New York CU Authorized To Offer Lease Escrow Accounts

March 21, 2018 at 9:07 am Leave a comment

The other day, one of my most helpful readers forwarded to me a copy of a NCUA legal opinion which provides good news to New York based credit unions and may provide a road map for credit unions in other states to follow.

First, some background. Interest on lawyer trust accounts (IOLTA) are escrow accounts that many states mandate attorneys establish in order to place a client’s funds in escrow. Prior to 2015, credit unions were extremely limited in their ability to offer such accounts because membership eligibility was based on the qualifications of each individual person who’s funds were being escrowed rather than the membership eligibility of the attorney opening the account. This meant that most credit unions could not provide the share insurance necessary to house such accounts.

Many readers may recall that all this changed in 2015 when Congress passed the Credit Union Share Insurance Parity Act permitting credit unions to offer IOLTA accounts so long as the attorney qualified for membership. If he or she did, then share insurance coverage would be passed through to the clients whose funds were being aggregated. Crucially, for purposes of this fascinating post, this statute not only permits credit unions to offer IOLTA’s but “other similar escrow accounts.”

Which brings us to the present day. On February 1st, NCUA sent this letter to ESL Federal Credit Union in New York, authorizing to offer escrow services for “lease security accounts.” Under New York law, landlords holding security deposits are required to place such deposits in escrow. See NY General Obligation Law §7-103 et. seq. The NCUA agreed with ESL Federal Credit Union that such accounts are similar to traditional IOLTA’s. At the same time it stressed that it’s “analysis does not apply to other similarly named accounts where the factual and legal circumstances differ, even slightly, from those presented in the subject instance. Rather, the conclusions reached in this opinion are expressly limited to the specific facts and circumstances surrounding the subject account.” Still, it’s a nice victory for New York Credit Unions and is clearly beneficial to other credit unions seeking to offer a similar product in other states.

CFPB Releases Servicing Reg Q&A

As a follow-up to my blog from the other day, I’m happy to report that the CFPB has released a helpful Q&A further explaining how financial institutions are to implement the successor in interest/bankruptcy regulations which take effect on April 19, 2018. I’m glad to see I’m not the only one more than a little confused about the seemingly straightforward requirements.

The Q&A is extremely helpful but it underscores that credit unions are not out of the woods when it comes to complying with both these regulations and the bankruptcy law. Here’s what I’m talking about. One of the questions asked is, “Does a servicer receive a safe harbor under the Bankruptcy Code by sending periodic statements in compliance with the Bureau’s rules?” The answer won’t exactly fill you with confidence: “A servicer does not receive a safe harbor under the Bankruptcy Code by sending periodic statements to a borrower in bankruptcy in compliance with Regulation Z, § 1026.41(e) and (f)” the Bureau explains because it does not have authority over the bankruptcy law. But it goes on to explain that, “Based on this research and outreach, the Bureau does not believe that a servicer is likely to violate the automatic stay by providing a periodic statement in circumstances required by § 1026.41(a) and (e) that contains the information required by § 1026.41(c) and (d) as modified for bankruptcy by § 1026.41(f).”

Translation: Get ready to push back against the attorney who accuses you of violating his client’s automatic stay.

Entry filed under: Compliance, Mortgage Lending, New York State, Regulatory. Tags: , , , , .

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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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