Posts filed under ‘Advocacy’
I have one good thing to say about hackers. They have provided us with fresh evidence of why state and federal lawmakers need to impose commonsense requirements on merchants and businesses that don’t adequately protect card information from data breaches, and also don’t bother informing consumers of their mistakes.
Three things happened yesterday that are worth telling your congressman and senators about if you are going to be at CUNA’s Governmental Affairs Conference at the end of the month. First, a Pennsylvania federal magistrate has ruled that a class action lawsuit brought by a group of credit unions and CUNA seeking damages in relation to debit and credit cards compromised by a point of sale data breach at Wendy’s franchises can go forward, First Choice Federal Credit Union, et al v.Wendy’s Co., (U.S. Western District PA). The arguments advanced by Wendy’s in this case underscore precisely why we need clear-cut legal standards making merchants responsible for protecting customer data once and for all. Wendy’s alleges that it has no duty to safeguard sensitive customer information or to provide adequate notification of a data breach.
Fortunately the courts are growing increasingly impatient with arguments such as these. But the fact still remains that, without specific laws in place, merchants will continue to deny that they are in any way responsible for the cost related to data breaches.
Also yesterday I was sitting in on CUNA’s weekly regulatory update call.(for the record I realized after the fact that I was THAT GUY, who chats away not realizing his phone was off mute: sorry about that) During the call, CUNA discussed news of yet another fast food data breach. This one has occurred at Arby’s restaurants. If you are a New York credit union and you think you may have been victimized give me a call as we would like to get a sense of the scope of the possible theft.
Last but not least, it appears that Yahoo’s data breach maybe even worse than reported. When Yahoo finally got around to disclosing that its data had been compromised, it asserted that no debit or credit card information was stolen. A merchant in Texas has recently started a class action lawsuit alleging that his card information was in fact compromised, by the breach of the embattled tech icon.
Yellen’s testimony indicates interest rate rise coming soon
In the first day of her semi- annual testimony before congress Federal Reserve chairwoman Janet Yellen, warned that waiting too long to remove interest rate accommodation would be “unwise.” The likelihood that the Federal Reserve will once again raise interest rates, perhaps as early as March, is more good news for the banks and credit unions that have struggled with narrow profit margins.
On that note, let’s be careful out there and enjoy your day.
In yesterday’s blog, I provided an overview of NCUA’s Supplemental Capital ANPR addressing a potential Supplemental Capital framework. I know requests for feedback are white noise to many of you, who actually have more immediate concerns to worry about, like running a credit union. But there are some big issues tied in with this proposal that affect the industry as a whole and you should take the time to weigh in.
Just how big are the issues? Well, this is the first ANPR I have ever seen that raises the prospect of credit unions putting their tax exempt status at risk. The ANPR notes that “With respect to federal credit unions, the Board is aware that part of the basis for the credit union tax exemption was that Congress recognized most credit unions could not access the capital markets to raise Capital.” It further points out in a footnote that Mutual Savings Banks and Savings and Loan Associations were stripped of their tax exempt status in part because they “had evolved from mutual organizations to ones that operated in a similar matter to banks.”
To me, the core issue is how much credit unions with $100 million or more in assets need Supplemental Capital both to comply with their enhanced risk based capital obligations and continue to grow to meet member needs. The simple truth is that the Basel iii framework, for which NCUA’s Risk Based Capital was the inspiration, was designed with large banks in mind. These institutions can satisfy capital requirements by issuing stock. Credit Unions have no such option. Supplemental Capital would give them greater flexibility to meet these new demands.
And let’s not forget that the credit unions that are most likely to directly benefit from Supplemental Capital are the same ones large enough to bring down the entire industry. Supplemental Capital could provide an added buffer against future financial meltdowns.
Ultimately, I believe that the industry needs to have Broad Based Supplemental Capital as an option available for all credit unions that choose to use it. But seeing legislation like this pass any time soon is about as likely as seeing President Trump’s spokesman, Sean Spicer leading the Washington Press Corp. in a yoga class. (That man really has to take a chill pill.) Supplemental Capital regulations could show Congress how additional capital flexibility helps credit unions grow to meet member needs and enhances the safety and soundness of the industry.
On that note, Namaste
NCUA Details Extended Exam Cycle
In case you missed it, recently NCUA released a letter to credit unions detailing changes to its examination cycle for both federal and federally insured credit unions.
There hasn’t been much good news for state charters recently, let me tell you some. Unless your credit union meets any one of the following criteria you will receive an NCUA evaluation not less than every five years.
- Assets greater than $1 billion;
- Composite NCUA CAMEL code 4 or 5 with assets greater than $50 million; or
- Composite NCUA CAMEL code 3 with assets greater than $250 million
In addition, a working group is being formed to consider ways to further improve the examination process as it relates to state chartered credit unions. Any steps designed to decrease NCUA’s oversight of state charters are welcomed. As readers of this blog will know, yours truly has complained that NCUA has moved so aggressively to oversee the activities of these institutions that it has diminished the value of a state charter.
As for federal credit unions, they will be eligible for extended exam cycles that begin 14 to -20 months after the prior exam completion date. To be eligible for the extended cycle, a federal credit union must have:
- Assets less than $1 billion;
- CAMEL code 1 or 2, in both the composite rating and the management component rating;
- “Well capitalized” under prompt corrective action (PCA) regulations;
- No outstanding documents of resolution (DOR) items related to significant recordkeeping deficiencies; and
- Not operating under a formal or informal enforcement or administrative order, such as a cease and desist order (C&D), letter of understanding and agreement (LUA), preliminary warning letter (PWL), or a PCA directive
New Banking Chairs named
A new session triggers a game of political musical chairs as members jockey to take the helm of key committees. This year is no exception. There are two new faces that credit unions in New York State will be working with more closely over the next two years..
Senator Jessie Hamilton, the newest member of the IDC, representing the 20th Senate District in NYC, has taken the helm of the Senate Banks Committee. He replaces fellow IDC member, Senator Diane Savino, who is moving on be Vice-Chair of the powerful Senate Finance and Code Committees. Savino has been a good friend to credit unions and we wish her the best in her new assignments.
Over on the assembly side, Kenneth P. Zebrowski, was named Chair of the Banks Committee, replacing retired Assemblywomen, Annette Robinson. Zembrowski becomes the first Chairman of the Assembly Banks Committee from outside of the five boroughs in at least twenty years.
Senator Sessions: I’ll enforce Pot Laws
At his senate confirmation to be the US Attorney General, Alabama Senator Jeff Sessions strongly suggested that he would take a stronger stand against states with legal marijuana businesses then has the current justice department. According to this article , when Sessions was asked if he would continue the Obama Administration’s “don’t ask, don’t tell” policy (my characterization) on illegal drugs, the Senator responded “It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws as effectively as we’re able,” said Sessions, adding that “Congress was entitled to change federal law if it so desired.”
Enjoy your day!
The Supreme Court has decided to hear an appeal of a case challenging NY’s ban on credit card surcharges on the grounds that it violates the First Amendment. The Association submitted an amicus in the case in support of the surcharge ban when it was before the Second Circuit, pointing out that in Australia a decision to authorize credit card surcharges simply resulted in higher consumer costs.
New York General Business Law §518 bans merchants from surcharging credit card purchases but allows merchants to offer cash discounts. The law hasn’t gotten that much attention over the years because surcharging was also banned under credit card network rules. When the network ban was eliminated as part of a deal settling antitrust claims, attention turned to the ten states, including NY, that impose surcharge bans.
In Expressions Hair Design v. Schneiderman, 808 F.3d 118 (2d Cir. 2015), five retailers argued that the law prevented them from accurately explaining their pricing policies to their members. The Second Circuit upheld the ban, reversing a lower court ruling that it violated the First Amendment rights of the merchants.
In their appeal the merchants asked the Court to decide “whether these state no-surcharge laws unconstitutionally restrict speech conveying price information (as the Eleventh Circuit has held), or do they regulate economic conduct (as the Second and Fifth Circuits have held)?”
We will know the answer to this question by the end of this term. If the Court were to split 4-4, the Second Circuit’s ruling is upheld.
Red Sox Awakening
Congratulations to the Red Sox and their fans for backing into the American League playoffs despite losing to the Yankees on a walk off grand slam Wednesday night. Wait till next year.
Life was a lot more fun when you knew the Red sox were going to fall just short. It was a real life version of the football being pulled away from Charlie Brown with the added benefit of always being able to win any argument against Boston fans just by motioning the Red Sox.
By the way, as much as I don’t like the Red Sox how great would a Cubs Red Sox series be? It would be like watching Theo Epstein, the former GM of the Sox and current GM of the Cubs playing himself in Fantasy baseball but with live players.
I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.
The legislation is a federal attempt to address elder financial abuse. Most states have already mandated reporting requirements in this area. New York’s DFS has issued a guidance on the issue. NY law protects any person who reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency based on a good faith belief that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney). This protection isn’t quite as expansive as what would be protected under the House bill.
I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected criminal activity involving financial exploitation; and the issues raised are best handled by family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.
The bill, which passed with overwhelming support on Tuesday, would authorize supervisors, compliance and BSA officers to report possible financial exploitation of a person 65 years of age or older to law enforcement and government agencies. The institutions and individuals making these reports would get legal immunity for doing so if they train employees on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.
There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer and BSA officers to report suspected elder abuse but enables any employee to spot it. One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse the ultimate call on reporting should be made by senior personnel.
Second it places no affirmative obligation on financial institutions to report suspected abuse. it simply protects them if they choose to do so provided they have appropriate training.
Finally, it provides a baseline of immunity for institutions that report suspected abuse.
A Most interesting Jobs Report
Any minute now we should be getting the jobs report for June. It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing, the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.
(UPDATED) Well, despite a flurry of last second activity, the Legislative session ended with a whimper and not a bang and as someone who believes that legislators, like doctors, should first and foremost do no harm that is not necessarily a bad thing. Here is a look at how some of the key legislation played out.
The most problematic legislation is in part Q of this budget bill passed early Saturday. It imposes obligations on mortgage holders of abandoned property. The good news is that there is a carve out for cus that maintain a portion of their mortgages and provide less than three tenths of one percent of mortgages in the state. Obviously there is a lot to parse here but the smaller you are the less you have to worry about. I’ll have more to say about this tomorrow but for those who think you may be impacted take a look.
Six weeks ago, if I was going to bet on one bill that would pass it would have been a bill to authorize ride sharing services (i.e. Uber and Lyft) to operate outside of NYC with the appropriate insurance coverage. In the end, the Senate passed a one house bill (S.4108-d Seward) which includes coverage of “motor vehicle physical damage.” This is crucial to credit unions and other lenders that want to make sure that the value of their car loans is protected. The bottom line is that the status quo, under which Transportation Network Companies (TNC) are subject to regulation within NYC and not authorized outside of the Big Apple remains in place. What impact this development has on the value of NYC medallions remains to be seen. Incidentally, your faithful blogger would have also predicted a Golden State NBA championship and an embittered LeBron James departing Cleveland for LA. He would have been wrong on this one as well.
Legislation that would have expanded the powers of check cashers by, among other things, working with banks or credit unions to provide loans (S.6985-b Savino/A.9634-b Rodriguez) stalled in the closing days in both the Senate and Assembly.
Unfortunately, despite some late movement, two erstwhile credit unions bills to allow credit unions to participate in banking development districts and to allow the State Comptroller to deposit state funds in credit unions did not get done.
Perhaps the bill that is going to have the most direct impact on credit unions is one that passed a few weeks ago. If, as expected, it gets approved by the Governor, it will clarify when a mortgage loan is consummated for purposes of complying with mortgage disclosure requirements.
On that note, it was great to see you all in Saratoga.
One of the issues of which financial institutions have to be particularly mindful in this increasingly litigious world is how much they say to their attorney is privileged (i.e. shielded from disclosure to third parties). I have previously talked about in a previous blog how federal law makes it almost impossible for credit unions to shield an attorney’s work product from examiners. Now, a decision released yesterday by New York’s Court of Appeals, its highest court, underscores just how narrow that privilege is, especially for those of you involved in credit unions that are thinking about merging.
As a general rule of thumb, you can call up your attorney to get legal advice and that communication will be privileged. Furthermore, if not only you but another credit union face pending litigation or reasonably anticipate a lawsuit, the privilege is extended so that you may work on a common defense. But if that same conversation takes place with a third party that is not involved in your litigation, the privilege is waived.
In Ambac Assurance Corporation v. Countrywide Home Loans, Inc. Bank of America was sued and the plaintiffs wanted access to 400 communications that took place between BoA and Countrywide between the time that the two companies had decided to merge but before the merger was finalized. Plaintiffs argued that while BoA didn’t have to hand over communications between it and its attorneys, any communications between BoA and Countrywide were third party communications for which there is no privilege.
BoA argued to the Court of Appeals that even though it was not facing any litigation involving Countrywide at the time, it shared a “common legal interest” in facilitating their merger. The plaintiffs argued, and the Court of Appeals agreed, that merger discussions aren’t protected by privilege. It concluded that when two parties are engaged in or reasonably anticipate litigation in which they share a common legal interest, the threat of disclosure may chill the exchange of information necessary to coordinate a legal strategy. In contrast, “the same cannot be said of clients who share a common legal interest in a commercial transaction or other common problem but do not reasonably anticipate litigation.” In other words, don’t assume all the information you are sharing to facilitate merger discussions is free from discovery if someone decides to sue you in the future.
If any of you are involved in funding gift cards, or like your faithful blogger, finds gift certificates tucked away in the top draw about a year and a half after they are given to him, then the Legislature passed a bill earlier this week (S. 4771-e Funke\ A. 7610 Ewith) with which you should familiarize yourself. The bill increases to 25 months from 13 the amount of time a gift certificate must be dormant before a service fee can be assessed on the balance. It also stipulates that these fees must be replenished when a member redeems a certificate within three years. Finally, all gift certificates have to be valid for a period of at least five years.
By the way, in NY a gift certificate is defined as ”a written promise or electronic payment device that: (i) is usable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo, or is usable at multiple, unaffiliated merchants or service providers; and (ii) is issued in a specified amount; and (iii) may or may not be increased in value or reloaded; and (iv) is purchased and/or loaded on a prepaid basis for the future purchase or delivery of any goods or services; and (v) is honored upon presentation.” N.Y. Gen. Bus. Law § 396-i (McKinney). The bill now goes to the Governor.
McWatters Nomination to Export Import Bank Blocked Again
The Export Import Bank and the NCUA have about as much in common as Kim Kardashian and Mother Teresa but yet their fates are strangely intertwined. Without J. Mark McWatters, the Ex-Im bank doesn’t have a quorum to operate; and so long as McWatters stays NCUA has a quorum. Considering that there are proposals like FOM reform still waiting to be finalized, this is a big deal.
Senator Richard Shelby, Chairman of the Senate Banking Committee, a steadfast opponent of the Bank, refuses to take up the nomination. Supporters of the Export Import Bank tried to do an end run around Shelby yesterday. North Dakota Senator Heidi Heitkamp (D-ND) asked the Senate to take up the nomination with unanimous consent. To the surprise of no one, Shelby objected but the maneuver gave Democrats an excuse to voice their increasing frustrations over the stalemate.