Posts filed under ‘Advocacy’
Legislation that would authorize up to $200 million in state funds to be deposited in credit unions (S.3616-Funke) took an important step down the legislative road yesterday when it was scheduled to be voted on at next Tuesday’s Finance Committee, If the committee votes in favor of the bill, it goes out to the Senate floor where it could be voted on by the full chamber, A companion piece of legislation-A 774 Rodriguez- is awaiting action in the Assembly Banks Committee. The bill would authorize the state Comptroller and the Commissioner of Taxation and Finance to deposit up to $200 million in state funds in credit unions. It is modeled after a similar program for community banks.
Lest we all get too excited and banking lobbyists go apoplectic on a beautiful Friday, the bill is not a municipal deposit bill. It does not authorize municipalities in New York State to accept municipal deposits and get the best rates available (God Forbid!). It also would not decrease the amount of state funds going to banks. It simply puts credit unions on an equal footing with their banking counterparts.
One more point. A faithful reader of this blog was chatting with me about this bill the other day and she correctly pointed out that, in urging legislators to act on this and similar legislation it’s always important to point out that federal law already permits credit unions to accept federal funds. New York has made a public policy decision to block its government and localities from accessing credit unions.
This isn’t all that fair to New York State’s citizens. The fact that the Senate is seriously considering S3616 is an incremental but important step in the right direction.
Senate moves to crackdown on subprime car lending
The Senate Banks committee will take up a series of bills next week designed to crackdown on subprime auto lending activities.
At a hearing earlier this year Ben Lawsky, the former Superintendent of the Department of Financial Services, suggested that his Department needed more authority to crack down on nonbank actors that offer car loans.
In a wonderfully concise piece of legislative drafting, S. 5489 sponsored by Senator Klein stipulates that “Every sale of a motor vehicle that involves financing, whether originated at a motor vehicle dealer or at a lending institution, shall be deemed to be a “financial product or service” within the jurisdiction of the department.”
A second, potentially more controversial bill (S.5490A Savino), imposes new restrictions on the ability of car dealers to repossess vehicles. It provides that when a dealer signs a retail installment contract with a car buyer and the buyer drives the car off the lot the buyer is the owner of the vehicle and has the right to keep the vehicle except for reasons of non-payment of the contract. As a result dealers could no longer give themselves the right to repossess a vehicle for which they are unable to secure financing through indirect lending networks.
When I tell people that a good chunk of my professional life is spent reading and responding to regulations, they smile and their eyes glazed over as they try to suppress a yawn. But, believe it or not, an infusion of new members on the NCUA Board means that regulators are really looking to make some meaningful changes. Here are my thoughts on yesterday’s board meeting. All of these regulations and proposals were influenced by industry comments.
Associational Common Bonds Rule
This was the most controversial rule of the day. Responding to concerns that some credit unions were creating sham associations simply for the purpose of increasing membership eligibility, NCUA finalized regulations strengthening its oversight of associational membership requirements. On the bright side, the proposal increases to 12 the types of associational groups that receive automatic pre-approval, including “organizations promoting social interaction or educational initiatives among persons sharing common occupational professions.”
If I wanted to be a glass half-full kind of guy I would say that the final regulation is much improved from the initial draft thanks to industry suggestions. If I wanted to be a glass half-empty kind of guy, I would continue to question why NCUA felt the need to go forward with this regulation in the first place. The only organization that really thought associational membership was being abused was the American Bankers Association.
When Congress expanded the ability of credit unions to offer Interest-On-Lawyer Trust Accounts (IOLTA) late last year, it also empowered them to offer “similar” escrow accounts. Yesterday, the NCUA proposed regulations defining those similar accounts. Under the proposed rule, they would include accounts for pre-paid funeral expenses, for example. At yesterday’s board meeting, NCUA officials stressed that they are more than willing to consider expanding the types of accounts eligible for insurance coverage under this law. This is one area where a well-written comment letter could clearly benefit the entire industry.
“Technical” Amendments for Corporate Rules
My old boss in the Legislature used to say that there is no such thing as a technical amendment, only amendments that no one understands. I was thinking of this quote yesterday as I heard the board discuss amendments to corporate borrowing authority. These amendments didn’t go as far as the corporates would have liked; however, the final rule improves on the initial proposal by extending to 180 days the maximum term of a corporate’s secured borrowing authority. In listening to the board discuss the proposal, I was struck by how concerned NCUA still is about allowing the corporates to rely too heavily on perpetual capital.
In addition to finalizing this technical amendment, the NCUA proposed an interesting change allowing the corporates to provide bridge loans to credit unions awaiting funding from the Central Liquidity Facility (CLF). When a credit union borrows funds from the facility it can take up to ten days to get the money. Considering that the purpose of the CLF is to provide emergency liquidity for credit unions, this strikes me as a huge defect in the system. NCUA is proposing to allow the corporates to provide members with bridge loans to cover the gap between the request and availability of funds.
I wish the industry would be more concerned with the issue of how best to revitalize the CLF fund. The corporates capitalized the fund with credit unions having access so long as they were a corporate member. When the corporates crashed, so too did their ability to fund the CLF and the industry has been remarkably short-sighted, in my ever-so-humble opinion, when it comes to devising an industry based source of emergency liquidity. At least this is a step in the right direction.
Appraisal Management Companies
NCUA signed off on joint regulations mandated by Dodd-Frank strengthening regulations related to Appraisal Management companies. This regulation is a bit strange, as no one at NCUA seems to know for sure if any credit unions invest in appraisal management CUSOs. This means that even though NCUA approved the rule, it may have absolutely no impact on credit union operations.
On that note, enjoy your weekend.
RESPA has always prohibited kickback schemes. Specifically, RESPA explains that ”No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C.A. § 2607 (West). But figuring out where the line is between legitimate salesmanship and illegal kickbacks has always been a gray area and RESPA enforcement has always been a tad lax.
Yesterday provided examples of how RESPA says what it means and means what it says. The Bureau That Never Sleeps and the Maryland AG sued originators over an alleged referral kickback scheme (http://www.consumerfinance.gov/newsroom/cfpb-and-state-of-maryland-take-action-against-pay-to-play-mortgage-kickback-scheme/). Closer to home, Governor Cuomo and New York’s Department of Financial Services proposed tough new regulations that would, among other things, prohibit title insurance companies from providing meals and entertainment expenses to loan originators (http://www.dfs.ny.gov/insurance/r_prop/rp208t.pdf).
First, let’s talk about the RESPA violation. The CFPB and the Maryland AG are suing Genuine Title, a now defunct Maryland company that offered closing services. It’s alleged that the company provided loan officers with marketing services “including purchasing, analyzing, and providing data on consumers, and creating letters with the loan officers’ contact information” and that in return, the loan officers would refer homebuyers to Genuine Title.
RESPA stands for the simple proposition that you can’t get something for nothing. If an originator is getting a fee for doing nothing more than referring business, then something is wrong.
As for New York State, it is moving to clamp down hard on title insurance practices that it believes drive up the cost of title insurance and limit consumer choice. The Governor doesn’t always get quoted in DFS press releases. Here is an indication of how strongly the administration feels about the amount of gift giving going on in the title insurance industry.
“New Yorkers should not have to foot the bill for outrageous or improper expenses made by title companies just to refinance or close on their home,” Governor Cuomo said. “Our administration will not stand for that kind of abuse in the title insurance industry, and these new regulations will help ensure that New Yorkers are protected from unfair charges and get the most bang for their buck.”
The proposed regulations would prohibit title insurers from offering inducements to get business including: meals and beverages; entertainment, including tickets to sporting events, concerts, shows, or artistic performances; gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value; travel and outings, including vacations, holidays, golf, ski, fishing, and other sport outings; gambling trips, shopping trips, or trips to recreational areas, including country clubs; parties, including cocktail parties and holiday parties and open houses. THIS IS NOT THE COMPLETE LIST
Suffice it to say it’s about to get a lot less fun dealing with title insurers in NYS.
Here is a link to the proposal: http://www.dfs.ny.gov/insurance/r_prop/rp208t.pdf
NCUA Board meeting today
Here is a quick reminder that the NCUA is having a board meeting today. Among the issues on the agenda are a vote on a final rule amending common bond requirements for associations and proposed regulations for IOLTA accounts. Remember that federal law now authorizes credit unions to open up Interest on Lawyer Trust Accounts. The regulation will presumably describe what accounts are similar enough to IOLTAs that they can also be offered by credit unions.
It was nice seeing so many of you at the State GAC over the last couple of days. Great job!
I’m feeling lucky today. On the same day that New York credit unions are going to the Legislature to advocate for stronger data protections, among other things, news reports explain why small credit unions and banks are objecting to a proposed settlement between MasterCard and Target in relation to Target’s data breach.
To his credit, the Attorney General has made data breach legislation one of his main priorities. Recently, the Legislature introduced bills at his request (A.6866/S.4887) that would require all businesses in New York State to adhere to certain basic industry standards. For example, businesses that comply with Gramm-Leach-Bliley privacy protections would be in compliance with the AG’s standards. Since banks and credit unions have had to meet basic privacy protections for years, the main effect of the AG’s proposal would be to apply these standards to merchants. This is, of course, a good thing. But what happens when the merchants don’t live up to their end of the bargain?
Which brings us to today’s news. As explained in this article in the Wall Street Journal, small banks and credit unions are objecting to the proposed MasterCard settlement negotiated with larger banks on the grounds that it doesn’t provide adequate redress to smaller institutions. You may be aware that credit unions have joined class action law suits seeking damages against Target and other retailers for costs related to the breach. One of the main reasons why the Target lawsuit has legs is because Target is headquartered in Minnesota. In addition to being the land of 1000 lakes, it is also one of the first states in the nation to have a statute enabling financial institutions to recover for the cost of data breaches caused by merchants. These costs include the expense of reissuing new debit and credit cards.
The AG’s bill includes no similar rights for New York banks and credit unions. If the legislation ultimately includes such a right, it would be a pretty fair deal for financial institutions and consumers. Data would be better protected and the fear of litigation would put some teeth behind this bill. In contrast, unless credit unions and banks get a statutory right to recover for the costs of breaches for which they are not responsible, costs of these data breaches will not be shouldered by the parties most responsible. This is particularly important for credit unions since, as the article points out, data breaches are more costly for smaller institutions.
No one appreciates a good ride more than I do, but I have been gun shy about trying out ride sharing services in cities where they are already available. On the one hand, the more people who are willing to give me a ride the better; on the other hand, I have visions of being picked up by an Uncle Buck in a Jalopy or a well-meaning soccer mom who sticks me in the backseat of her minivan with a screaming, cheerio-throwing two-year-old.
These so-called Transportation Network Companies also raise a host of insurance issues that will impact your credit union if it offers car loans. The networks are in operation in NYC, but the Attorney General and the Department of Financial Services successfully blocked them from expanding outside of the Big Apple. Resolving this impasse has emerged as a headline issue not only in New York State but across the country. DFS Superintendent Lawsky recently said he hoped a bill authorizing the networks would be approved by the end of this Session.
These systems use Apps from a company such as Uber or Lyft to connect passengers and drivers. A request goes out to a network of drivers who have signed up to give people rides. The passenger is informed when someone has agreed to give him a lift and the fare is negotiated between the passenger and driver.
The system seems like a win-win until you start considering the insurance consequences. Let’s say that one of your members took out a car loan recently and decided that to make extra money she would pick-up the occasional ride. One day, while taking one of her passengers home from work, she gets into an accident. No one gets hurt, but the car is totaled. Chances are your collateral is worthless. Your typical insurance policy has a livery cab exception to its coverage. Since your member was acting as a livery driver, insurance isn’t going to cover the accident. You could include a provision in your car loans prohibiting using the car for such purposes without additional coverage but such coverage isn’t easy to get and, if a member ignores this requirement, you won’t know until it’s too late.
To resolve the insurance conundrum, both Senator Seward and Assemblyman Cahill have put in bills to regulate insurance that Ride Sharing Networks would be responsible for making sure their drivers have. In addition, the Legislature is grappling with the issue of determining when a person is acting as driver for hire and when she is just a soccer mom who got into a fender bender.
None of these issues are insurmountable. Sometime soon expect Uber or Lyft to become available near you and to add yet another wrinkle to your increasingly complicated lending procedures. Here are some of the proposed bills.
Are we facing another subprime crisis, this time with auto lending? Are there steps the Legislature should take to clamp down on poor lending practices? Those were the basic questions considered by NYS’s Senate Banking Committee yesterday at a hearing dedicated to analyzing subprime auto lending trends. While legislation may not necessarily be imminent, some key Legislators and regulators are clearly growing concerned with what they are seeing, particularly when it comes to dealer practices.
First, the statistics certainly suggest that we are seeing the nascent signs of car lending abuses. For example, the New York Federal Reserve Bank reported that the dollar value of car loan originations to people with credit scores below 660 has roughly doubled since 2009, while originations for other credit score groups increased by only about half. In addition, a series of articles by the New York Times has highlighted both a growing demand for auto loan securitizations and the questionable practices of some dealers more interested in getting borrowers to agree to the most expensive loan possible with little regard to whether or not the consumer can actually repay the loan.
It was against this backdrop that DFS Superintendent Lawsky suggested that one step the Legislature could take to address these concerns is to allow the DFS to have more direct oversight over auto dealers. As he explained to the gathered Senators, the existing system allows the DFS to scrutinize loans once they are purchased by banks, but this provides little protection to the consumer who walks into the dealership in need of a car.
Another trend highlighted by the Superintendent is the growing securitization of car loans. Echoing sentiments similar to those expressed by the Association in its testimony, the Superintendent pointed out that securitization creates a misalignment of incentives, whereby a lender is more interested in originating a car loan for sale to Wall Street securitizers than it is in ensuring that the borrower can afford to make the car payments.
My sense is that we will not see the Legislature further regulate car lending practices in the near future. But unless, as evidence suggests, some of the abuses are being reigned in, expect legislation dealing with auto lending practices to be a priority next January. In the meantime, it is important for everyone to analyze the extent to which the trends that motivated the Legislature to hold this hearing are anecdotal incidents that reflect pent up demand for automobiles as the economy gradually improves or systemic defects in the auto lending process that legislation could fix.
Benjamin Lawsky, Superintendent of New York’s Department of Financial Services, said yesterday that he expects the State to unveil regulations mandating the licensing of virtual currency operators by the end of May, according to Banking Law 360. These regulations, which have been the subject of extensive analysis since they were proposed last July, are essentially the first draft of an attempt to regulate virtual currencies since neither the federal government nor any other state has moved to regulate them, the most prominent of which is the Bitcoin. It’s not surprising, then, that the Superintendent indicated that the regulations may be modified in response to coordinate enforcement with other states, including California.
As currently proposed, the regulations shouldn’t have a direct impact on established credit unions or banks. It exempts entities already licensed by the Banking Department provided they get permission from the Superintendent prior to engaging in the business of virtual currency. But the question of how best to regulate virtual currencies will have a profound impact on how finance is transacted in the coming years. Here is why.
Follow the money: although the Bitcoin has gained most of its notoriety in this country as a potential facilitator of illegal transactions — which is why the DFS is seeking to impose state level requirements on Bitcoin operators to report suspicious activities – investors are intrigued by the technological possibilities behind the currency. In March, the WSJ reported that “[a] Silicon Valley startup has persuaded some of the biggest names in venture capital to put $116 million behind its plan to turn the technology behind bitcoin into a mass-marketed phenomenon.”
Nor is the money coming exclusively from a bunch of wealthy libertarian California dreamers. The staid Swiss Banking Giant UBS also recently announced that it will be investing in virtual currency research in London and the British Government has coupled its own calls for increased regulation with the promise of an additional 10 million pounds ($15 million) for a research initiative that will look into the blockchain technology behind digital currencies.
Silicon Valley types are making these investments as the Federal Reserve is prodding the banking industry with increasing urgency to think about how the currency processing system should be updated for the 21st Century. One Fed researcher has even suggested the creation of a Fed Bitcoin. In addition, NATCHA is in the process of expediting its clearing processes, which brings us back to New York State’s regulations.
It wasn’t too long ago that the only thing most regulators and politicians knew about virtual currencies was that they were convenient tools for criminals. The discovery of a silk road website where visitors could buy and sell a laundry list of drug paraphernalia seemed to vindicate this concern.
But times are changing. Virtual currencies demonstrate just how antiquated the traditional negotiation of currency has become. Don’t get me wrong. I am not predicting that the Bitcoin is going to rival the dollar as a currency any time soon; but I am predicting that the dollar bill of tomorrow will look a heck of a lot like today’s Bitcoins. Those regulators that strike the proper balance between appropriate oversight of this technology and fostering an environment that allows for innovation will be positioning their states and their countries to reap untold riches in the coming years, not to mention enabling them to remain in the forefront of financial regulation.