Bank Preemption Takes Center Stage

June 16, 2021 at 10:09 am Leave a comment

There is currently a case before New York’s Court of Appeals for the Second Circuit that could have a direct impact on your credit union’s bottom line even if you don’t have the great fortune of living in New York. The issue is whether or not federally chartered banks are subject to a New York law mandating that lenders provide interest payments to borrowers with mortgage escrow accounts. If the court upholds two lower court rulings, federally chartered credit unions should be prepared to also provide interest payments. NCUA preemption standards are less stringent than those typically exercised by the OCC.  The cases being appealed are Hymes et al. v. Bank of America NA, case number 21-403, and Cantero v. Bank of America NA, case number 21-400, in the U.S. Court of Appeals for the Second Circuit.

I have blogged about these cases before, and I just wanted you to know that I am not the only one paying attention.  Law360 reported that the OCC has weighed in with an amicus brief.   The issue is the applicability of New York General Obligation law 5-601 which requires banks and credit unions to pay interest on mortgage escrow account balances. The statute has been around for decades, dating to the early 80’s when high inflation rates chipped away at member’s savings. But since the law’s inception, courts have ruled that its provisions don’t apply to federally chartered institutions.  The OCC argued that in refusing to preempt New York’s law, the lower courts adopted a legal standard which violates long standing precedent.

If you think you got it bad…

If you’ve been obsessing about your credit union’s influx of cash, you are not alone.

Yesterday, the FDIC released this report detailing the impact that the unprecedented influx of cash has had on banks. The report was required as part of a restoration plan that had to be imposed on banks after they fell below their statutory deposit baseline.

What struck me about the report is just how much financial institutions have riding on the assumption that this glut of money is a short-term phenomenon.  Obviously, if people start spending money again now that the COVID restrictions have been lifted, the savings glut will be a short-term glitch that we can reminisce about over drinks when we look back at the pandemic. But what happens if inflation continues to rise and consumers are weary to spend too much money as the economic outlook remains uncertain? Hopefully we will not have to find out.

Entry filed under: Economy, Legal Watch, Mortgage Lending, New York State. 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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