Posts filed under ‘Advocacy’
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.
Currently, New York law not only prohibits municipalities from depositing their funds in credit unions, it also prohibits these funds from being deposited in savings banks and savings and loan associations. To me, it’s obvious that municipalities should be able to place their tax dollars wherever they get the best return. For several years now, the Association has advocated for municipalities to be able to deposit their funds not only in credit unions but in these thrifts, as well.
Unfortunately, the banking lobby is so dogmatically opposed to municipal choice that it would rather prohibit some of its own members from accepting municipal deposits than give municipalities the option of depositing funds in credit unions. The latest example of this short-sighted and wasteful viewpoint was revealed in an article in the American Banker last week, in which banking lobbyists proudly proclaimed that they are opposed to legislation once again introduced this session to permit all thrifts and credit unions to accept municipal deposits.
In fact, John Witkowski, President and Chief Executive of the Independent Bankers Association of New York State, sounded a bit paranoid when he explained to the American Banker that “we really have to defend ourselves against what credit unions are trying to do, to expand into the community banking territories geographically and business-wise.” As for the members of his Association harmed by this stance, he explained that “you can’t please everybody,” i.e. let them eat cake. These comments drew a retort from CUNA’s Jim Nussle, who explained that it’s unfortunate that banks put protecting themselves from competition ahead of increasing alternatives to municipalities and households.
It’s easy to get jaded around politics. After all, there are times when the best defense is a good offense. If I worked for the Bankers, I would have no choice but to argue that the big, bad credit unions are using their tax-exempt status to destroy banking as we know it. But, as jaded and cynical as I can get about politics, the most positive thing I will continue to say about it is that the person with the best argument will ultimately win the debate. It’s just a question of how long the battle will take.
It simply makes no sense to prohibit municipalities from placing funds in credit unions. They are federally insured, just like banks. Twenty-five states already give municipalities similar freedom, it would save taxpayers money by ensuring they get the best return on their tax dollars, and when a municipality places money in a credit union, it is assured that its money is being reinvested within its local community for the benefit of its residents and employees. Oh, and one more thing, credit unions do pay taxes. They simply don’t pay corporate taxes.
By the way, since we’re talking about taxes, I wonder how many banks taking in municipal deposits are structured as S-Corporations precisely because this corporate structure allows them to avoid being taxed at the corporate level?
In the movie “The Day After Tomorrow” the climate gets so severe that millions of people have to flee to Mexico in search of warm weather. I was thinking of this plot line as I drove down to North Carolina for my Niece’s wedding this weekend after spending some time in DC. You have to get to Southern Virginia before you see any real signs of Spring.
It felt unnatural to be intentionally heading North on Sunday afternoon. That being said, my wife was getting tired of my mutterings about insurance funds and megabanks so it is time to get blogging again.
Last Monday I noticed that the retired Captain Ahab to the credit union’s industry’s Moby Dick was up to his old tricks. With some excellent research Keith Leggett reported that the NCUA sent a Whit Paper to Congress a couple of years ago seeking legislative authority to create a more complicated and ultimately larger share insurance fund for the credit union system.(http://creditunionwatch.blogspot.com/2015/04/ncua-white-paper-on-reforming-ncusif.html ) CUNA has provided a link to the document. Maybe it’s because I was viewing all this from a distance, but a system that ties insurance fund assessments to both the size and complexity of a credit union’s operations makes sense to me…in theory.
First let’s be honest and admit that the existing share insurance fund didn’t adequately shelter credit unions from the financial Tsunami. If we didn’t get a loan from the treasury Department to payback the debt of the failed corporates the industry would be an empty shell of itself.
Second as the split between larger and smaller credit unions grows larger and larger it make sense that the larger more sophisticated credit unions that pose the greatest risk to the Share Insurance Fund take on a greater burden.
Third this should be a long-term plan. The last thing credit unions need right now is another compliance burden. Let’s establish an RBC framework and then work as an industry and present Congress with a unified sensible plan for share insurance reform.
Fourth-I love when credit unions complain about NCUA’s compliance burdens and muse about converting to banks. There is not a single credit union that would want to be subject to the FDIC’s insurance fund requirements. Not only are they more complicated, but the FDIC has the type of discretion that makes credit unions nervous. Let’s make sure that, if and when Congress does take up share insurance reform , NCUA isn’t given unfettered discretion to devise what it considers to be a safer system.
Beyond hubris… For those of you who may have missed it Jamie Dimon, who has spent more time negotiating with prosecutors over the last year than a Manhattan public defender, once again feels secure enough in his banking genius to use a letter to shareholders to explain that most large banks did great during the Great Recession; that mismanagement of small banks was the real cause of bank failure and that over regulation of banking geniuses like himself is laying the groundwork for the next financial crisis. This is a lot like an alcoholic blaming Alcoholics Anonymous for his addiction: After all If he didn’t have to acknowledge he had a problem he could have kept on drinking.
As Camden Fine of the Independent Community Bankers wrote in this excellent American Banker piece (http://www.americanbanker.com/bankthink)last week:
Ridiculing the smaller financial institutions that have to answer to the free market — that do not enjoy an absolute taxpayer backstop against failure — is beyond hubris. It shows a complete unwillingness to accept responsibility. It shows that Wall Street, infantilized by privilege, has learned nothing from what it wrought in those panic-stricken months in 2008 and 2009 and in the years of economic doldrums that have followed.
That is not only infuriating to those of us who have had to survive on our wits instead of billion-dollar backstops — it is fundamentally dangerous…”
Amen Brother! Why aren’t credit unions yelling from the rooftops that more has to be done to hold large banks to account for their recklessness? If we have learned anything over the last seven years it is that our industry will pay a disproportionately heavy price for the mismanagement of the banking system by the megabanks. This is not about demagoguery it’s about survival.
Today my blog is like a mall food court – there is a little something for everyone just so long as you aren’t expecting a great meal.
Senate Minority Leader Chuck?
This is huge news that might be even bigger for New York. It’s just been reported that current Senate Minority Leader Harry Reid, D-NV, will not seek reelection. Power abhors a vacuum and you can bet that Senators are already talking about who will replace Reid as the Chamber’s top Democrat. One of the most likely candidates is New York’s own Chuck Schumer. He has developed a reputation as one of the Senate’s top tacticians and his past chairmanship of the Democrat’s Senate Campaign Committee means that he has fostered the type of long term relationships that are awfully important in leadership fights.
Smartphones Are Smarter Than You Think
Just how important is the smartphone to your growth plans? Whether you want it to be or not, it is absolutely crucial because more and more of your members are using their smartphones to access services. Yesterday, the Fed released its fourth annual survey of mobile phone use. According to the Fed, as of December 2014, 39 percent of adults with mobile phones and bank accounts reported using mobile banking – an increase from 33 percent a year earlier. Furthermore, although people continue to use their phones for the more basic transactions – such as checking account balances – they are getting more adventurous. I was surprised that 51 percent of mobile banking users reported depositing a check using their mobile phones, up from 38 percent a year earlier.
Viewing the mobile phone as just another access device is tantamount to describing the Model T as just another vehicle. It magnifies the power of the web by cost effectively giving everyone the means to transact business with anyone else anywhere in the world at the touch of a button. For those of you who want to delve more deeply into the issue, here is a link to a great recent article in the Economist magazine. Here is my favorite quote:
“Smartphones are more than a convenient route online, rather as cars are more than engines on wheels and clocks are not merely a means to count the hours. Much as the car and the clock did in their time, so today the smartphone is poised to enrich lives, reshape entire industries and transform societies—and in ways that Snapchatting teenagers cannot begin to imagine.”
The Great Bank Robbery
I’ve always been ambivalent about the Tea Party movement. On the one hand, it started as a visceral reaction to the banking crisis. People saw the average middle class family losing their homes in the name of capitalism while the very institutions that tanked the economy got a taxpayer bailout. On the other hand, their misdirected rage has been harnessed by a clever group of anti-government extremists masquerading as Republicans, but that’s a blog for another day.
This morning’s WSJ has an extensive article about how “regional banks” are once again lending money to factories. What caught my eye and stirred my ire in the article were quotes from small business owners about how difficult it was to get the loans three or four years ago when they would have been most useful.
Let’s not let bygones be bygones. Every time a legislator questions why credit unions need authority to make member business loans or worries that the big bad credit union movement is somehow undermining community banking, let’s remind them that the same institutions he or she wants to protect are those that took Government handouts and did nothing to help the American consumer in return. Sometimes the truth hurts.
About That Pregnant Employee. . .
Here’s one for your HR people. A couple of days ago the Supreme Court decided one of the most interesting HR cases of the year: Young v. United Parcel Service. I thought the case involved a fairly straightforward question – asking whether a pregnant part-time employee was discriminated against after the company refused her request that she not be required to lift heavy packages. Apparently, the issue is not as clear cut as I thought. The Court’s ruling seems to make dealing with the claims of pregnant employees more complicated than it was just a few days ago. As summarized by the SCOTUS blog, the ruling “sets up this scenario for a female worker claiming she was the victim of pregnancy bias: she must offer proof that she is in the protected group — that is, those who can become pregnant; that she asked to be accommodated in the workplace when she could not fulfill her normal job; that the employer refused to do so, and that the employer did actually provide an accommodation for others who are just as unable, or unable, to do their work temporarily.”
A man, even one who blogs, has to know his limitations. This is a case to ask your seasoned HR professional about.
New York Attorney General Eric T. Schneiderman used a recent appearance before the New York State Association of Towns to announce that he would soon be introducing new and improved legislation aimed at making lenders more responsible for abandoned property that has not been foreclosed upon. Under this version, fines levied against lenders for non-compliance with property maintenance requirements will be given to local governments “to hire additional code enforcement officers.” According to the press release, independent Democratic conference leader Jeffrey Klein and Assemblywoman Helene Weinstein will be sponsoring the legislation.
First, a caveat. The views I express on legislation in this blog are mine and mine alone and do not necessarily reflect the views of the Association as a whole. There’s a second caveat. I understand why AG Schneiderman and the town leaders are so concerned about vacant property. According to the AG, in some areas of the State up to 42% of the properties in foreclosures are abandoned before the process is complete. The result is that property lays vacant and deteriorates as homeowners walk away from their responsibility to care for their homes and lenders are less than enthusiastic about assuming the legal responsibility for a deteriorating piece of real estate.
Schneiderman’s bill seeks to address this problem by imposing requirements on mortgagees and servicers. Specifically, Section 1307 of NY’s Real Property Actions and Proceedings Law currently imposes maintenance obligations on a plaintiff in a foreclosure action who obtains a judgment of foreclosure. The most important thing this bill will do is impose maintenance obligations on lenders and servicers whenever property is vacant and abandoned or a foreclosure action has been commenced. Among other things, vacant and abandoned property can be any property that is at least three months delinquent and vacant or the mortgagor has informed the mortgagee in writing that they no longer intend to occupy the property. Assuming your typical delinquent homeowner won’t be quite so conscientious, property can also be classified as vacant where there is “a reasonable belief that the property is not occupied.”
What frustrates me about proposals like this is that they refuse to address the core reasons behind zombie property in the first place. New York has one of the most difficult and time consuming foreclosure processes in the nation. It’s not uncommon for lenders to take four years to complete a foreclosure. Rather than imposing obligations on lenders with regard to property they don’t own, why not simply expedite the foreclosure process?
For example, we should use this legislation’s definition of vacant and abandoned property as a basis for allowing foreclosures to go through without many of the procedural hurdles that are currently in place including the requirement under New York Law for pre-foreclosure settlement conferences. In addition, any party that fails to show up in a foreclosure proceeding should be understood as having waived any and all defenses to the foreclosure.
Ironically, many of the towns supportive of this legislation are well aware of what a disaster a foreclosure in New York can be. Under New York Law, municipalities have a first-lien right to foreclose on property on which delinquent taxes are owed. It seems to me somewhat disingenuous to complain about lenders not taking responsibility for real estate they don’t own when municipalities could, in many instances, take control of the same property but choose not to. I wonder why?
And one more thought. It’s one thing for a lender who has taken over foreclosed property to be responsible for proper maintenance. It is another thing to impose on that lender the obligation to refurbish property that may not have been up to code for years before the lender entered repossession. Under this bill, municipalities would have the right to intervene in foreclosure actions to mandate that property be maintained up to code. Let’s think about this for a second. The GSEs have already complained that New York mortgages are not as valuable as in other parts of the country because of foreclosure costs. Now we are going to make the system even more expensive by allowing municipalities to impose a back door maintenance tax on mortgagees.
Finally, I personally would love to know how much of the stock of zombie property not only in New York but nationwide is owned by Fannie and Freddie. My guess is that we might find that these government sponsored entities are not particularly conscientious absentee landlords.