Posts filed under ‘Advocacy’
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.
In the movie The Untouchables, in which Kevin Costner plays an idealistic Eliot Ness trying to take down Al Capone within the law, an exasperated, street-wise beat cop played by Sean Connery explains that to take down the mob, if they put one of your guys in the hospital, you put one of their guys in the morgue.
News Flash: The banking lobby is out to kill the credit union industry or at least maul it beyond recognition. This is one of those times when it’s important to fight back for the sake of fighting back. I am usually not a big fan of comment letters for the sake of comment letters but this is an exception. And if you get a chance, tell your Congressmen and Senators that the Bankers have gone off the deep end.
The ostensible issue triggering the latest scrap is NCUA’s proposed amendments to its Chartering and Field of Membership manual to give federal credit unions greater flexibility in expanding their fields of membership. As highlighted by an article in this morning’s American Banker, the bankers are going downright apoplectic over the proposal, implying that NCUA is trying to circumvent the law and putting tax dollars at risk. We have heard it all before. (http://www.americanbanker.com/news/community-banking/fight-over-credit-union-membership-flares-up-again-1079054-1.html?utm_medium=email&ET=americanbanker:e5995385:4561993a:&utm_source=newsletter&utm_campaign=daily%20briefing-jan%2028%202016&st=email&eid=346f8f5eef3bcd6205524af410f42291)
In reality, many of the proposed changes, though important, are not the type of fundamental changes that would provide huge benefits for all credit unions. This is not a criticism of NCUA simply a recognition of the fact that it is adhering to the laws that bankers are suggesting they are seeking to violate. The result is that the banking industry is more ginned up in opposing these regulations than the industry is about supporting it. And that has to change. There are some fights that have to be fought out of principal, and this is one of them.
I’m not suggesting that NCUA will back away from these amendments. What concerns me is that, in an age when the person who screams the loudest, no matter how incoherently he rants, gets the most attention. Banks are coming across as more upset over the proposal than credit unions are enthusiastic about it. While both reactions make some sense this is the latest skirmish in which the industry has to fight back and fight back hard.
Why is it so important? The banking industry has a two prong strategy for attacking our industry: (1) Keep it from growing by strangling credit unions within their antiquated FOM constraints; and (2) end the tax exempt status of the industry by arguing that it is putting community banks at risk and is somehow unworthy of the exemption.
The first goal can be achieved primarily with lawsuits and regulatory advocacy. The second goal is a legislative one.
The uncompromising opposition of bankers to any credit union growth already has impacted all credit unions. The implicit message the banks consistently send to politicians is that helping credit unions simply isn’t worth the hassle. And NCUA’s amendments, while helpful, are still more restrictive than they need to be. The industry has to lay the groundwork for amendments more dramatic than HR 1151. If it doesn’t use this and other opportunities to be heard above the banker noise, this is never going to happen.
The country’s biggest banks have lost their collective appetite for making small business loans, forcing owners to run up credit card balances and turn to nontraditional lenders who charge seemingly usurious interest rates. That’s the gist of a recent article in none other than the WSJ. Credit unions are ready, willing, and able to help, of course, if only Congress would allow them.
According to the WSJ, the nation’s ten largest banks lent $44.7 billion to small businesses in 2014, down 38% from a peak of $72.5 billion in 2006. For years banks have argued that they would love to make more loans to Main Street but that loan demand just isn’t there. But this is contradicted by the fact that, according to the WSJ, small business are increasingly turning to their credit cards and non-bank lenders. These non-traditional loans from online lenders like Kabbage can include interest rates as high as 39%.
What is going on here? In a refreshing burst of candor, one JP Morgan executive mused that “You have to figure out a way to make a $100,000 loan make economic sense.”
Some quick thoughts before you start cyber shopping on company time: (1) The MBL cap isn’t just bad for credit unions, it’s bad for the larger economy; (2) If our banking industry has “evolved” to the point where loans to Main Street businesses aren’t cost effective for the banking behemoths then this is the latest disturbing example of a banking system run amok. We’ve created a banking system that isn’t all that interested in making loans to the businesses’ responsible for a good chunk of the nation’s job growth and innovation. It will never happen, but the best thing we could do as a nation is admit we made a mistake when we repealed Glass–Steagall.
Yesterday, NCUA unveiled more than a dozen distinct changes to its Field of Membership (FOM) regulations. It will take a few days to figure out the precise impact these changes, some of which are highly technical, will have on credit unions. But, regardless of their ultimate impact, NCUA’s proposal is crucial when viewed in the context of the larger challenges facing the industry.
Let’s face it, credit unions are constrained by a legislative and regulatory framework designed in the early part of the 20th Century. Limiting credit unions to distinct employee groups, distinct communities, and distinct associations made sense in an era where most communities had a manufacturing base and the suburbs had not yet changed the concept of community. Today, the Internet creates world-wide communities and the traditional model of an employee picking up his paycheck on Friday night on his way out of the local mill is obsolete.
Consequently, there is no bigger challenge facing the credit union industry writ large than removing restrictions on who it can serve. Against this backdrop, NCUA deserves credit for taking a fresh look at its existing FOM regulations. But let’s remember that it was only in 2010 that NCUA, under pressure from banker litigation challenging its flexibility when approving community charter expansions, imposed many other restrictions that NCUA is now proposing to tinker with. For example, before 2010, credit unions could provide a “narrative” explaining why a proposed service area constituted a well-defined local community. A 2010 amendment did away with this flexibility, instead mandating that credit unions fit proposed expansions into pre-defined statistical areas.
Yesterday’s proposal doesn’t bring back the narrative option, but by making some of those technical changes I was referring to, it potentially gives credit unions greater flexibility to serve communities, particularly in underserve areas.
Keeping an eye on all of these efforts, of course, is the banking lobby. Its core effort over the last two decades has been to restrain the growth of credit unions by retraining FOM flexibility. The framework that results from this proposal can’t be so flexible as to bear little resemblance to the federal Credit Union Act or result in community charter expansions that can be attacked as arbitrary.
This is why it is so important to view these regulations not as an end in themselves, but as part of a larger effort to educate the public and elected representatives about why charter reform is so important. NCUA deserves credit for this proposal. But the type of changes the industry most needs can only come through legislative action. In the meantime, this is one of those key proposals where substantive feedback, particularly from individual credit unions, is absolutely crucial.
One of my faithful readers emailed yesterday and asked me what I thought of the cyber security legislation that passed the Senate earlier this week. So here goes: Quite simply any action that shows Congress is waking up to the need for federal action aimed at creating a more robust cyber security infrastructure is a step in the right direction, but since the core challenge of making merchants more responsible for how they protect consumer information remains. credit unions will see little direct or immediate benefit if this legislation becomes law.
Senate bill 754, The Cyber Security Information Sharing Act of 2015, passed with strong bipartisan support and takes some important steps designed to make it easier for the government and the private sector to respond to and deter cyber threats. For example Homeland Security, the Director of National Intelligence, the Department Of Defense and the Justice Department would have to promulgate procedures for the “timely sharing” of classified cyber threat indicators. The bill would also setup a framework that would allow companies to voluntarily monitor each other’s information systems. Companies that exercise these powers are shielded from lawsuits, including those alleging violations of antitrust law.
Now all of this might be real important stuff for fortune 500 companies, including the largest banks that are such tempting targets for hackers, but none of it addresses the concerns of credit unions wondering why merchants don’t have to pick of the tab for data breaches caused by merchant negligence.We not only need more information sharing but we also need to make sure that all businesses have to adopt common sense procedures to protect the personal information of consumers.
The bill also makes the civil libertarian in me that much more concerned about how easy we are making it for the government and business to spy on us in the name of national security but that goes beyond the scope of this post or the concerns of credit unions. Stay dry out there.
Here is a link to information about the bill.
John Boehner isn’t going out quietly. Good for him.
Appearing on CBS New’s Face the Nation, he admonished his Republican colleagues not to succumb to the rhetoric of false prophets. It speaks volumes about the wretched state of our political system in general and the so called Republican Party that the Speaker of the House will now be able to get more done in the month he has remaining in office than he has been able to do previously.
For credit unions, this means that the next month is actually one of those rare windows in national politics when legislation is going to move. The problem is that none of the legislation likely to most benefit credit unions will be part of this rush to get things done. It just isn’t realistic to think that we can see Member Business Lending or Secondary Capital Reform. This is by no means a knock against CUNA or NAFCU, but simply a reflection of the reality that a political system paralyzed by ideological rigidity can only be jolted into action by the biggest players (such as the supporters of the Export-Import Bank) or deal with issues of so little consequence that no one bothers to oppose them (further reform of privacy notice requirements could fall into this category).
And the news gets worse. The People who advocated for John Boehner’s ouster are lousy at articulating what they are for, but instead listen to the false prophets who fill their heads with the ignorant notion that in America, policies can be advanced without compromise and that anyone who disagrees with their positions is somehow acting contrary to the Constitution. I went to bed last night listening to the angry voices of talk radio, and as far as I could tell, these pundits of hatred want a Speaker who is willing to cripple the nation’s, and in fact the world’s, finances by threatening not to raise the national debt every time they don’t get their way. The want a leader who is somehow able to balance the budget and reduce the national debt without raising taxes or cutting government programs that middle class Americans like such as social security and Medicare. And, most disturbingly, they want an America led by Republicans who not only disagree with their opponents but despise them.
If you think I am exaggerating, then how do you explain the cheers that went up with the news that John Boehner had had enough of trying to deal with this confederacy of dunces for whom Eric Cantor wasn’t conservative enough and Chris Christie committed the unpardonable sin of putting him arm around the President of the United States when he pledged to help New Jersey recover from a massive hurricane?
What really bugs me is that these so called conservatives drape their radicalism in patriotism. How patriotic is it not to pay the nation’s bills or to refuse to compromise to get anything done? If these people were around when the nation was being founded, we would not have our present Constitution or our banking system.
An unusually busy Thursday, so here are some quick notes to keep in mind as you start your credit union day. I’ve also been gracious enough to intersperse these notes with my football predictions, which, as many of you may know, are certified as capital for RBC purposes by the NCUA.
Taxi Medallions Under Scrutiny
The plight of New York’s Taxi Medallion credit unions, which specialize in making loans for the purchase of taxi medallions, is getting more and more attention lately. Yesterday, NCUA led its press release summarizing the quarterly performance of credit unions by noting that medallion loan growth in federally insured credit unions rose 4% in the year ending June 30, 2015. On a less sanguine note, the CU Times is reporting this morning that a New York judge has refused to rule that consumers summoning a ride using an App based ride sharing service such as Uber is engaged in street hailing. The medallion industry argued that since only medallion taxis were authorized to pick up riders from the street, ride sharing services were violating the law. The decision is going to be appealed, according to the article.
Fearless Football Prediction No. 1
Overwhelmed by guilt, Tom Brady admits his complicity in deflating footballs and makes amends by quitting football so he can go around the country making balloon animals for children’s birthday parties.
Senate MBL Bill Introduced
Yesterday evening our good friends at CUNA sent word that Republican Senator and Presidential hopeful Rand Paul and Democratic Senator Sheldon Whitehouse have introduced legislation that would authorize NCUA to raise the MBL cap for well-capitalized credit unions on a case-by-case basis from 12.25% of total assets to 27.5% of total assets. Bill language provided by CUNA indicates that the legislation would apply to credit unions that have been within 20% of the current cap for at least two years and can demonstrate, among other things, that they are well-capitalized and have five years of MBL underwriting and servicing experience.
Fearless Football Prediction No. 2
NFL Commissioner Roger Goodell resigns to begin his own labor arbitration firm. He is replaced by former Secretary of State and National Security Advisor Condoleezza Rice. The NFL explains that anyone used to dealing with the mess in Iraq is surely qualified to deal with the mess Goodell has left behind.
NY AG Settles Buffalo Redlining Case
In a case I’ve talked about in a previous blog, New York’s Attorney General Eric Schneiderman announced yesterday the settlement of a lawsuit in which Evans Bank was accused of intentionally refusing to make mortgage loans available to Buffalo residents who lived in the City’s predominantly African-American Eastside neighborhoods. The allegations against Evans were both serious and disturbing. According to the press release, Evans has agreed to amend its lending area to include the disenfranchised neighborhoods. It has also agreed to establish an $825,000 Settlement Fund to help establish affordable housing in Buffalo.
Fearless Football Prediction No. 3
As much as it pains me to say this, the Dallas Cowboys beat the Pittsburgh Steelers 35-24 to win the Superbowl.