“First” In Credit Union History

Happy Friday from Buffalo, where yours truly should be especially pleased that he is experiencing unseasonably warm, snow-free weather as opposed to one of those freakish lake-effect snowstorms in which Buffalonians take such pride. But there is a lot to be ambivalent about as we take a look at the trends that are impacting credit unions today.

Right now, the economy is spinning in more directions than a five-year-old on a sugar high. As a result, now more than ever, we need economists with more than two hands to capture the impact that all this might have on the credit union industry. So you should all take the time to read the latest economic trends analysis from CUNA Mutual which is filled with plenty of ammunition for the optimist and pessimist alike. For instance, CUNA Mutual is reporting that for the first time in credit union history, share drafts make up a larger percentage of credit union total deposits than share certificates. On the one hand, the armchair economist in me says that this is good news since it decreases the cost of managing accounts, and with the direction of the economy still uncertain, we really don’t have to worry about people rushing to pull all that money out of their credit unions. In fact, the credit union cost of funds is expected to fall 30 basis points in 2021 to 0.4% from 0.7% in 2020. On the other hand, interest rate uncertainty will continue to plague long term planning for years to come, and do we really want an industry dedicated to thrift to be more dependent than ever on members who are not making long term commitments to the industry? 

BSA Examination Manual Updates

Those of you in charge of your credit union’s BSA program will certainly want to take a look at the latest updates to the FFIEC BSA examination manual.

The update that most intrigued me was a new general introduction dealing with customer due diligence which stipulates that:

Examiners are reminded that no specific customer type automatically presents a higher risk of ML/TF or other illicit financial activity. Further, banks that operate in compliance with applicable Bank Secrecy Act/anti-money laundering (BSA/AML) regulatory requirements and reasonably manage and mitigate risks related to the unique characteristics of customer relationships are neither prohibited nor discouraged from providing banking services to any specific class or type of customer.”

It sounds as if some examiners have been a little too aggressive in discouraging financial institutions from opening up certain types of accounts. This is welcome language in the event the federal government ever gets around to legalizing marijuana banking.

Speaking of the Federal Government…

Last night the Congress passed legislation funding Government operations until February. It’s pathetic that we have gotten to the point that this is big news, but so it goes.

On that note, enjoy your weekend. Sorry, Bills fans, but the Patriots are back, don’t expect to win on Monday night.

December 3, 2021 at 9:34 am 5 comments

CFPB and Overdrafts: No More Mr. Nice Guy

Yesterday, the CFPB released two reports detailing the overdraft fee practices of both large and small banks and credit unions. While this in itself is not all that surprising, after all the CFPB has grumbled about overdraft fees since its inception, when coupled with the statements of Director Chopra, it’s clear that overdrafts are going to be a major focus of the Bureau in the coming months.

In fact, the Director sounded very much like a former member of the FTC, when on a conference call with reporters, he reportedly described the continued reliance of big banks and overdraft fees as a market failure which regulators had to address.

While it is not clear what steps the Bureau will take, institutions directly subject to the CFPB’s oversight can expect increased scrutiny. He even suggested that this scrutiny may extend to individual executives who approve practices.

A second noteworthy aspect of the Bureau’s announcement yesterday is a use of core processor data to analyze the practices of smaller banks and credit unions. Specifically, one of the reports is based on the settings used by banks and credit unions to trigger overdraft payments. This information was obtained not from financial institutions but from going directly to their core processors. 

The bottom line is that your credit union should continue to anticipate a world in which it must be less reliant on overdraft fees and in which disclosures accurately describe when overdraft fees will be triggered.

On that note, I am heading to Buffalo where I hope to talk to some of you at this evening’s chapter event.

December 2, 2021 at 9:47 am Leave a comment

NY’s Hero Act Takes Center Stage

With the emergence of the omicron variant (doesn’t that sound like something out of a bad Arnold Schwarzenegger movie?), it may very well feel like we are extras filming a bad sequel, but I’m here to remind all of my faithful readers that the newest surge is coming about under a new statutory mandate which will impact your credit union’s operations regardless of whether you are a state or federal credit union.

I’ve talked about the Hero Act in the past but I think it is worth one more mention as businesses prepare for potential restrictions even as the legality of federal mandates continues to be litigated.

The Hero Act refers to New York State legislation which created minimum state level standards for businesses responding to an airborne infectious disease. Think of it as a state level OSHA mandate but only for airborne infectious diseases as declared by NY’s Department of Health. When the legislation was first enacted in April 2021, we were hopeful that employers would simply have to adopt an infectious disease plan and file it away. In September, however, the Department of Health declared COVID-19 and airborne infectious disease. Now with the emergence of a potentially more infectious variant which may be resistant to existing vaccines, employers should remind themselves of what they have committed to in their workplace policies and the consequences for non-compliance.

For example, in your policies you’ve detailed protocols on a broad range of issues ranging from mask wearing protocols to the appropriate distances between employees.  These are more than aspirational goals. As a matter of New York State law, employees have the right to bring violations of these workplace policies to their employer’s attention. If the employer fails to “cure these conditions” an employee may ultimately refuse to work based on a good faith belief that continuing to do so would expose them to an airborne infectious disease. You can also face fines and litigation.

The bottom line is that not only should you have an airborne infectious disease plan in place but you should make sure that it is being followed and that you have a procedure in place for documenting and responding to employee concerns.

In the meantime, the State has not imposed any additional health and safety requirements for your credit union at this time. However, yesterday Governor Hochul did urge businesses to “encourage” their employees and patrons to wear masks indoors. 

On that happy note, enjoy your day.  Yours truly is going to be scheduling his booster shot.

November 30, 2021 at 9:29 am Leave a comment

Where Do Credit Unions Stand With Vaccine Mandates?

In September the President took two dramatic steps in response to COVID-19, both of which are now subject to litigation: He issued an Executive Order requiring all executive branch agency employees and their contractors to get vaccinated. Secondly, he ordered OSHA to promulgate emergency workplace safety standards mandating employers with 100 or more employees require their employees get vaccinated or agree to get tested for the vaccine on an ongoing basis.

In yesterday’s blog, I explained that credit unions are not subject to the President’s Executive Order because NCUA is an independent agency. In response, a reader asked me if this also meant that credit unions with 100 or more employees were exempt from the OSHA mandate. With the usual caveat that my opinions are my own, and not a substitute for legal advice from your retained attorney, the answer is that credit unions would be subject to OSHA’s vaccine mandate, but it remains to be seen whether or not it will ever take effect.

The financial service industry has not had to give much thought to OSHA in the past because it has never been made subject to industry specific workplace safety standards. Under the law regulating OSHA, however, an employer is any business engaged in commerce, a category which certainly includes credit unions of all shapes and sizes. As a result, if the OSHA mandated vaccine requirement ever takes effect, every credit union with 100 or more employees will have to comply. 

But it is far from certain that this requirement will ever make it through the legal gauntlet. The Court of Appeals for the Fifth Circuit has already issued a nationwide order blocking OSHA from implementing the emergency standard. In its decision, the Court explained that OSHA was exceeding the power given to it by Congress because the vaccination mandate “is a one-size-fits-all sledgehammer that makes hardly any attempt to account for differences in workplaces (and workers) that have more than a little bearing on workers’ varying degrees of susceptibility to the supposedly “grave danger” the Mandate purports to address.” BST Holdings, L.L.C. v. Occupational Safety and Health Administration, United States Department of Labor, 2021 WL 5279381, at *4 (C.A.5, 2021)

The next stop is the Sixth Circuit, but there is virtually no doubt that the issue will ultimately be decided by the Supreme Court, a court which has taken an increasingly narrow view of administrative powers.

So where does this leave credit union HR professionals as they ponder next steps? Most importantly, if you were hoping that the law would mandate that your employees be vaccinated, then you should prepare yourself for disappointment. That being said, no matter what happens with the President’s proposals, your credit union still has all the authority it needs to mandate vaccination and/or testing if it chooses to do so for those employees in the workplace.

On that note, enjoy your Thanksgiving and don’t let your crazy Uncle Al get under your skin.

November 23, 2021 at 10:13 am Leave a comment

Why Executive Orders Don’t Apply To Your Credit Union

Since President Biden issued an executive order in September mandating that Executive Branch employees and their contractors get vaccinated against COVID-19 the industry has parsed the text with an intensity worthy of a Talmudic scholar, hoping to divine whether or not credit union employees are federal contractors for purposes of this mandate. After all, as drafted, an argument can be made that share insurance is a government contract to which credit unions are subject.

But the truth is much more straightforward: because credit unions are not subject to this or any other executive order issued by this or any other president. The NCUA, as an independent agency, is not an executive agency subject to the president’s executive orders. Instead, NCUA was created by congress to exercise independently of the president and make its own policy judgments. 

This is not a radical pronouncement but simply a common sense application of prevailing law. Since Humphrey’s Ex’r v. U.S., 55 S.Ct. 869, 874, 295 U.S. 602, 629 (U.S. 1935) the Supreme Court has recognized the right of congress to create independent agencies specifically designed to be free of direct executive branch oversight. Furthermore, the court has taken a very narrow view of the president’s power to issue executive orders and apply them beyond the executive branch. As the court explained in Youngstown Sheet & Tube Co. v. Sawyer, 72 S.Ct. 863, 867, 343 U.S. 579, 587–88 (U.S. 1952) “The Constitution limits his functions in the lawmaking process to the recommending of laws he thinks wise and the vetoing of laws he thinks bad. And the Constitution is neither silent nor equivocal about who shall make laws which the President is to execute.” Congress.

Against this backdrop, there is a long line of examples of independent agencies pushing back against executive branch encroachments on their power. For example, the general counsel of the Securities and Exchange Commission once wrote a 24 page “Declaration of Independence” from a Carter administration proposal that regulations be submitted in plain English for public review, on the grounds that the order could set a precedent to undermine the agency’s independence

In short, a credit union can choose to follow an executive order’s mandates if it chooses to do so, but is not required to do so. In fact, an argument to the contrary has as much validity as suggesting that the credit union down the street can mandate what policies your credit union follows. 

One caveat: The exemption just applies if the only basis for complying is your connection to the NCUA. If your CU rents space from a federal agency for example, then you are a federal contractor.

November 22, 2021 at 10:00 am Leave a comment

NCUA’s Shared Service Rule Is a Potential Game Changer

Yesterday the NCUA gave final approval to a regulation that will make it easier for credit unions of all shapes and sizes to provide services to their members. In fact, it could be one of the most important regulations the NCUA has passed in years. Here’s why:

Credit Unions across the country participate in shared branching networks, such as New York’s UsNET, which permits members belonging to a credit union within a network to perform banking services at any of the network’s branches. For example, my sister on Long Island uses the network to deposit her paycheck at an affiliated branch saving her extra drive time. Under existing regulations, multiple common bond credit unions can use these networks to satisfy shared facility requirements provided that they are an owner of the network.

Under the changes approved yesterday, these credit unions will now be able to satisfy branching requirements so long as they participate in the network. This is a potential boom for smaller credit unions which now have a cost-effective means of expanding services to more groups. Joining a shared branching network is as simple as signing a contract. Even if your credit union doesn’t plan on expanding, it’s a great service to offer your membership.

The regulation isn’t a complete slam dunk for the industry.  The board dropped plans to permit credit unions to satisfy branching requirements in underserved areas by allowing members to access an ATM. The final regulations clarify that shared branching facilities in underserved areas must allow members to make deposits and withdraw funds.

Aside from the practical benefits of the new rule, the new framework is one of the best examples I’ve seen of the credit union industry harnessing its combined resources to benefit the industry as a whole. I continue to be befuddled as to why the industry doesn’t do more to pull its resources together. You may say that I’m a dreamer, but like John Lennon, I still hope for a day in which credit unions maximize their bargaining power and back office synergies by adopting a standard core operating system.  (By the way, thinking of John Lennon made me think of that awful Christmas song he sings with Yoko Ono; I’d rather listen to fingernails scratching a chalkboard, but I digress.)

On that note, enjoy your weekend.

November 19, 2021 at 9:28 am Leave a comment

Should the Government be subsidizing Million Dollar Homes?

The reason why I’m asking this question is because Fannie Mae and Freddie Mac will begin buying mortgages for as much as $1M starting next year, according to the Wall Street Journal.  Even though a million dollars doesn’t buy what it used to, the increased dollar amount not only will help your credit union help your members but will also, in my ever so humble opinion, touch off an election year debate about the role that government should play in housing finance. 

First, let’s start with the facts.  Fannie and Freddie purchase mortgage loans within Conforming Loan Limits (CLL).  Under the Housing and Economic Recovery Act (HERA), the CLL is adjusted each year based on changes in the average U.S. home price.  According to the journal, the baseline CLL will jump from $548,250 to $650,000.  The real eye popping number is that the conforming loan limit for high cost areas will jump from $822,375 to approximately $1,000,000.  The official announcement is expected November 30th

The sharp rise in the CLL underscores just how profoundly the pandemic has impacted the economy in so many unexpected ways.  Nationwide, the median single family home price rose 16% in the 3rd Quarter to more the $363,000.  We haven’t seen a comparable rise since 1968.  The rise in home prices has been fueled by a rush to the suburbs since remote work is now commonplace, combined with a shortage of homes to purchase.  It’s classic supply and demand. 

But I can’t help but think that more than a few of our elected representatives who live outside of Californian and New York will view a $1M home price as something the government should not be subsidizing.  Remember, it wasn’t all that long ago that a Republican controlled Congress, capped the federal deduction for state and local taxes, and it is a Democratically controlled Congress that has struggled to repeal this change.  Even though a million dollars is not what it used to be—one calculator I just consulted says that you need over $3.3M to have the same buying power that a million dollars would have given you in 1980—there is something about a million dollars which doesn’t sound middle class.  Let the demagoguery begin.

November 17, 2021 at 10:13 am Leave a comment

Fast And Furious: New COVID Guidance

Remember how in early July we were deluding ourselves into thinking that we were fast approaching a post-COVID nirvana in which we could all frolic freely without needing face masks, debating vaccine mandates or worrying about holding backyard barbecues?

Fast forward to mid-November and regulators are adjusting to a world in which COVID is a chronic condition and we have to adjust to this new normal. For credit unions in general, and compliance folks in particular, this means updating policies and procedures to make sure that you are keeping up with the latest COVID inspired dictates. Here are some of the latest developments I’ve spotted over the last week and a half:

  • The NCUA announced that it was extending the authority of federal credit unions to hold meetings remotely provided they have adopted the appropriate bylaws and send the appropriate notices to their membership. Remote flexibility is one of the good things to come out of the pandemic and I for one am glad to see that credit unions can continue to take advantage of this common sense measure.
  • Federal regulators, including the NCUA, recently announced that mortgage servicers were no longer going to be given a “get out of jail free card” when it comes to complying with RESPA’s mortgage servicing rules.

              In April of last year the same group of regulators issued a joint statement explaining that, “the current crisis could cause temporary business disruptions and challenges for mortgage servicers, including staffing challenges.” As a result, the regulators announced that they were giving servicers greater flexibility to comply with Regulation X. The same group of regulators now feels that the adjustment period has ended. The other day they announced that “servicers have had sufficient time to adjust their operations… agencies will apply their respective supervisory and enforcement authority to address any non-compliance with Regulation X”.  This one is a bit of a head scratcher to me because I could swear there is still plenty of evidence that staffing shortages persist and that members are still in need of enhanced forbearance assistance.  At least according to the CFPB.   

  • Never to be ignored, on October 28th New York’s Department of Financial Services issued its own guidance detailing its continuing expectations for mortgage servicers to work with consumers impacted by the pandemic. The guidance also encouraged servicers to participate in a new program being unveiled to provide financial support for eligible borrowers. I will have more about this program in the coming days.

On that note, visualize your post-COVID happy place and get to work.

November 16, 2021 at 9:24 am Leave a comment

Is the Credit Union Industry Ready For Cryptocurrency?

The history of financial regulation in the country over the last 100 years can largely be viewed as a battle over how best to regulate and create a stable currency – a debate that culminated in the creation of the federal reserve system, and how best to balance the innovations of investment banking with the need to protect average consumers – which culminated in the passage and subsequent gutting of the Glass-Steagall Act.  What makes the emergence of cryptocurrency so fascinating and important to understand is that it challenges both of these areas in fundamental ways. 

For example, Bitcoin was started with the stated purpose of creating a new form of exchange in which individuals didn’t have to worry about those nettlesome financial intermediaries.  Those of us who thought this would be a passing fad of techno-libertarians gone crazy are increasingly being proven wrong.  Just a few weeks ago, MasterCard announced that it would offer debit and credit cards in which members could use selected cryptocurrencies to pay for everyday items.  In short, you’re seeing a system beginning to develop that is challenging traditional notions of currency.  The problem is that even as some cryptocurrencies are being presented as electronic versions of traditional currencies, even the most stable types on offer continue to fluctuate wildly in value and are more akin to traditional securities than cash. 

SEC Chairman Gensler summed up the situation nicely when he described the current climate as the Wild West and promised that the SEC would move aggressively to clamp down on excesses.  The problem is, regulators are pretending that they have time to thoughtfully consider how best to regulate this phenomenon.  They don’t.  In a recent report issued by a group of financial regulators including the NCUA, Congress was urged to update existing banking laws to begin addressing the unique issues posed by stable coins, which are a type of cryptocurrency tied to traditional collateral.  While any movement in this area is welcome, the fact that the report was issued within days of MasterCard’s announcement underscores just how behind the game regulators are.  It’s as if dads were to warn kids against getting into the liquor cabinet five days after the prom. 

Why should credit unions care?  Because history also tells us that smaller financial institutions are often the ones that benefit the least from financial innovation and get hurt the most from its excesses.  Most importantly, we need clear rules of the road related to the ability of financial institutions to accept cryptocurrencies as both collateral and cash.  We also need to make sure that appropriate collateral requirements are put in place and that a national licensing framework can be used to quickly step in against bad actors.  In short, we need a whole new paradigm of financial regulation, and time is not on our side. 

November 15, 2021 at 8:47 am Leave a comment

Suing for Consumer Debts Just Got More Complicated

It’s been a busy week for yours truly, but I wanted to give you at least one piece of important information before the weekend.  Suing to collect consumer debts in New York State is about to involve a heck of a lot more procedural hurdles.  Those of you who sue to collect these debts should be setting up a phone call with the law firm you use and start discussing what additional steps will need to be taken in the debt collection process. 

Let’s start with the basics.  Section 105(1)(f) of New York Civil Practice Laws and Rules defines a consumer credit transaction as a  “transaction wherein credit is extended to an individual and the money, property, or service which is the subject of the transaction is primarily for personal, family or household purposes.”

A2382/S153 (Weinstein/Thomas) has been germinating in the legislative hopper since at least 2009.  Its overriding goal is to reduce perceived abuses in the debt collection process involving consumer credit transactions.  The bill generally does this by reducing the statute of limitations to bring such actions from six to three years; ensuring that consumers receive extensive notices explaining that they are being sued; and providing them resources with which to defend themselves against such claims. 

How much it directly impacts your credit union’s operations will depend in part on your credit union’s existing record keeping processes.  For example, Rule 3016 of the Civil Practice Law and Rules is amended by adding a new section (j) addressing these lawsuits to require that the complaint include a copy of the contract upon which the action is based or, in the case of revolving credit accounts, the charge off notice.  In addition, the member must be informed of the original creditor.  This last requirement might not seem like a big deal, but since credit card accounts, like mortgage loans, are often sold in bulk to third parties, it may not be as easy to find the original creditor.  My guess is that this new law will trigger increased emphasis on chain-of-custody record keeping for consumer loans.

Parts of the bill take effect immediately, but other sections are phased in over the next six months. 

On that note, have a good weekend.  I will be celebrating my eldest daughter’s 19th birthday.  Incidentally she has already contributed to the credit union movement by transcribing the occasional blog.

November 12, 2021 at 9:38 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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