New York’s DFS Flexes Its Muscles

Recently the New York Law Journal described the New York State Department of Financial Services as “arguably among the most powerful financial regulatory government bodies in the country-if not the world…” After yesterday, it’s not even arguable. With Superintendent Maria Vullo on the verge of leaving, the Department announced high-profile enforcement actions and got an important win upholding its rulemaking power. Many of these developments could impact your credit union operations.

Most importantly, the DFS announced a $100,000 fine against SN Servicing Corp. for violating New York’s abandoned property law. As anyone involved in mortgages should know, in 2016 the legislature passed the Abandoned Property Relief Act. §1310 of the RAPL requires financial institutions are required to identify vacant and abandoned property for placement on a state-wide registry. Although the statute is somewhat vague, I think the best approach is to assume that the registry responsibilities apply to all lenders and servicers but that is something to run by your people.

SN Servicing Corp. was also found to have violated §1308 of the RAPL. §1308 requires institutions to maintain property they servicing even if they haven’t taken affirmative steps to foreclose on the property (don’t get me started). Fortunately, the provisions of §1308 do not apply to credit unions or banks have less than three-tenths of one percent of the total loans in the state which they either originate, own, service, or maintain for the calendar year ending December thirty-first of the calendar year ending two years prior to the current calendar year.In this case, the statute worked like a charm, at least for its supporters. The property came to light after DFS received a call from a fire department in Gloversville, New York.

I was listening to an excellent MBA webinar on state level enforcement actions yesterday. One piece of advice I really liked is to take any correspondence from an Attorney General seriously. Often times the Attorney Generals will simply pass on complaints sent to them by disgruntled members and these complaints can be easily dealt with. But they should not be ignored. For every ten complaints you might receive from a nut job, there may be one that holds the seeds of a $100,000 fine.

NY Title Insurance Regs Upheld

To the consternation of title insurance companies everywhere, the DFS also secured an important victory yesterday when New York’s Appellate Division reversed an earlier decision and held that the DFS did in fact have the authority under New York State law to place limits on the entertainment expenses of title insurance companies. §6409 of New York’s Insurance Law prohibits inducements and kickbacks by title insurance companies. New York State acted under this statute to cap closing costs and ban expenditures such as meals except in limited circumstances.

In New York State Land Title Ass’n, Inc. v. New York State Dep’t of Fin. Servs., the Title Insurance Association challenged the legality of regulations claiming that the Department went beyond its authority in passing these new restrictions. A trial court agreed and struck down the regulations as irrational but yesterday New York’s Appellate Division First Department upheld the entertainment restrictions. Once I can find a link to this decision I will add it to the blog. The title insurers did get a partial victory when the court struck down those portions of the regulations which restricted payments on closers as well as placing caps on ancillary search fees. Stay tuned. We may very well see this one before the Court of Appeals.

DFS Announces Joint Settlement With The CFPB

Finally, the DFS jointly announced with the CFPB yesterday that it reached a $10 million settlement with Sterling Jewelers, Inc. over claims it was violating several provisions of the Truth in Lending Act as well as state level statutes. Reading the settlement I couldn’t help but think that Sterling had gotten much of its compliance training from Wells Fargo. It apparently had a nasty habit of opening up in store accounts for people didn’t request them.

January 17, 2019 at 9:07 am Leave a comment

A Hump day Potpourri of Politics, Accounting and Law

Your early morning reading doesn’t get more exciting than this does it folks? There’s a heavy dose of politics to talk about today.

Governor Unveils Budget Proposals

Yesterday, the Governor did his combined State of the State/Budget presentation for the 2019 legislative session. Since I don’t like to deceive my faithful readers, I must admit that I was planning on starting to skim through this year’s budget proposals last night but I got hooked into watching NCIS with my wife. I will follow-up with more detailed information tomorrow. For now what I will say is that with the Governor’s commitment to legalizing the use of recreational marijuana, your credit union should start thinking about how it is going to impact your operations. It will be impacted even it chooses not to engage with marijuana related businesses. Here is a link to the DOB’s budget page for those of you who want to get started on your own.

FASB To Hold CECL Roundtable

The Federal Accounting Standards Board announced recently that it would be hosting a roundtable to discuss issues related to the implementation of new current expected credit losses model on January 28th. I would actually take the time to listen to this discussion which will be archived by the board. With the clock ticking on CECL compliance, NCUA has told credit unions that it will be examining the steps they are taking to prepare for CECL  I have listened in on a couple previous FASB discussions and they are actually an excellent source of information if you are scrambling to understand the key issues associated with CECL.

Court Turns Down CFPB Challenge for Now

You may have already read that the Supreme Court recently turned down a petition challenging the constitutionality of the CFPB as structured. (STATE NATIONAL BANK OF BIG SPRING, ET AL., PETITIONERS v. STEVEN T. MNUCHIN, SECRETARY OF THE TREASURY, ET AL.)

Don’t read too much into the court’s decision. The Justice Department urged the Supremes not to take the case, explaining in a brief that the case would a “poor vehicle” to consider a challenge to the CFPB because Judge Kavanaugh, who has written a decision holding that the CFPB structure is unconstitutional, would not be allowed to hear the case. In addition, the Department notes there are procedural issues which could keep the court from deciding the core constitutional issues. Bottom line: there are better cases challenging the constitutionality of the CFPB in the pipeline. I fully expect that you will see a case taken by the court on this issue in the relatively near future.

Gillibrand Announces She Plans On Running For President

Kristen Gillibrand continued one of the most remarkable political ascendancies New York State has seen in decades when she went on the Colbert show last night to announce she was planning on running for President. It doesn’t seem that long ago that Gillibrand knocked off popular republican incumbent Congressman John E. Sweeney to claim a Hudson Valley seat. It also doesn’t seem that long ago that David Patterson, who became Governor after Eliot Spitzer’s relationship with a prostitute was exposed,  named that obscure centrist Congresswoman to replace Hillary Clinton who was embarking  her stint as Secretary of State after her first can’t miss run for the Presidency. At the time, Paterson’s selection of Gillibrand alienated the Manhattan set which expected a Kennedy to be named to the seat. Fast forward to today. I’m not saying that Gillibrand will get the democratic nomination but the very fact that she has evolved into a credible candidate with a national following shows that she is one of the most talented politicians in New York.

By the way, Gillibrand’s use of the Colbert show to make the announcement got me thinking about my favorite political announcement. Here is a clip from the 1995 David Letterman show in which then Senate Majority Leader Bob Dole announces he is running for President because “I’ve given it a lot of thought and I think every country should have one.” By the way, if you don’t think political discourse has deteriorated for the worse in this country, notice how nicely Dole talks about Clinton and Al Gore. In today’s environment, those types of comments would get someone stuck in a primary.

January 16, 2019 at 9:20 am Leave a comment

How to Handle That Disruptive Member

The perceived lack of flexibility that federal credit unions have when dealing with the proverbial abusive or disruptive member has gotten a lot of attention lately. The  NCUA has proposed changes to its bylaws to provide greater clarity to federally chartered credit unions in dealing with these members. The comment period just ended and I will keep you posted as to when these important changes are finalized.

In the meantime, I sense frustration among the CEO’s and staff I talk to that they can’t move more decisively to get rid of malcontents. Here are some thoughts on what your credit union can and can’t do.

Most importantly, do you have a policy distributed to members which puts them on notice of the circumstances under which they will be denied service and in a worst case scenario, subject to expulsion proceedings? This point is not as obvious as it may seem. Often credit unions have never had to deal with a disruptive member so they don’t have the policies they need to deal with the situation when it arises. There are several opinion letters explaining your disciplinary options but they are all predicated on the assumption that you have a policy in place.

What happens if you don’t have a policy in place and you are nevertheless dealing with a member who is abusive towards staff? This is just my opinion but you have obligations to your membership and your employers to keep them safe and to make sure they are treated properly. In addition, you could face legal actions in states like New York if, for example, you failed to take action against a member who engages in sexually harassing conduct. Consequently, by all means get a policy in place but in the meantime don’t let the lack of one keep you from taking decisive steps when they are necessary to protect members and staff and the credit union from potential liability.

Why does NCUA make it so difficult to expel a member? Because the Federal Credit Union Act does. 12 USC 1761 provides that except in cases of non-participation, a member cannot be expelled except by a 2/3rd vote by the members present at a special meeting called specifically to expel the member. The vote can only be held after our malcontent is given notice and an opportunity to be heard. This is clearly a woefully outdated requirement dating back to the days when credit unions could easily gather up members after work explain what one of their own has does and hold a vote to expel him or her. If the industry could quietly get this provision updated, I don’t think anyone would complain but do we really want to waste the time and industry of our lobbyists by having them explain to our elected officials why it needs to be easier to rid of members? I certainly wouldn’t want that assignment.

Besides, once we get over the fact that it is so ridiculously difficult to expel a member, the simple truth is that credit unions can take to limit a member’s ability to participate in the credit union. As NCUA has explained repeatedly in its legal opinion letters, members have two basic rights: the right to vote at the annual meeting and the right to a share account. But as it has also explained, “Nothing in the FCU Act or the National Credit Union Administration’s (NCUA) regulations, however, precludes an FCU from restricting the availability of certain services to members, provided the FCU has a rational basis for doing so and member have notice of the policy.” This includes banning members from the premises where there is a rational basis for doing so.

Finally, as I explained in this blog, the due process restrictions aren’t nearly as restrictive when it comes to dealing with members whose membership is atrophied because they don’t make loans or conduct transactions out of their accounts. The Federal Credit Union Act is predicated on the assumption that, in return for the right to  join a credit union, it isn’t asking too much of members to use  its services.

January 15, 2019 at 9:10 am Leave a comment

How Long does it Take to complete an NY Mortgage Foreclosure?

In the Big Apple 2,190 Days. Outside of N.Y.C.  you have a mere 1,740. Actually, that’s the maximum amount of time Fannie Mae and Freddie Mac expect mortgage servicers to complete straightforward  foreclosure actions once a borrower becomes delinquent. If you are servicing a loan in California you have 480 days. What is wrong with this picture?

The reason why I decided to bring this up on this disgustingly cold Northeast morning-I can taste my scotch in front of the fire already- is not only because of the Fannie\Freddie announcement but because of this decision that came out yesterday which does a pretty good job of summarizing one of the key emerging issues in mortgage litigation in New York  and across the country: How to calculate the statute of limitations when deciding if a lender has run out of time to foreclose on property?

In New York for example you have a 6 year statute of limitations to bring a foreclosure action. This seems clear enough until you start figuring out the impact that failed mortgage modifications, improperly filed notices and previously dismissed actions have on the foreclosure clock. There is even a dispute of whether a lender can bring separate actions for each late payment.

If you provide mortgages I would delve into this proverbial legal thicket not because you need to know the answers to this arcana but because you need to know what questions to ask that attorney you are working with. . Let’s hope these issues move quickly in the appellate process so that our Court of Appeals can give some clear-cut statewide guidance on how to count to six.

State-Of-The State on Tuesday

Governor Cuomo announced yesterday that he would deliver a combined State-of –the- State address Budget presentation on Tuesday. The importance of the governor’s budget proposal has only grown over the last decade as he has put more and more  of his key legislative proposals in the so-called Article VII bills  which explain how the governor is proposing to spend budget allocations.  This tactic is one of the main reasons why New York has one of the country’s most powerful executive branches.

Best Weekend of the Year  

If you are a sports fan like your faithful blogger,  then you know why this is one of the best weekends of the year. Every remaining NFL team is in a single elimination game which makes for some great drama; just ask a Bears fan. But wait,  there’s more. The  Islanders play the Rangers tomorrow. The rivalry isn’t quite as good as it used to be but having watched a fair number of these matchups at the Nassau Coliseum I can tell you there are moments when you understand how the Yugoslavian civil war got started. Besides, the Islanders beat the Rangers last night despite only getting one shot on goal in the third period.   As luck would have it, the one shot was a goal.  I don’t think I’ve ever seen that.

January 11, 2019 at 9:32 am Leave a comment

This Year’s Federal and State Priorities

Today marks the ceremonial start of New York State’s legislative session with the brand new Senate Majority taking over at 1:00 p.m. The Governor’s State of the State, which used to kick off the legislative session, is scheduled for later this month.

Meanwhile, the NCUA released its annual letter to credit unions detailing what its examiner priorities will be when they visit credit unions in the coming year. For you football fans out there, I like to think of this as the equivalent of the points of emphasis that the NFL tells referees to follow with the result that the first two weeks of any football season features too many penalties. Anyway, here is a look at some of the key federal and state priorities.

Meet The New Boss of New York

A historic transfer of power will take place today when Andrea Stewart-Cousins becomes the Democratic Senate Majority Leader. Just how historic is this? Since the end of WWII, except for brief spells, the Senate Majority in New York has been a Rockefeller republican majority. In contrast, since the aftermath of Watergate, Democrats have taken firm control of the Assembly and never looked back.

Against this backdrop, the Association is hopeful that this new mix brings new opportunities to advance these issues:

Municipal/public deposits; Remember, New York is one of the minority of states that doesn’t allow local government agencies to place money with credit unions. The result of this banker monopoly is that New York tax payers don’t get to see their money placed where it would generate the best returns. Last I checked choice is a good thing.

Data Security; Ideally, the federal government would take the lead on this issue but in the absence of federal action there are steps the state could take to make merchants responsible for the cost of data breaches caused by their own negligence as well as making sure that all businesses are subject to the type of baseline cybersecurity requirements to which banks and credit unions have long been subject.

Foreclosure Reform; New York State has been among the leaders in ensuring that homeowners have adequate protections when they fall behind on their mortgage payments and it should remain so. But there is a middle ground between adequate due process and excessive delays which do nothing but bring down the value of property in neighborhoods by keeping people in houses they can’t afford to maintain properly. Recently, Fannie and Freddie announced that services of mortgage loans in New York City would have 2,190 days to foreclose on delinquent property before they face penalties and 1,740 outside of the Big Apple. In contrast, there are states where lenders have as little as 420 days.

State Charter Enhancement; One other thing we will be advocating for is continuing our momentum in making the state charter a more attractive option for credit unions. We’ve already made great strides in this area but with the state’s wildcard power due to expire and operational issues arising there is still more to be done.

Supervisory Priorities

The NCUA’s supervisory priorities for 2019 contain many of the usual suspects. Of course, the Bank Secrecy Act is on the list but this year’s emphasis will be on your credit union’s policies and procedures for identifying “beneficial owners.” Other priorities include concentration of credit; HMDA data collection (See yesterday’s blog); the Military Lending Act; Regulation B compliance and “information security maturity assessments with the Automated Cybersecurity Examination Toolbox (ACET).” My God that sounds worse than a trip to the dentist. This year examiners will also be asking credit unions what they are doing to prepare for our new best friend CECL (Current Expected Credit Losses). Be sure to look at the whole list and keep this posted by your desk throughout the year.

January 9, 2019 at 9:38 am Leave a comment

Why The CFPB’s Latest HMDA Guidance Is So Important

The CFPB has released an extremely important guidance outlining what HMDA data will be made available to the public this year and under what conditions. If you are a credit union subject to HMDA reporting requirements, this is good news. But even if you’re credit union isn’t subject to it you should pay attention. This is  a new stage in the country’s seemingly never-ending debate about how best to determine the extent of racial bias embedded in the home buying process and how best to deter and minimize this bias in the future.

It’s a discussion which should be getting more attention than it is. On one side are those who believe that racial bias is endemic in the home buying process and that greater access to key underwriting data will prove their claims. On the other side are those who take a John Adams “dam lies and statistics” approach when it comes to this type of data. They are concerned that with enough data, even legitimate practices will be made to look discriminatory.

This debate is nothing new when it comes to The Home Mortgage Disclosure Act (HMDA) which was passed by Congress in 1975 as a way of assessing mortgage lending to minorities. It accomplishes this goal by making HMDA institutions fill out a Loan Application Register (LAR) detailing characteristics of all mortgage applicants and applications. This information is available to examiners and to anyone in the general public with the gumption to request it from a bank branch.

Dodd-Frank made two crucial changes to this LAR. First, it added several additional data points that now have to be collected. The result is an explosion in the collection of highly detailed information about mortgage applications. The second crucial policy shift was to mandate that financial institutions send this information to the CFPB. Starting this year, HMDA data will be available to researchers and plaintiff lawyers with the touch of a button. This is a big deal.

Because the information now being retrieved is so granular, the CFPB is responsible for determining what, if any, data should be withheld from the public so as to protect individual privacy interests. The guidance recently released by the CFPB details the data points that will be shielded from public review and the criteria that it used in making this determination.

Under the approach taken by the CFPB, the disclosure of loan level HMDA data creates risks to applicant and borrower interests where at least one data field or a combination of data fields “substantially facilitates the identification of an applicant or borrower” and at least one data field or combination of data fields discloses information about the applicant or borrower that is not public and “may be harmful and sensitive.” Among the information to be withheld from the public or modified before its release are data fields detailing the borrower or applicant’s debt to income ratio; the Universal Loan Identifier; the application date; the property address; the credit score relied on in making the lending decision and the “result generated by the automated underwriting system” used in making the lending determination (the executive summary contains a chart of the exclusions).

The CFPB also signaled that it would be considering making additional amendments to Regulation C later this year. All of this is sure to get the attention of democratic policy makers and promises to once again heighten the debate over how best to monitor home buying in this country.

January 8, 2019 at 9:31 am 1 comment

Six Things You Need To Know To Start Your Credit Union Week

Good morning, people. Yours truly is in fine spirits even though it’s Monday. For one thing, there’s plenty to write about but more importantly, I’m happy to be a Giants fan this morning. I’d rather be a fan of a team with a losing record than watch my team win a Division only to lose in the firbecause its kicker is better at hitting goal posts than kicking through them.

Important Guidance on Loan Forbearance

With 800,000 federal workers not getting paid, chances are your credit union has received some questions from members finding it difficult to make loan payments. Late last week the Consumer Data Information Association issued guidance to companies that furnish data to consumer reporting agencies about how to properly record forbearances as a result of a consumer’s inability to make payments due to the government shutdown or for other reasons. Remember there are some nuanced reporting requirements that you should keep in mind. The guidance reminds businesses that forbearance is a period of time during loan repayment in which a borrower is permitted temporarily to postpone making regular payments. The loan is not forgiven. This is in contrast to a loan modification in which the terms of the loan are actually changed. If all goes according to plan, later this week I will highlight some court cases in which financial institutions were sued for allegedly misreporting forbearances to the credit reporting agencies.

It’s Official: Cuomo Nominates Linda Lacewell to Head DFS

The New York Law Journal reported on Friday afternoon that Governor Cuomo has formally nominated Linda Lacewell, his current Chief of Staff, to be the third head of the Department of Financial Services which was created in 2011 when the Governor combined New York’s Banking and Insurance Departments.

Lacewell’s background is similar to that of the Department’s first head, Benjamin Lawsky. She is a high-ranking aid to the Governor who also has extensive experience as a federal prosecutor, having been involved with high-profile criminal investigations involving organized crime and Enron Corporation. She replaces Maria Vullo.

Are You Handling Your Stop Payment Requests Properly?

That’s the question you should be asking yourself in the aftermath of the announcement that the CFPB has entered into a consent decree with USAA to settle claims that the bank had inadequate policies and procedures when responding to stop payment requests involving preauthorized transfers.

According to the consent order, “On numerous occasions prior to 2015, USAA failed to enter stop payment orders after account holders notified the Bank of their desire to stop payment on Preauthorized EFTs, including by refusing to enter stop payments or by requiring consumers to contact the merchants initiating the EFTs as a prerequisite to implementing stop payment orders. In some of these instances, USAA failed to enter stop payment orders because consumers requested to stop payments to payday loan lenders.”

This has long been a consumer pet peeve. I remember fielding consumer questions about this when I was working in the Assembly oh so long ago.

New Legislative Session Kicks Off This Week

Speaking of the Assembly, a new era begins in New York State politics this week. On Wednesday the Assembly and Senate will hold their first sessions of the year. The Senate will feature  a new Democratic Majority firmly in control and Andrea Stewart-Cousins officially taking the helm as the first female leader of either Chamber in New York history. The state-of-the State address is later this month.

New York City Is Booming

If you want to make it in New York City, now is a good time to be looking for that dream job. The New York Post is reporting this morning that job growth in the Big Apple is “tremendous” fueled by 7,000 new startups and the headquarters of leading finance, fashion, entertainment and technology employers. How much this benefits the rest of the state remains to be seen.

More on the Progressive, PenFed Merger

Here is an article in this morning’s CU Today in which former Progressive CEO Robert Farmilant and PenFed CEO James Schenck discuss the merger and look back at the rise and fall of the medallion lending industry.


January 7, 2019 at 9:12 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. 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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