated in Albany County.

On November 6th, Albany joined the growing list of localities, including NYC that ban employers from inquiring about a job applicant’s salary history. You should update your policies and give a heads up to your interviewers immediately. The law takes effect 20 days after it is filed with the Secretary of State. Once I get a precise date, I will update the blog.

The purpose of the bill is to attack the problem of gender and race wage disparity. Proponents of legislation such as this argue, for example, that females who have taken time off to raise children are often disadvantaged when they re-enter the work force.

The Albany County measure makes it illegal to screen job applicants based on their wage and benefit history; request or require a job applicant disclose his or her wage or salary history as a condition of a job interview or seek the salary history of any job applicant from any current or former employer. The only flexibility given to employers is that a job applicant may provide written authorization to a prospective employer to confirm prior wages but only after a job offer, including proposed compensation, has been extended.

For those of you outside the Albany area, keep in mind that as localities across the state pass more and more of these measures, we are more and more likely to see state-wide legislation passed.

On that note, enjoy your day and console yourself in the knowledge that at least the Giants aren’t playing in Monday night football.

 

November 13, 2017 at 10:07 am Leave a comment

Is Tomorrow A Business Day?

Image result for veterans dayToday I am going to get down in the weeds a little. So, grab some extra coffee before you find out about the joys of how to define a “business day” for purposes of the Truth In Lending Act and RESPA.

There are of course, a plethora of timed notice requirements in the byzantine world of mortgage finance such as the three-day right of rescission and the receipt of TRID disclosures within 3 business days of receiving an application and at least 3 business days before a closing. A business day is generally all calendar days except Sundays and federal legal holidays specified in 5 U.S.C.A §6103.

Federal law recognizes 11 days as National holidays (5 U.S.C.A §6103). 4 of those holidays specify specific dates on which they are to be celebrated (New Year’s Day, Independence Day, Veteran’s Day, and Christmas). So what do we do in those cases where a holiday celebrated on a specific date is celebrated on a day other than the day on which it falls? As luck would have it, the official interpretation to the definition of business day tells us exactly how to handle this. “When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.” 12 C.F.R. § Pt. 1026, Supp. I, Part 1, §1026.2(a)(5)

Since we’re on the subject, what should you do if your member’s credit card payment are due on the 10th of each month? The answer is more complicated than you might think. If your credit union is closed tomorrow because it celebrates Veteran’s Day on the 10th, then it must accept payment as timely if the payment is received on the next business day which could be as late as Monday.

Here’s where it gets even trickier: Even though your credit union knows well in advance what days it will not be open for business, you are still obligated to disclose the 10th as the date the payments are due on your periodic statements. Take a look at the official commentary; See 12 C.F.R. §1026.7 (b)(11)(9) for further explanation.

Incidentally, throughout this blog I am providing links from the CFPB’s eRegulations. This is the easiest way of easily sifting through the regulations and their accompanying commentary.

On that note, yours truly is taking a floater tomorrow. I’m actually headed down to God’s Country (aka Long Island) to see how the family is doing and to take a train ride into the city. Maybe we will run into each other.

 

November 9, 2017 at 9:57 am Leave a comment

Joint Tax Committee says Banks and CUs aren’t all that Different Anymore

I learned something new this morning as I skimmed a report by the Joint Committee on Taxation detailing the provisions of HR 1, the House Republican tax legislation.  According to the Committee, “While significant differences between the rules under which credit unions and banks operate have existed in the past, most of those differences have disappeared over time.” (Page 150) Say What?

Is it possible that the Committee staffers never heard of SEG group requirements? Or don’t know about the MBL cap or Restrictions on community expansions? Is it possible that the committee doesn’t think that the inability to  issue stock is a big deal? I doubt it or though it would explain why our tax code is such a mess.

What banking lobbyist got this gratuitous fallacy tucked away in what is supposed to be an objective analysis of a tax bill which doesn’t impact the CU tax exemption?

On the one hand I’ll be happy if this is the worst thing that comes out of the tax debate; besides, its a waste of time to respond to every claim hurled at the enemies of the industry. But when I find these charges imbedded in an important analysis, presumably one that will be used by bleary-eyed legislators and staff  scrambling for additional revenue in the coming weeks,  it is worth responding to

I was reading the   report to get a sense of how the proposed UBIT amendments could impact state charters. FCUs are categorically exempt from the UBIT tax.  According to the analysis,   Sec. 5001 of the legislation  would  define unrelated business taxable income to include any expenses paid or incurred by a tax exempt organization for qualified transportation fringe benefits, a parking facility used in connection with qualified parking or any onsite  athletic facility.

As longtime readers of this blog know,  it’s not a coincidence my father is the accountant in the Meier family and not me. Please take a look if you think this could impact your CU.

November 8, 2017 at 9:08 am Leave a comment

CFPB Releases Beta Version Of Web Portal

 

Image result for CFPB

I’m on my way to the train station but I wanted to give my faithful readers a heads up on the type of news that makes compliance geeks get excited and puts the rest of the universe to sleep. Trust me, if your credit union has to report HMDA data, this is another important milestone towards the radical redesign of the implementing regulations envisioned by Congress and the CFPB.

What I’m talking about is news that the CFPB has released a beta version of the portal that financial institutions will use to report HMDA data. Given the amount of information that is going to be available about your average home borrower, it is absolutely crucial that the portal institutions will use to report this information works. After all, it was a vulnerability in an Equifax portal which lead to its data breach. Make sure that your compliance person gives a heads up to the IT Department so that it can begin to play with the new toy.

In addition, since this is a beta version, the CFPB will still have the ability to fix glitches that you identify. On that concise note, have a great day and don’t forget to vote!

November 7, 2017 at 8:21 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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