Robert E. Lee, RBC, the Supreme Court and the FCC

Good morning folks. I apologize for the late blog but I had a tough time waking up this morning after a great weekend.

First off, what everyone’s been asking about is the legislative session. As I’m sure many of you know by now, we came close but were unable to push legislation permitting municipalities to place money in credit unions over the proverbial finish line. Is this disappointing? Of course it is but let’s not underestimate the progress we made by getting the Assembly Banks Committee to vote in favor of the legislation and getting the Chairman of the Senate Banks Committee to agree to this legislation.

In addition, let’s not underestimate how big of a deal legislative approval of credit union participation in banking development districts is. First, credit union involvement in the program will help more consumers have access to banking services. Second, inclusion in credit unions in the program marks the first time that credit unions will be able to accept public funds in New York State. And finally, passage of the BDD bill shows that persistence pays off. The program has been in existence since 1997.

Forget all that stuff about how making laws is like making sausage. Running into an old colleague last week reminded me of one of my favorite analogues the New York legislative process. To really understand what it’s about you have to put yourself in the shoes of Robert E. Lee, who after surveying the battlefield following the battle of Fredericksburg turned to his colleagues and said, “It’s a good thing war is so awful less we grow too fond of it.” The legislative process may not be pretty and can be incredibly frustrating but it’s also the only one we have and we are certainly better off for engaging in the battle even if we don’t always get all the results we would want.

Okay, I’m getting off my high horse now.

NCUA Delays Risk Based Capital Rule

By a two-to- one vote on Thursday, the NCUA Board proposed delaying until January 1, 2022, the effective date of the Risk Based Capital rules. According to the NCUA, they will “allow the Board additional time to holistically and comprehensively evaluate the NCUA’s capital standards for federally insured credit unions.” This is of course good news for those credit unions with $500 million or more in assets which the RBC rule characterizes as complex. The preamble to the proposed delay regulation singles out the potential use of subordinated debt; evaluation of how federal banking legislation impacted the extent to which community banks have to comply with risk based capital requirements under the economic growth, regulatory relief and Consumer Protection Act of 2018 and the need to provide credit unions more time to prepare for complying with this regulation as among the key reasons justifying a delay.

Since I’m in a generous mood, I am going to offer two additional reasons. (1) I continue to believe that NCUA’s fundamental premise- that it was required to put forward RBC regulations in the first place- is flawed. (2) On a policy level show me the proof that RBC is actually the best approach for regulators to take from a safety and soundness point of view. Yours truly continues to believe that a risk based capital framework simply encourages both banks and credit unions to engage in regulatory arbitrage by overinvesting in products and activities based on regulatory speculation as to how dangerous the activities and investments are.

 Supreme Court Underscores Administrative Confusion Surrounding the TCPA

Since I can’t seem to avoid doing any blog lately without mentioning the TCPA, I want to bring to your attention a decision by the Supreme Court last week which underscores just how messed up – that’s a legal term – the TCPA framework is. In PDR Network, LLC. v. Carlton Harris Chiropractic Inc.,  the  question was whether a fax advertising the availability of a free diagnostic manual constituted an advertisement under the TCPA for which recipients could sue the senders? In 2006, the FCC issued an order stating that unsolicited advertisements  promoting free goods violated the TCPA but a district court disagreed with the FCC’s interpretation.

The question before the court was whether another statute, the Hobbs Act, only allowed federal appellate courts and not district courts to reverse FCC rulings. The Supreme Court’s answer to this question? It’s not sure. It sent the court case back to the lower courts to determine whether the FCC’s 2006 ruling was a “legislative rule” in which case the District Court went beyond its authority or if the FCC’s ruling was more analogous to a court’s interpretation for the statute in which case, a district court has more freedom to come to its own conclusions.

I know this is in the weeds stuff but given the importance of administrative rulemaking procedure in establishing the rules to which all credit unions are subject, it’s actually important to pay attention to.