America’s Bad Dream

bad-dream-650x650I have a nagging suspicion lately that I am actually in a weird and wacky dream. I keep on waiting to wake up, only to realize that, yes; things really have gotten this bizarre.

This morning’s headlines provided me with another jolting reality check.

For example, there is no country in the world that has benefited more from free trade, but even though we have just had an election, the best defense of free trade I have heard in the last several years comes from no other than the leader of communist China. He gave the type of full- throated defense of open markets that Democratic candidates are only willing to give behind closed doors, speaking to Goldman Sachs Executives, and Republicans have forgotten as they continue to suffer from Trump induced ideological amnesia.

Speaking in Davos, Switzerland yesterday, Chinese President Xi  explained “Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend”.  Somebody pinch me. Is it true that advocates of free trade must now rely on China to provide the world a much needed dose of common sense?

Closer to home, democrats are continuing to warn President Elect Trump against firing CFPB Director, Richard Cordray. As I explain in this blog for CU Insight (shameless plug), this defense underscores, just how out of control the regulatory state has become.  Simply put, the executive powers outlined in the Constitution have been twisted beyond recognition, when elected officials defend the right of unelected Executive Officers to stay in office presumably to promulgate policies inconsistent with the views of the President.

As a very wise President once said “elections have consequences.” President Trump won and he made it quite clear in the election that he was against much of what the CFPB stood for.

Speaking of President Trump, according to CNN, only 40% of Americans approve of Trumps job performance so far, which is quite the accomplishment for Trump considering he hasn’t taken office yet.  For a slightly better poll result, WSJ reports 48% of the American public view him in a negative light.  That’s right, about half of Americans disapprove of the man they chose to be President.  This confirms, yet again, just how much people disliked Hilary Clinton, and how desperate people are to see change in America, no matter what form that change takes.

This last bit of news is by no means strange, just a little odd. Governor Cuomo released his budget proposal last evening. He trampled on tradition yet again; first he turned the State of the State Address in to a traveling road show, then he released his budget overview at 7:30 P.M. before legislators at the Governor’s mansion.  I missed the web broadcast. I will be spending part of my day performing an adult version of Where’s Waldo. Specifically, Michael and I will be looking over the budget to see what impact it may have on credit unions.  I will tell you what we find.

You may be wondering if any of these issued impact you. For economies to function well they need a stable political system. There are more questions about what America stands for and what policies it will pursue than at any time since the end of WWI. This continued uncertainty is sure to impact all of us. Financial institutions are, after all, Canaries in the Economic Coalmine.

Thanks for listening! Have a nice day!

January 18, 2017 at 9:46 am Leave a comment

UPDATED Consumer Groups Wrong to Oppose Fintech Charter

fintechWhen it comes to financial innovation, the financial industry can either lead, follow or get blown away;  nevertheless Consumer groups are opposing  OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking services. Keeping in mind that the views I express in this blog are mine and mine alone, their reactionary opposition to the proposal envisions a world that does not exist and minimizes the important role technology can and ultimately will play in bringing services to the almost 20 percent of American’s who are underbanked.

In December, the OCC released a white paper outlining a framework for providing Special Purpose Charters to technology companies offering financial services. At this point we are dealing with a very general overview. The OCC contends that it can use its power to authorize special purpose banks to grant fintech charters to technology companies that want to offer core banking services, including, receiving deposits, paying checks or lending money. Depending on which one of these a company wants to take on, it may not even need deposit insurance.

Consumer groups and some legislators are concerned that this framework will permit payday lenders to offer their products even in states such as New York, where usury laws make payday loans illegal. In a recent letter signed by a large array of consumer groups including Arcade Credit Union, critics of this proposal argue that, as presently drafted “ the OCC , with the stroke of its pen, will put millions of people and years of state level enforcement at risk of exploitation by high cost lenders”. In addition, they argue that by giving these corporations a federal charter, state level enforcers, including AG’s will not have the ability to appropriately regulate their activities.

It is these types of well-intentioned but misguided arguments that drive me nuts about consumer groups. The world is not perfect. Even though there will undoubtedly be some companies that take advantage of a fintech charter to offer Payday Loans, this legitimate concern has to be weighed against the very real value of a more efficient banking system. For example, a fintech charter would make transactions cheaper by allowing corporations to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a branch. If our goal is to help as many people as possible get banking services, then technology is the way to do it.

Finally, and most importantly the ship is leaving with or without regulation. fintech charters make sense, if only because anyone under the age of 30 is much more likely to use a mobile banking app than a branch.

One more thing, some of the same groups that are arguing against the fintech charter are the same groups supporting the CFPB’s Payday Loan Proposal. It seems to me that they can’t have it both ways. Either state level regulation of Payday Lending is adequate, in which case there is no need for national standards, or state regulation of payday lending can already be circumvented by consumers in need of a short term loan. I strongly suspect the latter is closest to the truth. Why should a framework that doesn’t work be used to block financial innovation?

January 17, 2017 at 10:37 am Leave a comment

fintechWhen it comes to financial innovation, the financial industry can either lead, follow or get blown away;  nevertheless Consumer groups are weighing in in opposition to   OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking services. Keeping in mind that the views I express in this blog are mine and mine alone, their reactionary opposition to the proposal envisions a world that does not exist and minimizes the important role technology can and ultimately will play in bringing services to the almost 20 percent of American’s who are underbanked.

In December, the OCC released a white paper outlining a framework for providing Special Purpose Charters to technology companies offering financial services. At this point we are dealing with a very general overview. The OCC contends that it can use its power to authorize special purpose banks to grant fintech charters to technology companies that want to offer core banking services, including, receiving deposits, paying checks or lending money. Depending on which one of these a company wants to take on, it may not even need deposit insurance.

Consumer groups and some legislators are concerned that this framework will permit payday lenders to offer their products even in states such as New York, where usury laws make payday loans illegal. In a recent letter signed by a large array of consumer groups including Arcade Credit Union, critics of this proposal argue that, as presently drafted “ the OCC , with the stroke of its pen, will put millions of people and years of state level enforcement at risk of exploitation by high cost lenders”. In addition, they argue that by giving these corporations a federal charter, state level enforcers, including AG’s will not have the ability to appropriately regulate their activities.

It is these types of well-intentioned but misguided arguments that drive me nuts about consumer groups. The world is not perfect. Even though there will undoubtedly be some companies that take advantage of a fintech charter to offer Payday Loans, this legitimate concern has to be weighed against the very real value of a more efficient banking system. For example, a fintech charter would make transactions cheaper by allowing corporations to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a branch. If our goal is to help as many people as possible get banking services, then technology is the way to do it.

Finally, and most importantly the ship is leaving with or without regulation. fintech charters make sense, if only because anyone under the age of 30 is much more likely to use a mobile banking app than a branch.

One more thing, some of the same groups that are arguing against the fintech charter are the same groups supporting the CFPB’s Payday Loan Proposal. It seems to me that they can’t have it both ways. Either state level regulation of Payday Lending is adequate, in which case there is no need for national standards, or state regulation of payday lending can already be circumvented by consumers in need of a short term loan. I strongly suspect the latter is closest to the truth. Why should a framework that doesn’t work be used to block financial innovation?

January 17, 2017 at 9:38 am Leave a comment

Is your job in jeopardy?

_85487012_robots_promoThe most interesting bit of news I read this morning is about how quickly technology is going to eliminate your job.

On Thursday, McKinsey & Company released a report analyzing the future impact of automation on the global workforce. The report is unique in that it tries to assess the impact that technology will have on occupational tasks rather than entire occupations. Its conclusion is that “given currently demonstrated technologies, very few occupations-less than 5%- are candidates for full automation, however, almost every occupation has partial automation potential.” The result is that while you may not be replaced by a machine, you certainly will have to want to work with one, if you want to stay employed.  Just how big of change is taking place? Researchers estimate that half of the world’s occupations, representing $16 trillion in wages could be automated.

Automation may impact those of us in the financial services industry more quickly than other professions. For example, 51% of all work time is spent collecting data, processing data and operating machinery.  Needless to say, a lot of data processing and collection will happen at your credit union today. And although you may not deal with much heavy machinery, many of the tasks employees will take on today are the type of predictable and repetitive duties ideal for automation.

One more thing. If you think your professional status insulates you from automation’s impact guess again. Many tasks performed by professionals such as lawyers, including contract review and document preparation, can actually be performed by increasingly intelligent computers. “Dear God!”

The report optimistically predicts that, while technology will transform the workplace, it won’t do so at the speed or level of job displacement that some pundits suggest. For a more pessimistic view as to where this is all headed, read a book I have previously mentioned  called “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies .”  It argues that technological innovation is increasing exponentially. As a result, assumptions about what technology can and can’t do are short-sided. It wasn’t too long ago that people laughed at the idea of a fully automated car, but now the question is not if such technology will be available but when driverless cars will become as common as smart phones.  By the way, what is a smart phone?

January 13, 2017 at 9:24 am 1 comment

NCUA on exam cycles; NYS names Banking Chairs; Sessions likely to crackdown on legal Pot

NCUA Details Extended Exam Cycle

In case you missed it, recently NCUA released a letter to credit unions detailing changes to its examination cycle for both federal and federally insured credit unions.

There hasn’t been much good news for state charters recently, let me tell you some. Unless your credit union meets any one of the following criteria you will receive an NCUA evaluation not less than every five years.

  • Assets greater than $1 billion;
  • Composite NCUA CAMEL code 4 or 5 with assets greater than $50 million; or
  • Composite NCUA CAMEL code 3 with assets greater than $250 million

In addition, a working group is being formed to consider ways to further improve the examination process as it relates to state chartered credit unions. Any steps designed to decrease NCUA’s oversight of state charters are welcomed. As readers of this blog will know, yours truly has complained that NCUA has moved so aggressively to oversee the activities of these institutions that it has diminished the value of a state charter.

As for federal credit unions, they will be eligible for extended exam cycles that begin 14 to -20 months after the prior exam completion date. To be eligible for the extended cycle, a federal credit union must have:

  • Assets less than $1 billion;
  • CAMEL code 1 or 2, in both the composite rating and the management component rating;
  • “Well capitalized” under prompt corrective action (PCA) regulations;
  • No outstanding documents of resolution (DOR) items related to significant recordkeeping deficiencies; and
  • Not operating under a formal or informal enforcement or administrative order, such as a cease and desist order (C&D), letter of understanding and agreement (LUA), preliminary warning letter (PWL), or a PCA directive

 New Banking Chairs named

A new session triggers a game of political musical chairs as members jockey to take the helm of key committees. This year is no exception. There are two new faces that credit unions in New York State will be working with more closely over the next two years..

Senator Jessie Hamilton, the newest member of the IDC, representing the 20th Senate District in NYC, has taken the helm of the Senate Banks Committee. He replaces fellow IDC member, Senator Diane Savino, who is moving on be Vice-Chair of the powerful Senate Finance and Code Committees. Savino has been a good friend to credit unions and we wish her the best in her new assignments.

Over on the assembly side, Kenneth P. Zebrowski, was named Chair of the Banks Committee, replacing retired Assemblywomen, Annette Robinson. Zembrowski becomes the first Chairman of the Assembly Banks Committee from outside of the five boroughs in at least twenty years.

Senator Sessions: I’ll enforce Pot Laws

At his senate confirmation to be the US Attorney General, Alabama Senator Jeff Sessions strongly suggested that he would take a stronger stand against states with legal marijuana businesses then has the current justice department. According to this article , when Sessions was asked if he would continue the Obama Administration’s “don’t ask, don’t tell” policy (my characterization) on illegal drugs, the Senator responded “It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws as effectively as we’re able,” said Sessions, adding that “Congress was entitled to change federal law if it so desired.”

Enjoy your day!

January 12, 2017 at 9:28 am Leave a comment

S.C. Frustrated by Lack Of Clarity in New York Law

images

Good Morning folks,

I had the opportunity to attend yesterday’s Supreme Court oral arguments in the Expressions Hair Design case. For a lawyer this is kind of the legal equivalent to a trip to Mecca. Although it is impossible to tell from oral arguments what the ultimate outcome of any case will be, it is safe to say that the Supreme Court is not a big fan of New York’s bill drafting technique. Take a look at Section 518 of New York’s General Business Law and see if you share the court’s frustration that the intent of the law is far from clear.

This case involves an argument by merchants who claim that Section 518 violates their First Amendment rights by prohibiting them to explain the true cost of credit to consumers. In contrast, much of the argument was taken up, however,  with a discussion of the statute’s meaning rather than the  underlying constitutional issues. Three of the Justices’, Alito, Sotomayor and Kagan argued that the statute could be interpreted as mandating a single price for all goods. In fact, Justice Alito mused that this might be an “uninformed” interpretation and that he felt uncomfortable about ruling on the constitutionality of this statue without knowing how the New York’s Court of Appeals would interpret it.

The Truth in Lending Act used to use language identical to Section 518 to ban surcharges as a matter of Federal Law. Section 518 was passed by the legislature amid concerns that this national provision was going to expire. At the same time the legislature never defined what a “surcharge” is. In addition, although the attorney general has opined that the law permits merchants to offer cash discounts, this authority is similarly not to be found in the statute’s language.

This lack of clarity led a frustrated Justice Sotomayor to complain to the state “You’re asking me to take a lot of steps, which is start with the language of the statute, ignore it, and go to a Federal statute and apply its definitions. How many of them, you haven’t quite told me. How you differ, you haven’t quite told me. And –but I’m going to assume the Federal definitions apply, even though none of them are used here”. “So I’m –I’m very confused why you’re starting your answer to Justice Breyer by saying, look at the statute and see what the words of the statute are doing.”

Notwithstanding the fact that my powers of prognostication are not as sharp as they used to be-I would have taken Alabama over Clemson and the Giants over the Packers-I am going to guess based on yesterday’s arguments this case will ultimately be sent to the New York Court of Appeals with a request that it interpret the statue on behalf of the Federal Courts.

The funny thing is that Section 518 is by no means unique. In New York bill hearings are non-existent, committees are pro forma get-togethers, and all the real important stuff is done behind closed doors. This is not a system that lends itself to clarity. I have always been amazed it works as well as it does.

January 11, 2017 at 9:39 am Leave a comment

Four things you need to know about New York today

giantI have New York on my mind this morning, and it is not just because I am suffering from post-traumatic stress disorder after watching the second half of the yesterday’s Packers-Giants game. Is the second half over yet?

Instead, I am thinking about New York because there is a lot going on both regulatory and legislatively that financial institutions should be keeping an eye on.

Time to fill out your exemption claim forms

Once again, with a huge assist from Joan Lannon, in the Associations, compliance department, here is a link to the form that your credit union will to claim an exemption from the requirement to maintain abandon property. Remember you have until February 28, 2017 to apply for the exemption, but it makes no sense to wait.

Elder Abuse Legislation to be a top priority for Cuomo

Today marks the unofficial start of the 2016-2017 legislative sessions. This year the governor is foregoing the tradition of speaking before a joint legislative session in Albany. Instead, he is unveiling his State of the State priorities in regional speeches, the first of which is today. On Friday, he announced he would be proposing comprehensive elder abuse legislation.  The specifics have yet to be released, but according to the press release, the governor’s plan would include an Elder Abuse certification program for banks as well as measures to empower banks to place holds on “potentially fraudulent transactions”. Incidentally, I don’t know if the exclusive reference in the press release to banks is an oversight or an indication that credit unions won’t be covered by these measures. I strongly suspect that it is the former.

Rocky start to Legislative Session

A hallmark of the Cuomo administration has been an end to New York’s dysfunctional budget process; most importantly every budget proposed by the governor has been enacted pretty much on time. This run will be put to a test this year. As these legislative preview articles indicate, both the governor and legislature are angry at the lack of progress in negations held late last year and there isn’t quite as much money to spend as there used to be. This could be a very interesting session.

Expressions Hair Design to be argued tomorrow

Expressions Hair Design v. Schneiderman, a case challenging New York’s ban on credit card surcharges above an items headline price, is to be argued before the Supreme Court tomorrow. Both CUNA and NYCUA wrote amicus briefs in support of New York’s law. There will be no blog tomorrow, as yours truly and Michael Lieberman will be headed to D.C to watch the arguments first hand.

As for all you depressed Giant fans, remember, we still have the Knicks. WOW it’s going to be a long winter. Maybe I will start getting ready for fantasy baseball.

January 9, 2017 at 8:45 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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