Two Things To Ponder On A Thursday Morning

 

thinking-man

Do You Pay Your Employee’s Properly?

First, the NYS Department of Labor has finalized long anticipated and haggled over regulations regarding permissible employer payment methods in  New York State.  The regulations just don’t touch on the use of payroll debit cards.  They also deal with salary payments in cash, check, and direct deposits. In other words, these are regulations with which your HR person should be familiar, irrespective of how you pay your employees. It takes effect March 7, 2017.

For example, reading the regulation will remind you that you can’t require employees to receive wages through direct deposit. Furthermore, an employer that uses a  payment  method other than  cash or check is required to provide his employee  with a description of his or her payment options, a statement that he or she is not required to accept wages by payroll debit card or by direct deposit, and a statement that the employer may not be charged any fee for services that are necessary for the employee to access his or her wages.

By the way, is it just me or are new employees in NYS getting about as many disclosures as new homeowners at closing? This State truly is a bureaucratic mess.

The part of the regulation detailing the use of debit payroll cards goes into the category of better-late- than- never. I remember monitoring legislation on this issue while working  in the state legislature approximately 15 years ago.

NCUA WINS ANOTHER LEGAL SETTLEMENT

The NCUA announced Tuesday that it will receive $1.1 billion  to settle claims again Royal Bank of Scotland relating to its role in peddling and selling mortgage-backed  securities to Western Corporate FCU and US Central Federal FCU that blew up quicker than a Galaxy 7.  The bounty  means that NCUA has now claw-backed $ 4.3 billion dollars from   lawsuits alleging that RBS and others  sold  or underwrote mortgage back securities without fully disclosing the risks associated with these products.

The net proceeds from these settlements will be used to pay claims against the failed corporates and could ultimately lead to reimbursements of some  credit union payments into the Temporary Corporate Credit Union Stabilization Fund. Remember, however,  that we won’t know precisely how much money is available for credit unions until we find out how big a chunk of these  settlements will go toward legal fees.

No matter what the ultimate amount is,  NCUA deserves a tremendous about of credit. It brought this litigation when few, if any Financial Regulators were willing to take similar steps and skeptics  like your faithful blogger questioned whether the litigation would succeed.

September 29, 2016 at 9:05 am Leave a comment

Read It and Weep? NY Releases Zombie Property Regulations

zombie-pictureWhen NY passed Zombie property legislation earlier this year the Legislature’s intent was to only impose the requirement to identify and maintain abandoned property on larger financial institutions. Specifically the law was to apply to those institutions which had  more than three-tenths of one percent of the total loans in the state which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending two years prior to the current calendar year.

I’ve always been concerned that the Legislature’s intent doesn’t match the language.  Yesterday,  NY’s Department of Financial Services released its proposed regulations to implement the law which takes effect December 20th.    I’m still concerned that the state has cast  a wider net than intended.  Please take a look and the proposal and don’t be afraid to call  or email me and tell me why I’m wrong.  We will have 45 days to comment on the proposal after it is published to the State Register on October 12.

First, the regulation presumptively applies to all banks and credit unions. The state is going to tell you what the numerical threshold is but your credit union is going to have to prove why the regulation doesn’t apply to it.

Here is where it gets real interesting. The bold font is mine.

“1. For each calendar year, the obligations imposed by RPAPL 1308 shall not apply during that calendar year to a mortgagee that is able to establish all of the following:

it curves out “a state or federally chartered bank, savings bank, savings and loan association, or credit union that can prove

“B “engages in all of the following activities during that calendar year: mortgage origination, mortgage ownership, mortgaging servicing, and mortgage maintenance; and

  1. It had less than three-tenths of one percent of the total loans in the state which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending two years prior to the current calendar year.”

To me a plain reading of this regulation only curves out institutions that do ALL of the activities listed in paragraph B.  As a result a small credit union that originates but does not service its loan wouldn’t qualify for the exemption no matter how few loans it does.

This could easily be remedied by the DFS amending its regulations or the Legislature doing a chapter amendment to clarify its intent. An amended regulation  would read something like this:

  1. For each calendar year, the obligations imposed by RPAPL 1308 shall not apply during that calendar year to a mortgagee that is able to establish it does all of the following.

“B. It engages in any [all] of the following activities during that calendar year: mortgage origination, mortgage ownership, mortgaging servicing, and mortgage maintenance; and…”

  1. It had less than three-tenths of one percent of the total loans in the state which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending two years prior to the current calendar year.”
  2. No one can seriously think that smaller institutions should be burdened with this mandate. This law is going to be tough enough for the big Guys to comply with. Let’s not give smaller credit unions and community banks one more reason to stop making mortgages. Let’s clear up this ambiguity.

 

 

September 28, 2016 at 9:04 am Leave a comment

Big Banks Big Winners In “Debate Of the Century”

According to The Hill newspaper,  the “Debate of The Century” lived up to its billing. If that’s true then my increasing pessimism  about the future of this country is totally justified.  I’m not joking.

From the perspective of the financial services industry, the biggest winner in last night’s reality T.V. show masquerading as a Presidential debate was the banking industry.  I know people are busy constructing their own alternate realities, and that we had to get to the real important stuff like Clinton’s stamina and Trump’s comments to Howard Stern and talk show host Sean Hannity.  But was I really expecting  too much for thinking that moderator Lester Holt would ask something along the lines of: “Eight years ago the country suffered its greatest economic crisis since the Great Depression and the nation’s largest banks had to be bailed out with taxpayer dollars.  Do you believe that more needs to be done to prevent us from bailing out banks in the future?” I’m also more than a little surprised that we didn’t hear one mention from Hillary about the Wells Fargo Account scandal or that Trump didn’t point to the CFPB as over-regulator #1.

Instead, we got Trump’s standard dribble about the Fed keeping interest rates down for political reasons and a willingness to list the many banks that help the “underleveraged” (his words) real-estate tycoon and marketing genius finance his far-flung business interests. There was also not a mention of Hilary’s Goldman Sachs speeches, which is quite surprising given the fact that they almost derailed her primary run.

There are, however, two more debates to go. Why we could even have a discussion about what to do with the housing market, in general, and the GSE’s, in particular.

But none of this would make for particularly good TV.

NY Signs Gift Card Law

Governor Cuomo struck a blow for all of us who have the habit of losing holiday gift certificates when he signed legislation enhancing gift card protections.  The legislation (S.4771E / A.7610E) increases from 13 to 25 months the amount of time that must pass before dormancy fees can be charged. The catch is that dormancy fees  “shall be waived and the gift certificate  replenished  to its value where the holder of the gift certificate  presents the certificate within three years of issue.  Finally no certificate can expire in less than five years. It takes effect in 90 days, just in time for the holidays.

AMEX Wins Credit Card Appeal

Yesterday afternoon, the Court Of Appeals for the Second Circuit reversed a lower court ruling that Amex violated the antitrust laws by entering into agreements containing nondiscriminatory provisions barring merchants from offering customers any discounts or non-monetary incentives to use credit cards less costly for merchants to accept; expressing preferences for any card; or disclosing information about the costs of different cards to merchants who accept them.

September 27, 2016 at 8:47 am Leave a comment

The Greatest Generation Loses One of Its Greatest

Before I get to today’s credit union business, you may have seen that Arnold Palmer passed away over the weekend. If you love sports then you owe it to yourself to know about Palmer. If you hate sports because you think that athletes get paid way too much, then you should also know about him. He is one of the most pivotal sports figures of the twentieth century.  Not only did he bring golf to the masses, but by teaming up with his business partner, Mark McCormick, he created IMG, which became the first major sports agency/marketing business. Athletes from Michael Jordan to Derek Jeter to Peyton Manning owe a debt of gratitude to Arnie.

I think it is appropriate that the 87 year old Palmer passed away on the same weekend that 89 year old Vin Scully broadcast his last Dodgers home game. These two personify why their’s truly was the greatest generation. They not only worked at perfecting their craft but they conducted themselves with dignity and humility, two traits that are in short supply in almost all aspects of our public life these days.  Just watch tonight’s debate and you will see what I mean.

Where’s The Beef?

The lawsuit filed in Pennsylvania Federal Court by several credit unions and some banks alleging that Wendy’s acted negligently in failing to adequately protect itself against POS data breaches is the latest example of just how unsettled the law remains when it comes to apportioning responsibility for the economic costs of third-party data thefts. On Friday, the credit unions responded to a motion by Wendy’s to dismiss the lawsuit.  Wendy’s argues, in a nutshell, that it is not responsible for the economic harm inflicted on financial institutions with whom it has not contracted.  It also rejects the claim that the Federal Trade Commission has established baseline data protection standards with which all companies must comply.

In a well-functioning legal system, the party most able to avoid a given harm should be the one most responsible for taking steps to avoid it. It makes no sense that sophisticated national corporations like Wendy’s still are able to argue that they owe no duty of care to financial institutions, or for that matter, the general public.  While merchants cannot prevent hackers from trying to steal information, there certainly are steps they can take to avoid foreseeable harm.

September 26, 2016 at 9:43 am Leave a comment

Time To Close Breach Disclosure Loopholes

According to the Recode  blog, Yahoo will shortly be publicly disclosing a massive data breach involving hundreds of millions of user names, passwords, personal information like birth dates and other email addresses. Yahoo has been investigating the breach since August when it discovered that a hacker named “Peace” was selling the information on the “dark” web for nearly $ 1,800. The story is intriguing because (1)I am shocked that yahoo still has that many users, and (2)The story shows yet again why state data breach disclosure laws need to be tightened and  Federal standards need to be enacted.

New York has a fairly typical disclosure notification statue. Section 899-aa of the General Business Law  mandates that companies disclose data breaches “ in the most expedient time possible, and without unreasonable delay” but “consistent with the legitimate needs of law enforcement” and “any measures necessary to determine the scope of the breach and restore the reasonable integrity of the system ” When this legislation was passed, these broad disclosure guidelines made sense.  The thinking was that premature disclosures might disrupt investigations and even encourage additional breaches before security vulnerabilities could be remedied.  Incidentally, in 2011 the SEC issued guidance for publicly traded companies to disclose data breaches  But since such breaches must only be disclosed when they have a “material impact” on a company’s stock, publicly traded companies have a tremendous amount of flexibility in determining  what needs to be disclosed and when.

Times have certainly changed Businesses not only know of breaches long before they tell the public but the bad guys know that they know and they don’t care. For instance, a savvy hacker like “Peace” knows that among the people shopping for his treasure trove of information are businesses surfing the “dark” web to see if there information has been stolen. When reporter Brian Krebs disclosed the Target data breach he confirmed the story by talking to a fraud analysts at a major bank, whose team had independently purchased hacked information.

Sophisticated hackers like “Peace” probably aren’t stealing personal information so that they can break into a bank or a credit union the next day. They are simply putting the information on the black market and getting the best price they can from criminal  retailers who will be the ones stealing from  accounts. The result is that the true impact of massive data breaches  is  only felt over  time.  It also means that the sooner consumers have as much information as possible about data breaches the more they can do to protect themselves. Presently consumers are the  last to know that their personal information is compromised.   If the public can be enlisted to hunt down  terrorists  surly it  can be trusted  with timely information about  data breaches

What we need are hard deadlines for mandated disclosures with exceptions only when a company can demonstrate that a disclosure would result in direct immediate and substantial harm.

September 22, 2016 at 9:19 am Leave a comment

Real Economic Development Starts At Home

To the lamb and the leopard lying down together, we now must add credit unions and banks at least when it comes to Lawrence, Massachusetts.

I normally am very skeptical of stories highlighting how well credit unions and banks would get along but for all those politicians and trade associations that get in the way. Credit unions shouldn’t forget that it is the ultimate goal of the banking industry to strangle credit union growth.

But there is a great article in the American Banker this morning about how 6 banks and 4 credit unions have created a $2.5 million dollar fund to offer credit to start-ups in Lawrence. It has already closed seven deals totaling $500,000 and it expects to have all the monies lent out in the next 12-18 months. The fund may be recapitalized.

I love this and similar stories like it for many reasons. First, this is real economic development. Lawrence is a classic Empire Falls community; it is one of those aging little towns, so common in the northeast, filled with fading emblems of bygone dynamism. It is the type of place that needs investment. While the government can help, true economic development almost always is organically led by private businesses. Government doesn’t underwrite so much as throw money at problems and see what sticks. Besides, I have repeatedly been told that with government help comes a pile of red tape. How else to explain the lack of all but the largest credit unions participating in SBA loan programs.

What I also love about this story and stories like it is that you have local business leaders doing what is best for the community in which they live. It demonstrates that we really do lose something when financial institutions become regional and national businesses. as opposed to remaining tethered to the communities from which they grew. Economies of scale make this trend inevitable but there really is something valuable being lost along the way.

September 21, 2016 at 8:53 am Leave a comment

Get Ready for NY’s New And Improved Settlement Conferences

Readers of this blog know that many credit unions dodged a bullet when the New York State legislature imposed requirements on larger financial institutions to maintain abandoned property.  It is important to understand, however that it still imposed new, and I would argue, onerous and untimely counterproductive requirements on all institutions dealing with delinquent residential property. These changes take effect on December 20, 2016. Merry Christmas.

For instance, right now you don’t have to send out a 90 day pre-foreclosure notice to a borrower more than once over a 12-month period. Starting in December you will have to send out this increasingly nettlesome tripwire anytime a borrower cures a delinquency only to go delinquent again.

Then there is New York’s pre-foreclosure settlement conference framework mandated by Section 3408 of the Civil Practice Law and Rules.  It currently requires lenders and borrowers to attend pre-foreclosure settlement conferences where they must make a judicially overseen “good faith effort” to reach settlements short of  a foreclosure.  The new and improved 3408 provides examples of potential resolutions including, but not limited to, a loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option.  Does the legislature really believe that these options were not being considered?

Furthermore, while existing law already requires the parties to come to settlement conferences authorized to make deals, the amendment describes in much more detail, precisely what documents need to be brought to the table, including, but by no means limited to a summary of the status of the lenders or servicing agents evaluating eligibility for home loan modification programs or other loss mitigation options. This actually makes some sense, but we will have to see how it is used.

But wait there’s more. There has always been an obligation to negotiate in good faith but the courts have struggled to explain precisely what that means. The new and improved statute explains that this determination should be based on a totality of the circumstances review of the negotiations , taking into account compliance with the requirements of this rule; compliance with applicable servicing rules and regulations  and consideration of  loss mitigation standards or options as well as “conduct  consistent with efforts to reach a mutually agreeable resolution.”  Where a lender acts in bad faith a must  “at a minimum” freeze the accumulation and collection of interest, costs, and fees during any undue delay caused by the lender.

The good news is that the failure of either party to make or accept an offer is not sufficient to establish a failure to negotiate in good faith. But, by specifically listing out some of the options lenders  are expected to consider  and giving  judges greater power to  make bad faith Determinations,  the statue is clearly designed to bring about more settlements.

So why do I think that all this is ultimately going to do more harm than good? For one thing, encouraging parties not to turn to foreclosure sounds nice but in a lot of instances it is often the equivalent of negotiating a travel itinerary for the Titanic. Keeping people in homes that they can no longer afford to live in doesn’t help anyone in the long run.  Furthermore, New York already has one of the longest foreclosure processes in the country and the existing settlement conferences are in part to blame; imposing more legal requirements into this framework will not make them more orderly and efficient it will simply make them more litigious and time-consuming.

See you tomorrow.

 

September 20, 2016 at 9:52 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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