And down the stretch they come…

With the legislative session scheduled to end sometime tomorrow, this is the time when most of the really important stuff is voted on, amended, or left to wither on the vine until next January.

While there are a bunch of bills that I will be talking about in the coming weeks there is of course one that continues to grab the attention of all faithful bloggers; I am talking about the Banking Development District bill which continues to advance. Yesterday it passed the Assembly without being laid aside for debate. The final tally was 83 to 9.

Remember now is the time to be contacting all those Senators and debunk all the nonsense the banks have been telling them. For one thing, credit unions do pay taxes, lots of them. You may also want to point out that this bill does nothing more than allow credit unions to participate in a program that would assist areas with a dearth of banking services.

A second issue that came up yesterday doesn’t deal with legislation, but it is a pressing concern not only in NY, but to anyone who offers mortgage loans across the country. State Comptroller, Thomas DiNapoli, issued a report calling for enhanced state/federal coordination of water quality standards. This gives me the opportunity to sound off on one of my personal pet peeves.

No one is ever going to accuse me of being a tree-hugger, but my research of issues surrounding the water contamination in Hoosick Falls and the potential ramifications of hydro-fracking has demonstrated to me that lenders must get clearer guidance from the federal government and the GSE’s in particular about baseline environmental standards including water quality.

As it stands right now any time a mortgage is sold to the secondary market the seller is making strict liability guarantees regarding the environmental safety of the area in which the property is located. If these warranties are breached the lender can be made to repurchase the mortgage. Obviously, this makes sense if someone is selling land in love canal, but most environmental issues are not as clear cut as the extreme cases that get national attention. The result is that lenders who work with the GSE’s are forced to make tough decisions about the long term environmental impacts dealing with issues such as water quality and mediation, often with little guidance from the Federal Government.

Furthermore, many of the areas in need of environmental remediation are already suffering from economic decline. The hesitancy of lenders to lend in these areas (even for a short time) makes these declines even more dramatic.

I applaud Comptroller DiNapoli for highlighting the importance of this issue, but I would suggest that any comprehensive analysis is incomplete unless it also highlights the need for the GSE’s to work more closely with lenders, lending in areas where the water quality is in need of mediation. One of the most basic things they can do is limit the scope and or length of warranties.

 

Banking Development District Bill Gains Traction

Legislation that would allow credit unions to participate in Banking Development Districts (BDD) (S.6700 -Hamilton)/A.6494B -Zebrowski) for the first time in two decades is gaining traction in both houses of the Legislature as we enter the final week of session. This is good news for anyone in need of greater access to financial services. The bill has advanced to the Assembly floor and has been introduced by the Senate Rules Committee, which means it can be voted on at any time by the full legislature.

The BDD program has been in existence since 1997 with the first district authorized in 1999. The basic idea of the program is that localities and financial institutions jointly apply to the DFS for designation as a BDD. In return for opening up a branch in an area underserved by banking institutions, banks and other depository institutions are eligible for low interest deposits.

The program is a great idea since it makes it more cost effective for financial institutions to provide banking services in areas which are currently lacking access to depository institutions. Unfortunately, as the DFS noted earlier this year, banks and other financial institutions “have submitted a modest number of applications over the last twenty years.” In addition, a 10 year review of the program by the Banking Department concluded that it could be “dramatically improved.” Allowing credit unions to participate in the program could provide the jolt it needs to be truly effective.

Shock of shocks, the usual suspects are trying to kill the bill. The kneejerk opposition of the banking industry, while utterly predictable, is even more cynical than usual. Despite the fact that the industry has demonstrated a lack of interest in participating in the program for almost 20 years, it is fighting to keep credit unions from enhancing the program.

This is the latest example of banks being so opposed to credit union that they are putting their own perceived interests above consumers. Despite the fact that we live in one of the wealthiest states in the nation, there are millions of New Yorker’s who have no choice but to turn to check cashers and payday lenders. Anything the Legislature can do to encourage and help persons of modest means get their monies deposited in to a financial institution is in everyone’s best interest.

 

Choice Thoughts on the CHOICE Act

With the usual caveat that the opinions I’m expressing are those of a middle-aged insomniac typing away in his hotel room and not necessarily those of the Association for whom he works, here is my take on what’s good, bad and ugly about the CHOICE Act (HR 10) that was marked up and passed by the House Financial Services Committee last Thursday.

The Good

• Making the CFPB’s director an at-will servant of the President.  Under the current structure, the Director is, at best, a benign dictator who acts as the judge, jury and executioner for every federal consumer protection law.  This is just too much power to give to one person and most likely unconstitutional.
• Codifying the requirement for a public hearing on the NCUA’s budget and publicly disclosing the Overhead Transfer Rate – the secret sauce formula NCUA uses to divide up the cost of Share Insurance Fund audits between state and federally insured credit unions.
• Providing banks an “off ramp” from Basel III’s risk-based capital requirements.  The bill allows banking organizations that maintain a leverage ratio of at least 10 percent to opt-out of Basel III capital and liquidity standards.  This one doesn’t apply directly to credit unions.  But, NCUA has always argued that it is required to impose capital requirements on larger credit unions that are similar to those imposed on larger banks, so this provision provides a further push for the NCUA to re-examine the need for phasing in RBC requirements.
• Eliminating Chevron Deference.  The bill provides that courts reviewing the legality of federal regulations should not give deference to an agency’s interpretation of the federal law the regulation is implementing.  I love this one.  It would force Congress to write more coherent laws and dramatically trim the de facto legislative powers of administrative agencies.
• Requiring all financial regulators to take into consideration the risk profile and business models of each type of institution or class when deciding whether they should be subject to regulations.

The Bad

• Forcing regulators to consider whether enforcing regulations on credit unions and true community banks makes sense, but doesn’t go far enough.  Does anyone think that a $50 million credit union has anything in common with Wells Fargo?
• We need a larger NCUA board so that members can actually talk to each other and a single member can’t veto proposed regulations every time one of the three seats is empty.

The ugly

• Too big to fail, jail and regulate is alive and well. As long as banks are so large that the only way they could fail is if a majority of regulators and politicians are willing to risk being blamed for standing by and letting a Depression take hold, creating a bankruptcy framework for the largest banks won’t prevent bail outs.  For that matter, neither will the “living wills” mandated by Dodd-Frank.  Make institutions small enough so that the free market can decide who should win and lose, not investment bankers turned regulators.

Regardless of what you think of some of the specific provisions in this bill, there is something unseemly about seeing politicians doing so much to ease restrictions on the largest banks less than 10 years after they brought this country to its economic knees while doing so little to help the smaller lenders who played by the rules and suffered the consequences.  Is there any wonder why so many Americans think the system is rigged against them? Let’s hope the final product produced by Congress is better than this first draft.

6 Reasons to Pay Attention to Politics This Week

 

The 100 day milestone of the experiment called the Trump Presidency combined with a Saturday deadline for the country to either expand its borrowing authority or default on the credit card payment called the national debt is conspiring to make this one of the most intriguing political weeks since the election. 

 

Back from its two week Spring break, the House of Representatives will begin to focus in earnest on the roll-out of CHOICE Act 2.0, the radical blueprint for regulatory reform.  A Hearing is scheduled for Wednesday, April 26^th at 10:00 am.  While I am somewhat skeptical that the Senate will have the ability to grapple seriously with the issues raised by this Legislation any time soon, it will provide a wonderful opportunity for credit unions to continue to make the case that Dodd-Frank has done more harm than good when it comes to credit unions and true community banks.

 

Part 2 of the State Legislative Session kicks off as Assemblymembers and Senators reconvene after their break.  Not coincidentally, this coincides with our Annual State Governmental Affairs Conference.  The Executive and Legislature have each signaled an interest in taking a fresh look at some old classics.  Whether you like politics or find it more distasteful than a glass of orange juice after brushing your teeth, we participate in the most highly regulated financial industry in the country.  Everyone reading this blog has an obligation to engage policy makers at the state and federal level in our efforts to provide relief.  Besides, on Tuesday morning, you’ll hear a presentation from E.J. McMahon, the Research Director of the Empire Center for Public Policy.  I’ve always been a big fan of his since he’s the only man I know in Albany who has been able to make a living being an unabashed Conservative. 

 

As part of this frenzy to solve all the world’s problems in the first 100 days of his Administration, President Trump surprised friends and foes alike when he announced on Friday that he would outline plans for the mother of all tax reform on Wednesday.  No one honestly believes that this will be accompanied by anything resembling Legislation anytime soon, but depending on who you talk to on Capitol Hill, if Congress does get serious about a major tax overhaul, everything is on the table.

 

There may be a lot of sizzle this week, but with Congress’ spending authority about to run out, there will be some serious brinksmanship.  This is a particularly common and dangerous game of chicken in which opposing parties threaten to let the nation default if they don’t get a major priority included in the debt extension agreement.  The conventional wisdom, as reflected in the Sunday papers, is that the Wildcard this year is the Administration.  Democrats and Republicans have quietly worked toward an extension agreement but Budget Director and former-Congressman Mick Mulvaney threw a fly in the ointment when he suggested that President Trump would not sign off on a deal unless it included funding for a Border wall.  This is a poison pill for Democrats.  By the way, everyone knows that a default on the national debt would be an absolute disaster, but the more commonplace this game becomes, the more likely we are to see it spin out of control.

 

Last but not least, keep an eye on the outcome of the French elections.  Now that the French have decided on the two finalists who will face off for the Presidency, we have another important referendum on whether or not the world still supports the post-WW II order based on free markets and Democratic values or whether people are so angry that they want to blow it up and start from scratch even if they have no ideas for its replacement.  Don’t fool yourself, the same debate rages on in this country. 

 

Yours truly has a busy schedule this week, I will be checking back in with you on Thursday.

 

 

 

 

 

Why SC Ruling Will Make Your Debt More Attractive

Expect “debt collectors” to have more interest in buying your delinquent loans as opposed to simply contracting for a percentage of collection recoveries if, as expected, the Supreme Court rules in favor of Santander Consumer USA, Inc.

Oral arguments were heard on the case yesterday, in an important collections case, and we can expect a ruling sometime in June. You can also expect states like New York to take a renewed interest in strengthening state level restriction on debt collection practices.

The FDCPA was passed by congress to deter abusive debt collection practices. It was intended to crack down on third-party collectors which is why it does not apply to banks and credit unions which are collecting on their own loans. The question is who exactly is a debt collector under 15 U.S.C.A. § 1692a (West). Under the statute, a debt collector is any person….”who regularly collects or attempts to collect, directly or indirectly debts owed or due or asserted to be owed or due another.” Santander purchased billions in car loans and set about collecting on those that were delinquent. Borrowers alleged that their aggressive collection practices violated the FDCPA, but when they tried to sue Santander for violations it successfully argued before the Court Of Appeals for the Fourth Circuit. Their argument was that since it was collecting on debt it owned, the statute didn’t apply to its activities.

According to press reports, justices weren’t buying the argument of the borrowers yesterday, who argued that Santander was taking advantage of a loop hole that is inconsistent with congress’s intent when it passed the FDCPA.

No matter how the Federal Law is interpreted, New York is one of several states that has a state level DCPA modeled after the federal law. In a brief submitted to the Supreme Court, New York joined several such states in arguing that existing state level prohibitions aren’t adequate. The brief noted for example, that New York’s debt collection statute (NY General Business Law § 600 et. seq.) has traditionally been interpreted in reference to the federal law and that it does not permit consumers to bring a lawsuit.

Stay tuned – this provides another classic example of how a change in direction in the federal level is often met with push back on the state level.

Good Riddens To The Filibuster

Yesterday the Senate evoked the so-called nuclear option, by changing the senate rules with a simple majority to force a vote on Supreme Court nominee, Neil Gorsuch.

This is one of those issues that have been screaming at my newspaper about, so let me take a break from talking about the financial issues of the day to tell you why I am so agitated. When I hear people wax nostalgic  about the filibuster, it is kind of like hearing a movie critic extolling the virtues of the play he saw at Ford’s Theatre. Or, better yet,  it is like the guy at the bar drowning his sorrows  who fondly remembers the good times with his “crazy “girlfriend who was, in fact, crazy.

The simple truth is that the filibuster is an antiquated vestige of a bygone era that increases voter disenchantment with the legislative process by imposing a super majority requirement on the passage of bills no matter how important they may be. Yesterday’s rule change only applied to Supreme Court nominations but it is only a matter  of time before  the senate moves to limit the filibuster’s use in stalling l legislation.  For me the change can’t come soon enough.

Today’s filibuster isn’t Jimmy Stewart’s filibuster which required a dedicated group of legislators to publicly refuse to yield the senate floor so long as they could stand up and keep talking.

By the mid 1970’s a senator didn’t have to be physically present to vote to continue a filibuster and senate procedures introduced a dual track. Under this approach,  the senate can move on to other legislation while the filibustered  legislation remains frozen.

All this means is that the modern day filibuster is no longer about a determined minority willing to take a stand against legislation it doesn’t like; rather it is a de facto requirement for a 60 vote super majority to pass legislation.

This isn’t a recipe for thoughtful deliberation but an invitation to obstruct on a grand scale. It’s what keeps a simple majority from voting to restructure the CFPB or reconsider the Durbin Amendment.

For those of you, such as the Association’s Vice President of Governmental Affairs, who insist that the filibuster ensures that the legitimate  points of the minority party can’t simply be ignored. I say this has more to do with changing political realities than with any procedural safeguards.

The filibuster has never been what made the senate a collegial body. Just a generation ago, you had liberal northeast republicans who worked with southern democrats and conservative Dems who worked with republicans. Today such bi-partisanship is an invitation to be primary.

I am glad I got that off my chest, thanks for listening.

Have a great weekend.

Will CFPB’s Pre-Paid Card Rule Increase Consumer Fraud?

As it stands right now, reports of the demise of the CFPB have been greatly exaggerated. It is still diligently going about its business of protecting consumers from themselves even as it continues to insist that its primary goal is to simply insure that consumers are receiving adequate financial information about the products they are purchasing.

Take for instance the CFPB‘s final rule extending Regulation E protections to those prepaid reloadable cards that are becoming an increasingly common way for individuals to transact basic banking services without going thru the hassle or expense of opening an account. The basic idea of the Regulation is that consumers who registered their accounts with the institution that issued the pre-paid cards would receive Regulation E style protections in return for financial institutions being able to perform customer identification checks on these new members. The final rule was to kick in on October 1st.

One area of particular concern has to do with extent to which Regulation E’s liability protection framework should be extended to the holders of pre-paid account cards. Under existing law a consumer who provides notice of an unauthorized use of a debit card within two business days of learning of the theft, or loss of the card can only be held liable of the lesser of $50.00 or the amount of the unauthorized transfer. If notice is received after two business days, the consumer’s liability is capped at no greater than $500.

In the final rule the CFPB decided to extend its one sided liability protections even to consumers who have not yet registered their accounts or for whom CIP protocols have not yet been completed. This approach has not sat well with critics of the CFPB. For example, an article in this morning’s American Banker noted concerns that the new rule has “opened the door to potential fraud by unregistered pre-paid card users” it quotes Ben Jackson, the director of prepaid advisory services at Mercator Advisory Group. Jackson suggests, “The problem only exists once the rule to provide this protection goes into effect, and suddenly unregistered cards might become hugely popular as fraudsters start buying them.” The scenario envisioned by the rule’s critics involves fraudsters buying big ticketed items with unregistered pre-paid cards and then claiming that they were unauthorized. Remember the burden is on the financial institution not the consumer to prove the purchase wasn’t authorized.

The CFPB addressed these concerns by stipulating that consumers don’t have to be provisionally credited for unauthorized payment until a CIP review is completed , but given how difficult it is to prove that a transaction was authorized this a little comfort to pre-paid card issuers.

Given the expended use of reloadable pre-paid cards and electronic devices there is a good chance that this regulation will impact your operations. Even if you don’t issue prepaid card accounts now , you will sometime in the near future . For instance, the definition finalized by the CFPB includes accounts that are issued on a pre-paid basis or capable of being reloaded with funds whose primary function is to conduct transactions with multiple unaffiliated merchants for goods or services, or at ATM’s, including person to person transfers.