Posts filed under ‘Advocacy’

Uber Model Alive and Well after Settlement

Late last week, Uber announced it had settled two class action lawsuits brought by drivers claiming, among other things, that the ride sharing service was violating the labor law by classifying drivers as independent contractors.  For those of you with either a direct or indirect stake in the taxi industry through the financing of medallions, the settlement of these lawsuits is another blow.  Here’s why.

The Uber model is based fundamentally on the assumption that the company is nothing more or less than the provider of an App that enables individuals in need of a ride with those willing to provide one.  In Uber’s view of the world, ride sharing allows the mom on the way to the store to make a few extra dollars by taking Sally down the street along for the ride.  Under this best case scenario, our mom is an independent contractor picking and choosing what rides to take as she makes her way through her busy day.

To critics of Uber and other ride sharing services, the mom is not so much an independent contractor as a poorly paid employee.  For instance, under Uber’s model drivers who consistently turn down rides can be dropped from the service and each ride comes with a suggested price and gratuity. 

If the critics are correct, the Uber model is illegal and the traditional taxi medallion model is alive and well.  This is why the settlement is such a big deal.  Uber agreed to pay drivers up to $100 million and end its practice of automatically removing drivers who refuse too many rides.  At the same time, the drivers will continue to be classified as independent contractors in Massachusetts and California. 

Uber is by no means out of the woods.  Similar lawsuits are still pending.  And just last week California’s Commissioner of Labor ruled that an Uber driver was an employee rather than an independent contractor.  But this ruling is being appeal and is not binding on anyone beyond the employee involved. 

While the settlement of the Massachusetts and California cases leaves the independent contractor issue undecided, in my ever so humble opinion, anyone looking for the courts to provide a silver bullet, at least in the near future, when it comes to regulation of ride sharing businesses is likely to be disappointed.  For those of you who feel that the system should be better regulated in order to put medallion taxi and ridesharing service on an equal footing, the places to look for relief are State legislatures.

April 25, 2016 at 8:29 am Leave a comment

A Matter of Principal. . .Reduction?

I’m back blogging this morning after attending the State Governmental Affairs Conference all week.  Kudos to those of you who attended.  I understand why most of you are too sane to want to do this type of thing for a living, but a few of your stories to well-place legislators and staff go a long way toward getting things done.  Ok, no more Mr. Nice Guy.

One of the areas of unfinished business is housing policy reform.  An article that came out earlier this week in the Housing Wire reports that New York Attorney General Eric Schneiderman wrote a letter to the Federal Housing Finance Administration urging it to adopt mortgage principal reduction as a policy.  According to Schneiderman, in 2013 alone there were 60,000 homeowners in New York who were delinquent in mortgages controlled by Fannie Mae and Freddie Mac.  He goes on to argue that “there is significant evidence that homeowners who are seriously delinquent on their mortgages are most likely to avoid foreclosure and remain in their homes when reduction of principal balance is part of the loan modification offer. . .while virtually all of the large, commercial single family lenders now include principal reduction in their foreclosure mitigation options,” Fannie and Freddie do not. 

First, I would love to know how much an academic researcher got paid for figuring out that people who get a reduction in their mortgage principal are more likely to be able to afford their house.  Next thing you know, we will have conclusive proof that the sun rises in the East and sets in the West.  Secondly, having just watched The Big Short, calls for principal reduction have a certain facial appeal.  You wouldn’t know it from watching the movie, but Fannie and Freddie were willing participants and contributors to the securitization frenzy that indirectly led to the Great Recession.  Surely, giving a little back is the “right thing to do.”

But then, let’s get back to reality.  First, Fannie and Freddie are bankrupt entities and like any trustee administering a bankrupt estate, the FHFA has a fiduciary obligation to maximize its value.  Furthermore, as my Mother taught me growing up, two wrongs don’t make a right.  Should policy makers do more to reign in the big banks?  Absolutely.  But, for the life of me I don’t understand why taxpayer supported entities should be on the hook for bailing out the bad financial decisions of other taxpayers. 

I believe that if we don’t learn from our mistakes, we are bound to repeat them.  The American public wasn’t a victim of excessive real estate zeal so much as a willing accomplice.  I, for one, don’t want to see taxpayer supported institutions, which shouldn’t even exist at this point, bail out one set of taxpayers at the expense of others who were able to pay their bills.  Foreclosures are a tragedy, but they shouldn’t be avoided at all costs.

http://www.housingwire.com/articles/36747-new-york-attorney-general-pushes-fhfa-for-principal-reduction

 

 

April 14, 2016 at 7:45 am 1 comment

As Poverty Becomes More Concentrated Can CUs Do More To Help?

A disturbing report released by the Brookings Institute yesterday demonstrates why we still need  credit unions.

While it should surprise no one that poverty has increased over the last decade, if the Brooking’s research is correct, it is rapidly concentrating in small metropolitan and suburban areas.

Notwithstanding the pathologies that this kind of concentration produces, it concomitantly makes it easier for financial institutions, including credit unions, to bypass these areas and for politicians to treat poverty as somebody else’s problem.

According to the Brookings Report “By 2010-14, almost 14 million people lived in neighborhoods with poverty rates of 40 percent or more—more than twice as many as in 2000. Of those residents, 6.3 million were poor. Put differently, 13.5 percent of the nation’s poor population faced the double burden of being poor in a very poor place—an increase of 3.0 percentage points over the late 2000s, and 4.4 percentage points higher than in 2000.”

This trend is manifesting itself right here in New York and not necessarily the places you would think of first. For example, the number of people classified as poor in the Albany-Schenectady-Troy area has grown from just under 72,000 people in poverty in 2000. 44% of this population lived in census tracts where at least 20% of the population was poor. By 2014 that number of poor had jumped to over 95,000 and 49% were living in census tracts where 20% of the population was poor.  Similar trends can be spotted in Syracuse, Rochester and the Buffalo-Niagara Falls area.

In other words, we are not only seeing a sharp increase in poverty, which you would expect given the Great Recession, but poverty is being walled off in small and medium size communities that lack the resources to effectively deal with its manifestations.  While we can argue about the reasons for this trend, it’s indisputable that this type of concentration harms upward mobility.  It’s going to be harder for the kid living in these areas to get educated or start a successful business. (I would love Brookings to follow-up this report by correlating poverty concentration with access to mainstream financial services).  This is where credit unions come in.

As not-for profits dedicated in part to helping people of modest means, credit unions are uniquely positioned to help these areas. The law already permits credit unions that can serve them to qualify as low-income credit unions.  In return for these investments, they are given greater flexibility such as the right to take in secondary capital. I have said it before and I will say it again: Every credit union that qualifies as a low-income credit union should take the designation.

NCUA has taken an important first step in its FOM proposal, but ultimately Congress needs to sanction the use of technology to help both credit unions and banks cost effectively serve poorer areas. The internet can serve poor neighborhoods more effectively than a brick-and-mortar branch, but existing legal constraints limit the concept of a credit union’s service area.

Furthermore, legislators on both the state and federal level need to be reminded that catering to the banking industry often comes at the price of limiting financial services in poor communities. The American Bankers Association has led the charge against charter expansions into underserved areas. On the state level New York continues to deny access to credit unions wishing to invest in Banking Development Districts, even though these localities would certainly welcome the option of working with credit unions.  In addition, a simple change to NY law would make it easier for state chartered credit unions to qualify as low income.

But even without these changes every credit union already has a legal and ethical responsibility to ask itself what it is doing to help people of modest means access banking services? If your credit union can’t answer that question then it isn’t living up to its end of the not-for-profit bargain.

(http://www.brookings.edu/research/reports2/2016/03/31-concentrated-poverty-recession-kneebone-holmes)

 

March 31, 2016 at 10:13 am Leave a comment

Congress Not Regulators Must Address Pot Banking

Congressmen and women continue to confuse the issue surrounding why so many banks and credit unions remain reluctant to open accounts for marijuana businesses, even though the DOJ and FinCEN have both issued guidance explaining the circumstances under which institutions will not be accused of violating the law or regulations if they do. THE SALE, DISTRIBUTION, AND POSSESSION OF POT REMAINS ILLEGAL AS A MATTER OF FEDERAL LAW. Rather than prodding regulators to overlook this fact, they should be working on amending federal law so that it is consistent with the law in the many states that have chosen to legalize pot to varying degrees.

What has me going this morning is a letter sent by Oregon’s Senator Jeff Merkley, Senator Patty Murray (D-WA), Senator Michael Bennet (D-CO) and Senator Ron Wyden (D-OR) urging federal financial regulators, including Debbie Matz and Janet Yellen, “to issue clear guidance for financial institutions serving legal marijuana businesses, making it easier for those businesses to access banking services rather than operating on an all-cash basis.”

To be clear, FinCEN has already issued detailed guidance explaining how financial institutions can service these businesses, and DOJ has explained the circumstances under which it will not prosecute them; but, what neither FinCEN, NCUA nor any other federal regulator can do is amend federal law. Last I checked, only Congress can do that. All regulators can do is explain the circumstances under which they will not enforce the law, a troubling enough proposition without Congressmen further confusing the issues with letters seeking guidance.

This isn’t just the Monday morning rant of a father who just hours ago was stuck on the world’s greatest parking lot, otherwise known as the Long Island Expressway on a holiday weekend, with a seven year old who had to go to the bathroom. Perhaps the legislators should take another look at United State’s District judge R. Brooke Jackson’s decision upholding the right of the Federal Reserve to deny Four Corners Credit Union access to the federal reserve system despite the existing guidance. In short, these guidance documents simply suggest that prosecutors and bank regulators might “look the other way” if financial institutions don’t mind violating the law. A federal court cannot look the other way. I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress. Fourth Corner Credit Union v. Fed. Reserve Bank of Kansas City, No. 15-CV-01633-RBJ, 2016 WL 54129, at *4 (D. Colo. Jan. 5, 2016).

Nevertheless, the Senators note with approval that yet more guidance might be forthcoming. We don’t need more guidance; what we need is federal law that explicitly sanctions activities that states have already permitted. Here is the letter.

 

March 28, 2016 at 9:13 am Leave a comment

Let Board Members Talk To Each Other

Here Is A Radical Proposal: Let NCUA Board Members Talk To Each Other Without Violating Federal Law.

I’m not joking. With one very narrow exception, anytime two members of NCUA‘s three member board talk policy they are conducting a meeting that must be open to the public.  Otherwise they are violating federal law.  As credit unions get more sophisticated and the environment in which they operate becomes more complex, this is more than one of those charming little antiquated quirks unique to credit union land.  It is an unnecessary barrier to optimum policymaking and supervision.

The negative consequences of this communications straight jacket were on full display at NCUA’s most recent board meeting. MBL reform is a big deal with important consequences for the industry. The changes were finalized at this meeting, but not before board member McWatters urged the Board to consider additional changes.  Board members Metsger and Matz criticized him for not suggesting these amendments to staff until the prior evening and not giving them a heads-up about his proposal prior to the meeting.  McWatters pointed out that he wasn’t legally allowed to talk to them about these changes before the meeting.  They pointed out that their respective staff persons could have.  Everyone had a valid point; but, it was a scene worthy of the principal’s office, not a regulatory meeting.

Besides demonstrating yet again that McWatters can’t leave the Board soon enough for Matz and Metsger, the exchange underscores why the existing law makes no sense for a three member board.

First, it inhibits the type of informal give-and-take between members that leads to solutions and builds cordiality. How are these people supposed to get along with each other if they can’t even speak to each other?

Secondly, the law doesn’t foster more openness. Instead, it forces board members to play a game of Operator where messages have to be transmitted between staff members. My six-year-old loves playing the game at the dinner table, especially when we have lots of company.  By the time her message gets around the table, something inevitably has gotten mangled in translation even when the wine has not been flowing.  Is this really a good way to make policy?

One solution would be to modify federal law so that two members of the board could talk without violating the law. A second, better solution would be to expand the number of NCUA board members to five.  Not only could board members speak more freely to each other, you also would get a larger variety of views.  For example, the National Association of Credit Union Supervisors has suggested that one board member should be a representative of federally insured state chartered credit unions.

 

February 25, 2016 at 9:58 am 2 comments

The Best Example Of Regulatory Overkill

Today’s blog is for two groups of readers: First it is for those of you visiting Dysfunction Junction(AKA Washington DC) and thinking of how best to articulate to your elected representatives the negative consequences of the regulatory frenzy that the CFPB, aided by some of the very lawmakers you will be meeting with, has unleashed on  the financial sector.  The second group I am speaking to are those of you responsible for making sure that these regulations, whether or not we like them, are implemented in as timely and cost-effective a manner as possible.  It’s time to move this one to the front burner even though most of it doesn’t take effect until 2018.

I am referring to the CFPB’s changes to Regulation C which implements the Home Mortgage Disclosure Act.   Enacted  in 1975,  HMDA is  intended to provide the public, examiners and regulators with a baseline of information about mortgage lending activity particularly in poorer areas.  HMDA’s why credit unions over a certain asset size have to collect mortgage applicant information in a Loan Application Register.

The CFPB has used its authority and gone too far. It has transformed  HMDA into a vehicle for consumers, regulators and lawyers to second guess every mortgage underwriting decision made by your institution.  For example,  the regulation doubles the amount of data points that must be collected when taking a mortgage application. This additional information includes the address of the property securing the loan instead of the census track in which it is located;  the  Credit score relied on and the name and version of the credit scoring model.  Combine this information with laws making it illegal to have lending policies that have the effect of discriminating against potential homebuyers and I’m not exaggerating when I say that your credit union has to prepare for a day in which all of its mortgage lending decisions are open to scrutiny and liability.

Why is this bad? Because a world in which lenders are presumptively prejudice will ultimately hurt and not help the people it is intended to help. For example regulators say they want credit unions and community banks to use their knowledge of their members to think outside the box when it comes to making mortgage loans but the safest way to comply with this new HMDA rule will be to let your computer model make all of the lending decisions.

Aside from the questionable assumptions animating this regulation are the very real costs involved in training staff, updating computer software yet again and insuring that the regulation is complied with on an ongoing basis.

I would also point out that no single regulation is implemented in a vacuum. If all your compliance team had to do was very about getting HMDA compliant by 2018 so be it but this is just one of several new lending regulations not to mention coming changes to MBL loans and risk based capital.

Defenders of the Bureau might point out that it does exempt smaller institutions from some of its mandates. For example The HMDA  changes to which I am referring Begin n in 2018 and only  apply to  financial institutions that  originate at least 25 covered closed-end mortgage loans in each of the two preceding years or at least 100 covered open-end lines of credit in each of the two preceding calendar years,  meet the HMDA asset threshold and have a branch or office in a Metropolitan Statistical Area.

But exempting  some credit unions  doesn’t change the fact that today more credit unions are subject to more regulations-to guard against the recurrence of conduct in which they did not engage-than ever before.

I would tell your congressman that it’s time to let all institutions catch their breath for a few years. It makes sense to examine the impact that all of these changes have on lending practices and consumer access.  I would also suggest to them that they have created a Bureau with too much power to disregard the costs involved in implementing their well-intentioned but often misguided policy nostrums.

 

February 23, 2016 at 9:09 am Leave a comment

King Richard Strikes Again!

King Richard is at it again.

In the latest example of the almost  dictatorial powers he exercises over virtually every consumer product in the country, CFPB Director  Richard Cordray  yesterday took to browbeating banks and credit unions by strongly encouraging them to offer cheaper account options that don’t include overdraft protections and admonishing them to do a better job reporting information to the credit bureaus. His performance demonstrates why Congress has to work with the next president to vest the Director’s powers in the hands of an appointed board.

In a letter to the CEOS of the nation’s largest banks the Director made the case for low-cost accounts:

“Right now, much of the industry presents consumers with a binary result – either an applicant passes a standard screening process to obtain an account after identifying any credit risks posed by the applicant’s history of misuse or mishandling of some prior account, or the applicant is blocked from accessing the banking system altogether. There is, however, a third possibility, which is to offer all applicants a lower-risk account (whether a checking account or a prepaid account) whereby the applicant cannot pose the same level of risk to the institution. Accordingly, the same applicant need not be screened out of the banking system by applying the same risk thresholds that are used to determine eligibility for a standard checking account.”

(Incidentally low-cost accounts have been around in New York since 1994 when the legislature passed a law requiring banks and credit unions to offer low-cost accounts. Today consumers meeting certain conditions are entitled to accounts with at least eight fee free transactions a  month.  N.Y. Banking Law § 14-f ;  3 NYCRR 9.7).  it’s not clear to me what exactly New York institutions should be doing that they are not doing already.)

In his speech he  combined this heartfelt appeal for cheaper accounts   with a warning that “Through our supervisory work, we have found that some of the largest banks lack the appropriate systems and procedures to furnish accurate information on millions of accounts”  As a result, the bureau issued  a bulletin warning banks and credit unions that they must meet their legal obligation to have appropriate systems in place with respect to accuracy when they report information, such as negative account histories, to the consumer reporting companies. More effort and rigor are needed to make sure  that the risks consumers actually pose to potential financial providers can be evaluated correctly.”

Why do I think the CFPB went too far yesterday? It prides itself on being a data driven organization. But  I find it incredibly hard to believe that the financial industry writ large is systemically ignoring the Fair Credit Reporting Act.  I find it even harder to believe that this systemic indifference is so pervasive that it  is a root cause for  why there are so many unbanked consumers  in this country.

It also prides itself on being heavily influenced by advocates of behavior economics such as Cass Sunstein the author of Nudge.  But  The CFPB is no  longer nudging; it is telling institutions what products they should offer and why.  It is becoming increasingly clear that the  Bureau  is driven only by the data that leads it in  the direction it wants to go.

At its core , there is a lack of understanding that banking is like any other business.  It costs money to safely hold people’s money and those costs have to be accounted for.

http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-a-field-hearing-on-checking-account-access/

 

 

 

February 4, 2016 at 9:32 am Leave a comment

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Authored By:

Henry Meier, Esq., Deputy 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.

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