Six Things To Know Before You Start Your Summer Vacation

You can tell everyone’s getting ready for a long summer hibernation with the amount of stuff that came out yesterday. Here is a list of the big news:

  1. The Association’s very own Michael Lieberman just informed me  that the President not only pulled out of the North Korean Summit today but he signed S.2155. This means that I have to start looking at all those effective dates. You’ll be hearing more about this in the days to come.
  2. I was beginning to think this day would never come. The NCUA yesterday filed a Notice of Appeal seeking to reverse the district court decision holding that the NCUA did not have authority to automatically qualify credit unions to expand communities comprised of combined statistical areas up to 2.5 million members. The ruling also changed the definition of rural community in a way that the court says was an abuse of discretion. There’s no sense understating the importance of this appeal. NCUA’s ability to define what constitutes a local community for purposes of permitting credit unions to expand to meet member needs.
  3. NCUA is proposing regulations that would give credit unions authority to offer new types of payday loan alternatives. These would be in addition to the PAL loans which credit unions can already offer. Among the new features in the proposed PAL II (that’s NCUA’s term) are: permitting loan amounts of up to $2,000 and loan terms as long as a year. The NCUA isn’t the only regulator looking to thread the needle by encouraging lenders to make short-term loans but discouraging them from making payday loans. Just two days ago the OCC created a minor stir when it “encouraged” banks to make responsible short-term loans. Let’s face it, short-term loans are the financial equivalent of needle exchange programs: In an ideal world, you wouldn’t need them but allowing mainstream lending institutions to provide short-term loans is a responsible alternative to the worst excesses of payday lending.
  4. NCUA clarifies vacation payouts for liquidating credit unions. Hopefully this is a bit of information that will never be relevant to you. At its Board meeting yesterday, the NCUA also harmonized two conflicting regulations to clarify when CEO’s of credit unions being involuntarily liquidated are entitled to a payout of their vacation time. The new regulation clarifies that such payments will not constitute a prohibited golden parachute so long as it is provided for in the credit union’s handbook and is consistent with payments provided to all employees who meet the eligibility requirements.
  5. As I’ve explained in previous blogs, Chairmen McWatters has never been a fan of the risk based capital rule which takes effect in January 2019. So it is not surprising that he wrote a letter in support of legislation that would push back the effective date until 2021. Hopefully McWatters can be joined by a board member who is also willing to acknowledge that NCUA’s risk based capital rules were and remain a solution in search of a problem.
  6. Finally, just how much does the Trump administration dislike New York and California? Remember that the tax legislation caps at $10,000, the amount of money that can be deducted for the payment of state and local taxes. Two days ago, the IRS released this memo explaining that: “some state legislatures are considering or have adopted legislative proposals” that attempt to circumvent the property cap limit by re-categorizing property tax payments as other types of payments. The stated aim of both New York and California is to minimize the impact that the new federal tax law will have in high property tax areas such as Westchester and Long Island. The IRS goes on to explain that “Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

On that note, enjoy your summer. If past readership trends are any indication, many of you will be taking a break from the nitty-gritty of reality for the next couple of months. I will be joining you on occasion.

 

May 25, 2018 at 7:53 am 2 comments

Victory!

Image result for victory kiss vedIt’s nice to actually be part of a win, isn’t it? Here are a few quick thoughts on the passage of S.2155:

First, it wasn’t just the victory but the size of the victory. Notwithstanding the demagogic nonsense being pedaled by certain unnamed Democrats who made the bill sound as if it was the worst piece of legislation since Smoot Hawley. 258 yes votes means that 33 Democrats quietly voted yes on the bill. A big shout out to Long Island Democrats, Kathleen Rice and Tom Suozzi as well as the Hudson Valley’s Sean Patrick Maloney for looking past the noise and recognizing that the bill was primarily a level-headed approach to helping out community banks and credit unions.

Second, the bill did not repeal HMDA. I repeat, the bill did not repeal HMDA. What the bill did was exempt institutions from the almost two dozen data points which the CFPB and Congress imposed on institutions as an outgrowth of Dodd-Frank. Keep in mind that the institutions which actually have the history and ability to engage in systemic lending abuses are still subject to enhanced HMDA scrutiny but I know that wouldn’t make a good Democratic talking point. Go to §104 of the bill and judge for yourself.

Third, speaking of the nonsense spewed by some of the bill’s opponents, if this bill really is a giveaway to the big banks, the ABA really isn’t as talented as I think it is. A few more victory’s like this and it will be out of business.

Fourth, remember the bill isn’t law yet. It still has to be signed off on by the President which we have every indication he will do.

Fifth, compliance people have had a relatively quiet time of it lately. That’s about to change. There are many good little nuggets in this bill ranging from the protection of financial institutions that report suspected financial abuse of the elderly to greater flexibility for mortgage bankers that employ originators who previously worked in banks and credit unions. This is obviously good news for those of you who have mortgage Cusos. We need to start finding out when these provisions take effect and if regulations will be promulgated along with them.

Finally, a big shout out to CUNA and NAFCU. This is a huge victory. In addition, to get the House of Representatives to agree to pass a Senate banking bill without amendment is a tactical accomplishment which speaks to the quality of our national leadership.

May 23, 2018 at 8:55 am Leave a comment

3 Things To Know On Tuesday Morning

If you’re a recent visitor from another planet, you could be forgiven for thinking that the world is dominated by misogynists and would be predators so I’ve decided to lead with news, while not directly related to credit union land, shows that progress is in fact being made.

Yesterday, the New York Stock Exchange, the Capitol home of what the late great Tom Wolf described for the Masters of the Universe announced that it would be naming Stacey Cunningham as its first female President of its 226 year history. What would Sherman McCoy say?

Just how big of a deal is this? I believe symbolism matters and even though the NYSE isn’t quite what it used to be, this is still a big deal. This morning’s WSJ points out that when Cunningham started working for the Exchange as an intern in the early 90’s, the woman’s bathroom was a converted phone booth on the 7th floor. And when she started trading she was only one of 1,365 traders. True, the NYSE only accounts for 22% of trades these days but just as we continue to look for ways to improve corporate culture, we should also take the time to put these efforts in their proper context. On balance things have gotten a heck of a lot better for everyone.

Must See TV

Today is one of those must see TV days or must hear days for those of you with satellite radio. If all goes according to plan, the House of Representatives will be voting on S.2155, the Regulatory Relief bill that you have heard so much about. I’ll be talking about the specifics of this bill until you get sick of reading about it but today keep an ear out for how many Congressmen take the opportunity to praise not just banks but credit unions. Also, keep an eye on how many Democrats ultimately vote for the bill. Since there is a strong possibility that the Democrats will take control of the House next year, their attitude towards this bill will be an early indicator of just how radical a regulatory agenda a Democratic majority will push.

What’s Next for Payday Lending Rule?

That is the headline in this morning’s Law360 email blog now that the Senate has failed to muster enough votes to repeal the Cordray era regulation. There is still much the CFPB can do to obstruct implementation of this controversial regulation.

May 22, 2018 at 8:22 am Leave a comment

McWatters Telecommutes: So What?

It’s been more than a week now since the Washington Post reported what anyone who follows the NCUA has known for a while: Chairman J. Mark McWatters doesn’t care much for Washington and spends as little time there as possible. The article quotes an Executive Director who represents an organization of former lawmakers and cabinet secretaries as describing this unorthodox arrangement “unprecedented and incredibly troubling.” In fact the more I think about it, the real problem is that so many people find McWatters’ decision to base himself in Dallas rather than the nation’s Capital so troubling.

First, I find it refreshing that in an age when Congressmen retire to become Washington based lobbyists and agency heads don’t think twice about taking subsidized honeymoons on the company dime or getting a really great rate on Georgetown rental property, we actually have a public servant who wants to live out in the community among people impacted by his decisions. Washington would be a better place if policy makers spent less time in Washington.

To read the article you would think that the Chairman is the day-to-day manager of NCUA. If this is true then it’s time to change. For one thing, these are term limited positions: I hope the organization is structured so that the day-to-day operations can continue no matter who is ultimately in charge. We don’t need Chairman McWatters deciding who gets to play tennis when. In fact, the Chairman’s role should be much more analogous to that of the Chairman of the Board than to the head administrator of the agency. He sets the direction and holds staff accountable for getting the job done.

And let’s not forget just how radically McWatters tenure has been, first as a Board Member and now as Chairman. Since his arrival, he has breathed new life into old statutes to give credit unions greater flexibility in making member business loans and voted for amendments to chartering regulations that give credit unions greater flexibility to serve more members. He has also advocated for budget restraint and a more transparent budget process. Finally, he has been the sole voice of reason questioning the need for larger credit unions to be subject to advanced risk based capital requirements. I’m still hopeful that we will get another board member who will work with to pair back this pending requirement. With a record like that, he can stay in Dallas all he wants.

Then there is the suggestion that NCUA can’t possibly be managed from a distance. Former Chairwoman Matz said that she couldn’t imagine doing the job effectively if she wasn’t in the office interacting with staff, attorneys and other regulators at other financial agencies on a daily basis. Fortunately, this cutting edge technology called the computer and telephone have not progressed to the point where people manage just fine interacting with each other over great distances without actually being in the same room. Telecommuting is the wave of the future. In fact, my guess is that if McWatters was a female democratic appointee of a Clinton administration, the slant of this article would have been how a modern parent is using technology to balance both work and life responsibilities.

The Post is a great paper but unless they have tangible proof that McWatters’ arrangement is negatively impacting NCUA and the public it safeguards, this article is much ado about nothing and a bit of a cheap shot.

May 21, 2018 at 8:37 am Leave a comment

FinCEN Delays Beneficial Owner Requirements for Existing Rollover Accounts

Here is one of those mind-numbing facts  the compliance world relishes and the rest of the world finds as boring as a three-hour rain delay: Did you know that every time a share certificate rolls over it must be treated as a new account for customer identification purposes?

Now that you do, it helps to explain why it is good news that FinCEN has issued a temporary exemption from the beneficial owner rules for rollover products such as certificates of deposit (or share certificates). This is a “Grab Your Coffee” special, so grab some extra coffee and hopefully either you or I will fall asleep before I get done explaining this.

The beneficial owner rule took effect on May 11th. Generally speaking, this enhanced Customer Due Diligence requirement mandates that financial institutions have written policies and procedures to identify the beneficial owners of accounts entered into by legal entities, such as corporations. A “beneficial owner” is any individual who controls 25 percent or more of a legal entity or who exercises significant responsibility to control or direct the entity, such as a CEO.

FinCEN apparently created some compliance anxiety when it explained in question 12 of this recent Q&A that financial institutions were “required to have their legal entity customers certify the beneficial owners for existing customers during the course of a financial product renewal (e.g., a loan renewal or certificate of deposit).” The postponement announced  yesterday means that this requirement doesn’t apply to rollover accounts entered into before May 11th that expire on or before August 9th.

What about a certificate of deposit entered into before May 11th that doesn’t expire until after August 9th? FinCEN tells us that it will be determining whether additional relief is necessary.

Now I know there are many credit unions out there that don’t have many beneficial owner accounts. Remember, however, that you are still obligated to have policies and procedures in place.

On that scintillating note, enjoy your weekend. God save the Queen!

May 18, 2018 at 9:43 am Leave a comment

Federal Ruling Puts Mortgage Escrow Exemption in Doubt

Are federally chartered credit unions in New York exempt from a state law mandating that banks and credit unions pay interest on mortgage escrow accounts? The answer used to be a resounding yes, but now it is not that clear anymore.

California, like New York, has a statute mandating that financial institutions pay a minimum amount of interest on mortgage escrow accounts, and it has long been settled law that these provisions don’t apply to federally chartered institutions because they are preempted by federal law. Earlier this year, the Court of Appeals for the Ninth Circuit held that Dodd-Frank changed the law so that now even federally chartered banks have to pay interest. Yesterday, it refused to reconsider its ruling, meaning federal banks in California must pay the escrow.

This decision is not binding in New York and my guess is it will be appealed to the Supreme Court, but there is now persuasive authority to argue that federal institutions in New York, including by implication federal credit unions, have to pay the escrow interest. I anticipate to start seeing similar lawsuits in our neck of the woods if they haven’t started already.

The issue is the extent to which Dodd-Frank watered-down the preemption of state laws for national banks under the National Bank Act. The National Bank Act does not apply to credit unions, but NCUA has traditionally examined the preemption of state laws for national banks when delineating its own preemption authority. The issue in this case involves the following language in Dodd-Frank, which amends the TILA:

(3) Applicability of payment of interest

If prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any impound, trust, or escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law.

 

 

May 17, 2018 at 9:59 am Leave a comment

Can you charge extra for mailing that billing statement?

When I get a phone call from a CEO so early that I haven’t even started my blog yet,   I know something must be bugging him; sure enough, we ended up having a good-natured conversation about whether and when credit unions can charge extra for providing paper statements

Remember, this is just one man’s opinion and is not intended, nor should it be used, as a substitute for consultation with your own counsel. But I believe the best reading of federal and New York state law combined is that, when a statement detailing transaction activity  or requesting payment must be provided as a matter of law a financial institution can not charge to a member more for receiving a paper copy of this document but it can charge less to a member who receives an electronic statement .

Let’s start with something we can all agree on. NY General Business law Section 399 zzz provides as follows:

1. Subject to federal law and regulation, no person, partnership, corporation, association or other business entity shall charge a consumer an additional rate or fee or a differential in the rate or fee associated with payment on an account when the consumer chooses to pay by United States mail or receive a paper billing statement.  This subdivision shall not be construed to prohibit a person, partnership, corporation, association or other business entity from offering consumers a credit or other incentive to elect a specific payment or billing option.

Violations of this statute are considered deceptive acts for which your credit union can be sued. To me this is pretty straight forward. Let’s use a credit card bill as an example. Unless a member affirmatively opts in to receiving an electronic billing statement, he or she will receive monthly billing statements in paper form. We can also agree that there are several account statements which credit unions are required to provide to members as matter of federal law such as credit card statements.

Let’s assume that “Henry” is an 80-year-old curmudgeon who prefers the feel of the paper in his hand when it comes to looking over his monthly credit card bill. The statute prohibits you from charging Henry more simply because he wants his good, old-fashioned paper statement, while at the same time permitting you to provide incentives and/or credits for members who opt in to receiving their statements electronically. This means you can use incentives to charge someone less for agreeing to electronic statements but you can’t simply punish someone by charging more for paper statements.

Henry, you may say, isn’t that a distinction without a difference? Arguably, it is but it still has to be operationalized at your credit union. The key point is that, from a compliance standpoint, you should avoid language that imposes a higher fee simply because a member has chosen to receive a paper statement.

But what about those situations when the member is not receiving a billing statement but simply a periodic record of transactions such as a checking or savings accounts statement? First the statute doesn’t just apply to billing statements; it applies to fee ‘associated” with payment on an account. You are going to have a hard time convincing me that a statement which lists overdraft or account balance transfer fees isn’t covered by this law. A case filed in April seeking to bring a class action lawsuit against TD bank for violating NY law by charging a dollar more for paper statements may provide some guidance on this issue. I will keep you posted.

Then there is the question of the applicability of the   E-Sign Act. Accounts are contracts.  The Act requires members to affirmatively “opt in” to receiving electronic vs. paper statements. To me, to make someone pay extra for what they are legally entitled to as a matter of federal law comes awfully close to being an unfair and deceptive act. This is one of the reasons CFPB and the FDIC fined Continental Airlines because of several practices related to its credit card program. Among the shortcomings cited by the examiner was the language used by the company suggesting that members had to receive paper statements for which they were subsequently charged a higher fee

This brings us back to where we started. If you take my admittedly more conservative view of fee charging, you can still charge people less if they choose to do the environmentally friendly thing of getting their statement information electronically.  Conversely, if you make the decision that there are circumstances under which New York’s statute doesn’t apply or that the E-Sign Act allows institutions to charge extra for services they are mandated to provide, you’re increasing the possibility that your credit union will find itself in the cross hairs of a litigator or regulator.

 

 

May 14, 2018 at 9:53 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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