Why Robocall Crackdown Is Hurting Your Credit Union

Contrary to popular belief the biggest obsession in DC right now isn’t the impeachment trial; it’s auto dialing. While it’s hearting to see that the Democrats and Republicans can agree to something, the result of this bi-partisan obsession is that it’s trickier for your credit union to legally communicate with its members than it should be.

First we have yet another decision– Glasser v. Hilton Grand Vacations Co., LLC, No. 18-14499 (11th Cir. 2020)- interpreting what an auto dialer is for purposes of the Telephone Communications Protections Act. Remember, whether or not your credit union is subject to the TCPA is totally dependent on whether or not it is using an auto-dialer when it reaches out and touches someone. Law 360 is reporting that the 11^th Circuit refused to allow an individual to go forward with this class action lawsuit claiming a violation of the TCPA.

The case got my attention because the court agreed with an earlier decision by the Court of Appeals for the D.C. Circuit which I have blogged about – ACA International v. Federal Communications Commission- which rejected an expansive interpretation of auto-dialer championed by our friends on the West Coast. The split between the circuits increases the likelihood that the Supreme Court will have to decide how to interpret the TCPA.

Of course, the more logical step would be for Congress to amend the TCPA to make sure that it outlaws abusive telemarketing as opposed to acting as a tripwire for class action lawsuits. But the odds of anyone in Congress voting for a bill which could be attacked as weakening the TCPA are about as good as Donald Trump being removed from office by the Senate.

All this is happening against the backdrop of heightened regulatory vigilance of auto dialers. For example, the DOJ is seeking to shut down two auto dialer companies that facilitated auto dialer operations based in New York and Arizona, which the government claimed specialized in ripping-off the elderly. In addition, regulators are continuing to review whether even more TCPA regulations should be amended. As a matter of fact, it was this comment letter from CUNA last night that got me thinking about this subject for today’s blog.

There is a reason I am providing you with this parade of horribles. No one likes robocalls, or has sympathy for companies that facilitate shams intended to pressure people into giving up their money. But there are legitimate businesses, such as credit unions, which use this technology every day to communicate with their members about legitimate topics. The current frenzy has regulators using a hatchet to deal with legitimate issues when they should be using a scalpel. I don’t see this ending any time soon. So for those of you who haven’t done so already, take a good look at the type of technology you are using and start thinking of ways that you can avoid getting caught in the regulatory dragnet.

 

Key Federal and State Proposals Rolled Out

Well, the holiday season is officially over. Judging by the amount of information I want to give you in today’s blog, it’s clear that our policymakers are hitting the ground running. Remember, this is an election year.

Let’s start with some federal guidance.

The NCUA released its annual list of supervisory priorities. Close your eyes and guess what NCUA has listed on their agenda for this year. You got it. The BSA compliance! Listen, I understand that few statutes are as important to properly implement, but if there is a credit union out there that doesn’t understand the importance of BSA and have a grasp of how to comply with it, that credit union has issues that a regulatory guidance can’t help with. What I am surprised by is that Libor is so far down on the list. If I were making the list, my top priorities would be cybersecurity, business continuity, which should be viewed as opposite sides of the same coin, potential liquidity risks- because the ongoing need of the Fed to prop up overnight lending facilities continues to scare the bejeebies out of me, and our good friend CECL, because I don’t think credit unions should in any way be encouraged to ignore implementation issues before it’s too late.

As painful as this is for me to admit, as between my priorities and NCUA’s, it makes sense to follow NCUA’s list.

Supervisory Guidance Issued

A regulation which has flown under the radar has been one finalized by NCUA in September intended to assist credit union supervisory committee audits by providing a more concise framework and explanation for minimum audit requirements. Yesterday, the NCUA issued a guidance complimenting this regulation, which succinctly explains what these minimum obligations are. Anyone involved with the supervisory committee should take a look. I of course have some opinions about this as well, but I still have much to talk about today, and I’m in too good of a mood to get hate mail.

Governor Unveils Ambitious List of Financial Services Initiatives

I’m going to go out on a limb here and say that the Governor’s 10^th list of legislative priorities for this year’s New York session includes the most comprehensive list of priorities that could impact credit union operations since he was first elected. In addition to the issues he addressed in his State of the State, which included a pointed criticism of banks for not providing services in many of the areas that need them most, his book includes several priorities which we will be scrutinizing once they take legislative form. Among the proposals that caught our eye is one dealing with reporting suspected elder abuse; further strengthening of state law banning unfair and deceptive practices; a state-level crackdown on robo-calls; and enhancing the oversight powers of the Department of Financial Services.

In addition to the issues directly dealing with financial service issues, Cuomo once again called for the legalization of the sale of marijuana for recreational use and even wants to create an institute for the study of hemp and marijuana within the SUNY system. I was chatting with a longtime colleague and lobbyist after the presentation, and he pointed out that one of the reasons you may actually see agreement on this measure is the State’s fiscal deficit. The reality is that the state can plug in estimates of projected tax revenue to help fill the gap.

Believe it or not, there’s even more, but I think you have better things to do with your time than engage in a one-sided conversation with yours truly. That being said, as many of you already know, you can always e-mail me or give me a call if you want to follow up with anything I’ve mentioned.

Have a great day.

Financial Issues Loom as a New Legislative Session Begins

Good morning!

This is actually one of my favorite days of the year. It is a cross between the first day of school and the first day of spring training for Met fans. So many possibilities, so much hope… so much room for disappointment.

The Governor gives his annual State of the State address today, and given the amount of information that has already been leaked about the presentation, it’s fair to say that financial empowerment is going to be a prominent theme in 2020. Most notably, it appears that Governor Cuomo is going to propose funding the state level CDFI fund. To put this in perspective, more than a decade ago, the legislature enacted a legal framework for a state-level fund to aid in community development financial institutions. Significantly, several credit unions in New York State are CDFIs, but the designation is not limited to traditional financial institutions.

Ever since the framework was created, however, the fund has been nothing more than an outline as it has never actually received funding. Frankly, I have never understood why this is the case, since I’ve never met anyone who opposes the idea. Now, it appears that the Governor’s high level of support at the start of the budget season may actually bring about some action, with $25 million being committed to the fund over a five year period. It is a start.

The Governor’s initiative is part of an effort to “increase access to safe, affordable bank accounts and small-dollar loans in underserved low-income communities across the State.”

Again, this is opening day. We won’t know until the press release gets translated into legislative proposals precisely what will be undertaken or its impact on credit unions.

Meet the New Boss

This is always the time of year when committee memberships get shifted around. One change worth noting is the announcement that Assemblyman Thomas Abinanti of the Westchester area will be the new Banks Chair. He replaces Assemblyman Ken Zebrowski, who has sponsored our municipal deposit legislation in the past. We will of course be reaching out to Assemblyman Zebrowski to discuss the Association’s priorities.

…Speaking of new bosses, Central New York Assemblyman Will Barclay has been named the new leader of the Assembly Republican Conference. The position has waned in recent years as the Assembly is comprised of just 42 Republicans, giving the Assembly Democrats the ability to override vetoes without Republican support. Still, the Minority Leader has a high-profile bully pulpit. In addition, Republicans can delay passage of bills by forcing debate on proposed legislation. In the past, the Assemblyman has been a sharp critic of credit unions.

Why passage of BDD legislation is a big deal

Good morning folks! As many of you undoubtedly know by now, last Thursday, Governor Cuomo approved legislation permitting credit unions to participate in the Banking Development District (BDD) Program. Here are some initial takeaways.

• Now comes the hard part. Now that credit unions have the ability to participate in the program, it is incumbent on the industry to take advantage of this opportunity. Here is a link to information about the BDD Program. The Association is, of course, more than willing to help with the process.
• A win is a win is a win. If the definition of insanity is doing the same thing over and over again and expecting different results, then many credit union lobbyists are pretty close to insane. The BDD Program began in 1996 and credit unions have been arguing for inclusion ever since.   However, persistence gets results and ultimately, the better argument wins the day, even in Albany. It just takes a while.
• Passage of this bill is an important step toward allowing all municipalities to put deposits in credit unions. Its enactment further undermines the argument that credit unions can’t be trusted with public funds or somehow don’t deserve to play on the same field as banks.
• Last but not least, this is an important win for New York consumers. Governor Cuomo’s Department of Financial Services originally proposed extending the BDD program to credit unions a few years ago out of frustration that not enough banks were participating in the program. It also recognized that maximizing the number of potential financial partners for local communities in need of economic development was a good thing for New York consumers. The Department was right to propose the bill and the need for struggling communities to access financial partnerships has, if anything, increased in the last few years.

Another big win for CU Field of Membership Case

Credit unions got one step closer to solidifying the decision of the Court of Appeals for the DC Circuit upholding most of NCUA’s 2016 Field of Membership regulations when that same court on Thursday rejected a motion by the bankers requesting that the entire court reconsider the decision en banc. En banc is a motion requesting that an entire circuit court, and not just a three judge panel, reconsider a decision.

The rejection of this motion means that the bankers now must decide whether or not to request that the Supreme Court hear an appeal of a case. My guess is that they will file a petition. After all, if it’s fourth and ten with two minutes left on the clock and your team is down by three points, there is no down side to going for a first down. Also left to be decided is that portion of the decision requiring the NCUA to amend its regulations to prevent racial gerrymandering of credit union service areas.

On that note, have a great Monday!

It’s Congress, Not the Tax Exemption, That is Killing Community Banks

Cachet Financial Services, the company that I talked about in my blog this past Thursday, is going out of business. Cachet is the company that facilitated ACH payroll transactions for MyPayrollHR, whose founder has admitted to engaging in fraudulent transactions totaling in the multi-millions. In my blog on Thursday, I described the relationship that led to tens of thousands of employees not having immediate access to their paychecks. In today’s blog, I’m going to point out how the troubles of Pioneer Savings Bank underscore just how counterproductive and intellectually dishonest the attacks on credit unions by community banks like Pioneer are.

Pioneer has been caught in the MyPayroll mess. It stands to lose at least $35 million because of banking services it provided to the payroll processing company. Pioneer is based in the Albany Capital Region and in January of this year, it reorganized into a mutual holding company. More and more “community” banks have reorganized into these structures. As explained in my trusty Banking Law Handbook, the MHC structure is designed to permit the advantages of being in a holding company structure, which allows the banks to issue stock and gain other access to the capital markets while providing them protection against the ever-present threat of a takeover. The problems faced by Pioneer are serious enough that it felt the need to refile its SEC disclosures, leading to an announcement that it was in danger of being delisted by NASDAQ.

As I explained in my previous blog, my purpose has always been to aid credit unions without bashing banks. It’s extremely difficult to hold my fire in this case, though, because Pioneer has been one of the banks in New York quickest to criticize credit unions and oppose common sense innovations such as permitting credit unions to compete for municipal deposits, in part on the grounds that credit unions are not sophisticated enough to take on these responsibilities. I’m not going to take this opportunity to argue that because of Pioneer’s troubles, no savings bank should be allowed to take on huge commercial loans or accept municipal deposits. It would be dumb to suggest that the mistakes of one or two institutions should be held against an entire industry. Then again, that’s the type of nonsense that the banks argue on both the state and the federal level every day.

In fact, there is much that credit unions and banks could agree on, if only the banks would look at the facts. Most importantly, the consolidation of the banking industry with the resulting demise of the true community bank has nothing to do with the fact that credit unions don’t pay taxes, and everything to do with the deregulation of banking, which has been gradually progressing for decades, but put on overdrive during the Clinton Administration. This has placed tremendous pressure on traditional community banks such as Pioneer to expand into regional entities, or risk being merged out of existence. Most notably, with the passage of the Regal Neale Act, community banks lost the ability to hold their own in specific states. It is not credit unions that have triggered the ensuing merger mania, but the resulting dynamics that this race to get bigger has unleashed.

Banks have always disliked credit unions, and if they could make them disappear, they gladly would. However, it was just a generation ago that the primary focus of community banks wasn’t on destroying the credit union industry, but on ensuring that the federal regulatory framework left space for both small and larger financial institutions. Unfortunately, that has fundamentally changed, and much of the extra zest with which community banks such as Pioneer and bankers associations attack credit unions on these days reflects the fact that they have largely lost the ability to shield themselves against their larger banking competitors. As explained in this phenomenal law review article, “today it is a relatively small group of large diversified financial companies, rather than the far more numerous group of small and community banks, that plays the critical role in shaping the regulatory and legislative dynamics in the financial services sector.”[1]

[1] Saule T. Omarova & Margaret E. Tahyar, That Which We Call A Bank: Revisiting the History of Bank Holding Company Regulation in the United States, 31 Rev. Banking & Fin. L. 113, 196–97 (2011)

 

“Ugh.”

That is how a trusted colleague of mine responded to this article in the CU Times reporting that veteran Congresswoman Carolyn Maloney, who sits on the House Financial Services Committee called for a moratorium on taxi medallion foreclosures during a committee hearing dedicated to debt collection practices. In addition, none other than Rep. Alexandria Ocasio-Cortez referred to some of the taxi medallion loans as “criminal.”

These comments are the latest sign that the taxi medallion issue is not going to go away anytime soon. As policymakers discuss how best to aid drivers in financial straits, let’s hope that some basic facts are understood. Most importantly, the medallion crisis cannot be separated from the rise of Uber and Lyft. We would not be having this discussion today if these two companies did not upend the entire structure of the taxi industry and destroy the value of medallions.

In addition, many medallion loans are now being serviced directly by NCUA. NCUA has to do more to publicly explain to policymakers on both the state and federal level what steps it is taking to modify these loans. Many credit unions are working with members, but that message is not getting out to the public as effectively as it should be with NCUA in control of so many of the lending decisions.

Finally, I hope legislators think long and hard before advocating for a foreclosure moratorium. The reality is that the price of medallions has tumbled and may very well continue to do so. A moratorium would do nothing except put further downward pressure on medallion prices, and extend the time it will take to get the medallion crisis behind both drivers and lenders alike. Instead of talking about moratoriums, policymakers should look at the example of the HAMP Program and see if there are mechanisms to assist both lenders and borrowers in making financially responsible modifications. Stay tuned.

A Phase-in for CECL

In addition to a delay in its effective date, another piece of good news on the CECL front is that Chairman Hood has indicated that NCUA will be joining with banking regulators in permitting credit unions to phase in recognition of loan losses triggered by the new standards over a three-year period.

CECL requires financial institutions to recognize lifetime expected credit losses, and not just credit losses incurred as of a reporting date. In addition, it implements a lower threshold for financial institutions to recognize a potential credit loss. As a result, many institutions could experience a reduction in their retained earnings as they increase buffers to guard against potential losses.

Many banks and credit unions have expressed concern that they could face dramatic losses on paper if they are not allowed to phase in the recognition of losses caused by this new standard. Earlier this year, the OCC and FDIC finalized regulations giving banking organizations that experienced a reduction in retained earnings as a result of adopting CECL the option of phasing in its effects over a three-year period. At a presentation before NAFCU earlier this month, Chairman Hood indicated that NCUA will be proposing similar regulations for credit unions.

 

Washington Tees Off On Facebook; Senate to Hear from CU’s on Pot Banking and Main Street is where the $ is

Today is the last day of the blog until I return from a week’s vacation on July 29^th. Here is some info I wanted to make sure you knew before I head to Cape Cod this weekend.

Facebook cemented its status as the latest company everybody loves to hate. The US Senate Banking Committee held a hearing yesterday Scrutinizing Facebook’s plans to introduce a block chain cryptocurrency for Consumers sometime next year. As expected. reactions to the plan ranged  from polite skeptical to hysterical.

In the polite skepticism category is this quote in the American Banker from committee chairman Mike Crapo “Despite the uncertainties, Facebook’s stated goals for the payments systems are commendable,” Crapo said. “If done right, Facebook’s efforts to leverage existing and evolving technology and make innovative improvements to traditional and nontraditional payments systems could deliver material benefits, such as expanding access to the financial system for the underbanked, and providing cheaper and faster payments.”

In the hysterical category is this quote from the committee’s ranking senator, Democrat Sherwood Brown: “Facebook is asking people to trust them with their hard-earned paychecks,” said Brown. “It takes a breathtaking amount of arrogance to look at that track record and think, you know what we really ought to do next? Let’s run our own bank and our own for-profit version of the Federal Reserve for the world.”

With all due respect to the senator, a company started in 2004 as a dorm room platform to categorize coeds that grew into the world’s dominant communication platform is entitled to a little breathtaking arrogance. Besides, this country has been breathtakingly slow and arrogant to adopt payment system Innovations. It’s time to give the private sector a turn. The sky is not going to fall. It isn’t time to start the campfire with dollar bills

Upcoming hearing on Cannabis Banking

Speaking of the Senate Banking Committee, it will be holding a cannabis banking hearing on July 23rd and the concerns of credit unions will be front-and-center.

Rachel Pross, the chief risk officer of Maps Credit Union in Oregon,  is scheduled to be the lead speaker on the committee’s second panel following comments by senators Gardner and Merkley, both of whom represent States that have legalized cannabis.

The Credit Union has been on the cutting edge of providing banking services to marijuana businesses. In testimony before a House committee earlier this year Pross explained that the credit union has been providing these services since 2014 when Oregon voted in a referendum to legalize cannabis.

The conventional wisdom is that the House has the votes to pass legislation permitting  states which have legalized marijuana, to continue to do so without violating federal law but it will take a much bigger lift to get this done  in the Senate.

 Consumer Banking Heats up as Investment Banking Cools

The all-important earnings season, when publically traded company’s announce and put their best spin on their quarterly earnings is here. If current trends continue expect the big guys to continue to move aggressively to expand their consumer banking presence.

There is no better bellwether for the state of U.S. banking than JPMorgan Chase so here is a link to information about it second quarter earnings report. Page 3 of the press release demonstrates that  the behemoths are growing by capitalizing on consumer banking. The WSJ points out this morning that while the American consumer is generally in a good mood businesses which generate money for investment are much less sanguine about the economic outlook. Expect to face even more competition.