The House Takes The Right Approach To Spotting Elder Financial Abuse

I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the   “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.

The legislation is a federal attempt to address elder financial abuse.  Most states  have already mandated reporting requirements in this area.   New York’s DFS has issued a guidance on the issue. NY law  protects any person who  reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency   based on a   good faith belief  that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney).  This protection isn’t quite as expansive as what would be protected under the House bill.

I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected  criminal activity involving financial exploitation; and  the issues raised are best handled by  family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.

The bill, which passed with overwhelming support  on  Tuesday, would authorize supervisors,   compliance  and BSA officers to report possible financial exploitation of   a person 65 years of age or older to law  enforcement  and government  agencies.  The institutions and individuals making these reports would get legal immunity  for doing so if  they train employees  on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.

There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer  and BSA officers to report suspected elder abuse but enables any employee to spot it.  One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse  the ultimate call on reporting should be made by senior personnel.

Second it places no affirmative obligation on financial institutions to report suspected abuse.  it simply protects them if they choose to do so provided they have appropriate training.

Finally, it provides a baseline of immunity for institutions that report suspected abuse.

A Most interesting Jobs Report

Any minute now  we should be getting the jobs report for June.  It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing,  the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.

 

 

NYS Legislative Wrap-Up

(UPDATED) Well, despite a flurry of last second activity, the Legislative session ended with a whimper and not a bang and as someone who believes that legislators, like doctors, should first and foremost do no harm that is not necessarily a bad thing.  Here is a look at how some of the key legislation played out.

The most problematic legislation  is in part Q of this budget bill passed early Saturday.  It imposes obligations on mortgage holders of  abandoned property.  The good news is that  there is a carve out for cus that maintain a portion of their mortgages and provide less than three tenths of one percent of mortgages in the state.  Obviously there is a lot to parse here but the smaller you are the less you have to worry about.  I’ll have more to say about this tomorrow but for those who think you may be impacted take a look.

Six weeks ago, if I was going to bet on one bill that would pass it would have been a bill to authorize ride sharing services (i.e. Uber and Lyft) to operate outside of NYC with the appropriate insurance coverage.  In the end, the Senate passed a one house bill (S.4108-d Seward) which includes coverage of “motor vehicle physical damage.” This is crucial to credit unions and other lenders that want to make sure that the value of their car loans is protected.  The bottom line is that the status quo, under which Transportation Network Companies (TNC) are subject to regulation within NYC and not authorized outside of the Big Apple remains in place.  What impact this development has on the value of NYC medallions remains to be seen.  Incidentally, your faithful blogger would have also predicted a Golden State NBA championship and an embittered LeBron James departing Cleveland for LA.  He would have been wrong on this one as well.  

Legislation that would have expanded the powers of check cashers by, among other things, working with banks or credit unions to provide loans (S.6985-b Savino/A.9634-b Rodriguez) stalled in the closing days in both the Senate and Assembly.

 

Unfortunately, despite some late movement, two erstwhile credit unions bills to allow credit unions to participate in banking development districts and to allow the State Comptroller to deposit state funds in credit unions did not get done.

Perhaps the bill that is going to have the most direct impact on credit unions is one that passed a few weeks ago.  If, as expected, it gets approved by the Governor, it will clarify when a mortgage loan is consummated for purposes of complying with mortgage disclosure requirements.

On that note, it was great to see you all in Saratoga.

Thinking of Merging? Read this Blog.

One of the issues of which financial institutions have to be particularly mindful in this increasingly litigious world is how much they say to their attorney is privileged (i.e. shielded from disclosure to third parties).  I have previously talked about in a previous blog how federal law makes it almost impossible for credit unions to shield an attorney’s work product from examiners.  Now, a decision released yesterday by New York’s Court of Appeals, its highest court, underscores just how narrow that privilege is, especially for those of you involved in credit unions that are thinking about merging.

As a general rule of thumb, you can call up your attorney to get legal advice and that communication will be privileged.  Furthermore, if not only you but another credit union face pending litigation or reasonably anticipate a lawsuit, the privilege is extended so that you may work on a common defense.  But if that same conversation takes place with a third party that is not involved in your litigation, the privilege is waived.

In Ambac Assurance Corporation v.  Countrywide Home Loans, Inc. Bank of America was sued and the plaintiffs wanted access to 400 communications that took place between BoA and Countrywide between the time that the two companies had decided to merge but before the merger was finalized.  Plaintiffs argued that while BoA didn’t have to hand over communications between it and its attorneys, any communications between BoA and Countrywide were third party communications for which there is no privilege.

BoA argued to the Court of Appeals that even though it was not facing any litigation involving Countrywide at the time, it shared a “common legal interest” in facilitating their merger.  The plaintiffs argued, and the Court of Appeals agreed, that merger discussions aren’t protected by privilege.  It concluded that when two parties are engaged in or reasonably anticipate litigation in which they share a common legal interest, the threat of disclosure may chill the exchange of information necessary to coordinate a legal strategy. In contrast, “the same cannot be said of clients who share a common legal interest in a commercial transaction or other common problem but do not reasonably anticipate litigation.”  In other words, don’t assume all the information you are sharing to facilitate merger discussions is free from discovery if someone decides to sue you in the future.

Legislative Update

If any of you are involved in funding gift cards, or like your faithful blogger, finds gift certificates tucked away in the top draw  about a year and a half  after they are given to him, then the Legislature passed a bill earlier this week (S. 4771-e  Funke\ A. 7610 Ewith) with which you should familiarize yourself.  The bill increases to 25 months from 13 the amount of time a gift certificate must be dormant before a service fee can be assessed on the balance.  It also stipulates that these fees must be replenished when a member redeems a certificate within three years.  Finally, all gift certificates have to be valid for a period of at least five years.

By the way, in NY a gift certificate is defined as ”a written promise or electronic payment device that: (i) is usable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo, or is usable at multiple, unaffiliated merchants or service providers; and (ii) is issued in a specified amount; and (iii) may or may not be increased in value or reloaded; and (iv) is purchased and/or loaded on a prepaid basis for the future purchase or delivery of any goods or services; and (v) is honored upon presentation.”  N.Y. Gen. Bus. Law § 396-i (McKinney).  The bill now goes to the Governor.

McWatters Nomination to Export Import Bank Blocked Again

The Export Import Bank and the NCUA have about as much in common as Kim Kardashian and Mother Teresa but yet their fates are strangely intertwined. Without J. Mark McWatters, the Ex-Im bank doesn’t have a quorum to operate; and so long as McWatters stays NCUA has a quorum.  Considering that there are proposals like FOM reform still waiting to be finalized, this is a big deal.

Senator Richard Shelby, Chairman of the Senate Banking Committee, a steadfast opponent of the Bank, refuses to take up the  nomination.  Supporters of the Export Import Bank tried to do an end run around Shelby yesterday.  North Dakota Senator Heidi Heitkamp (D-ND) asked the Senate to take up the nomination with unanimous consent. To the surprise of no one, Shelby objected but the maneuver gave Democrats an excuse to voice their increasing frustrations over the stalemate.

 

 

Credit Unions Keep Their PAL

With the unabashed caveat that yours truly has not yet plowed through all of the 1,300 pages of the regulation, it appears that credit unions will be largely untouched by the CFPB’s proposed payday lending regulation, which it is officially unveiling at a town hall meeting this morning in Kansas.

When the CFPB first raised the prospect of regulating payday loans, NCUA and credit unions pointed out that if the Bureau wasn’t careful, it could actually end up prohibiting credit unions from making payday alternative loans (PAL).  (See 12 CFR 701.21).  These loans authorize credit unions to make short term loans of between $200 and $1,000 provided they have a minimum term of at least one month and a maximum term of six months; a credit union does not make more than 3 such loans to a member in any 6 month period; makes no more than one PAL loan at a time to a borrower; and the credit union doesn’t roll over the loan.  The catch is that NCUA permits credit unions to charge an application fee of up to $20 for these loans and charge an interest rate of up to 28% (10% more than the interest rate otherwise authorized for federal credit unions).

In the regulations proposed yesterday, the CFPB used the PAL loans as a model of acceptable payday lending provided the loan term is for a minimum of 46 days.  Another issue that financial institutions were concerned about was how this regulation would impact overdraft lines of credit.  According to the Bureau’s summary, overdrafts are exempted from the regulation.

In his press briefings yesterday, Director Cordray analogized a consumer who takes out a payday loan to a person who wants to get a taxi across town only to be taken across the country.  The problem with this metaphor is that there are, unfortunately, people that desperate for a lift.  I don’t envy the CFPB on this one.  Much like its qualified mortgage regulations, it will be judged on how well it balances a desire for regulating payday loans against the reality that there is a market for these loans that can’t be regulated away.

Active Day for Credit Unions in Albany

Yesterday was the type of day that underscores that New York credit unions are getting plenty of return for their investment in the Association.  The Assembly Banks Committee advanced two bills that will help credit unions.  A774 (Rodriguez) would allow the Comptroller to place state funds in credit unions.  A3521-b (Robinson) would permit credit unions to participate in banking development districts.

Also yesterday, Tristram Coffin, CEO of Alternatives FCU, spoke on behalf of the Association at a Senate Banks Committee Hearing exploring ways to expand bank capital to minority and women owned businesses.  As luck would have it, one of the messages that came through loud and clear was that credit unions are looking for the authority to increase small business lending.  The two bills passed out of the Assembly Committee yesterday would help credit unions do just that.

Your blogger is headed down to God’s country for a long weekend to celebrate a family wedding.  See you Tuesday.

Assembly Passes Onerous Abandoned Property Bill

The Assembly passed a package of bills yesterday that would make New York’s cumbersome foreclosure process even more inefficient and costly and most likely exacerbate some of the very problems it is seeking to address.

Most importantly, the Assembly passed A6932a/S4781a, introduced at the request of the Attorney General, “the New York State Abandoned Property Neighborhood Relief act of 2016.”  I’ve already talked about this bill extensively.  It makes lienholders responsible for abandoned property on which they have not foreclosed; however doesn’t do enough to expedite foreclosures on these properties or clarify precisely how much maintenance credit unions and banks will be responsible for. 

By the way, municipalities often have first lien priority on abandoned property because of unpaid tax bills.  This bill is a backdoor means of shifting responsibilities to banks and credit unions that are ultimately the responsibility of localities.

Another bill, A1298/S5242 wouldn’t streamline New York’s requirement for judicially supervised settlement conferences, a proposal that would be in everyone’s best interest.  Instead, it expands the explicit scope on these get-togethers by explaining that resolutions can include, but are not limited to, loan  modifications, “short sales” and “deeds in lieu of foreclosure.”  This goes into the “wow, why didn’t I think of that” category.  Lenders have already considered and used these alternatives.  There is no need to put this language into statute unless the Legislature believes it knows more about loss mitigation than the lender losing money on a delinquent mortgage.  A second possibility may be that it is seeking to give judges greater authority to force lenders to accept “good faith” resolutions.

Finally, if the Legislature is going to propose all these new obligations on lenders, one would hope that it isn’t also inclined to make it even more difficult to foreclose.  But, alas A247 would do just that.  This bill makes it easier for defendant’s to raise a defense that a foreclosing lender lacks standing.

Taken as a whole, this package of reforms will increase legal protections for delinquent homeowners, make lienholders responsible for homes they don’t own and make foreclosing even more litigious and time consuming.  Lost in all of this is the simple fact that delinquent homeowners are in homes they can no longer afford.  Fortunately, none of these bills have been passed by the Senate yet.  We will have to see if cooler heads prevail in the closing weeks of the session.   

 

Zombie Property Bill Advances

Momentum appears to be growing for zombie property legislation. Legislation has advanced to the Assembly floor (A.6932A/ S.4781A) that would make mortgage lenders responsible for maintaining “vacant and abandoned” property on which they have not yet foreclosed.  It would also make lenders responsible for property they are in the process of foreclosing on because the borrower has failed to maintain the property.

The bottom line is that financial institutions would be on the hook for maintaining property even if they haven’t completed or even started New York’s byzantine foreclosure process, an obstacle course that takes several years to complete.

This is a lousy idea for several reasons. For instance, it effectively denies the lender the right to determine whether or not vacant and abandoned property is worth foreclosing.  It also creates even more foreclosure complexities and opens the door for lenders to indirectly subsidize maintenance projects for which localities should be responsible.

The sponsors deserve credit for proposing to streamline foreclosures for zombie property. However, if legislators feel the need to go forward, the legislation should be amended to mitigate its shortcomings. Most importantly, the legislation should clearly stipulate that “vacant and abandoned” property is not subject to foreclosure defenses so that lenders can at least quickly obtain title to property for which they are responsible.  Currently, the legislation is needlessly ambiguous on this point.  It creates a streamlined foreclosure for vacant property, but also provides that this fast track system “shall not abrogate any rights or duties pursuant to this article.”  Why not?  The property is abandoned.

Furthermore, the fast track won’t apply in instances where the defendant has responded to the foreclosure. This makes sense, except the legislation should make clear that if a homeowner mounts a foreclosure defense only to subsequently abandon the property, lenders can still fast track the foreclosure.

There also needs to be responsible parameters describing what proper maintenance entails. Anyone involved in mortgage lending has heard stories of foreclosed property being gutted by the delinquent homeowner.  Should a foreclosure come with a huge price tag for repairing these properties? I don’t think so.

Happy Days For MBL Lenders

NCUA sent out a notice yesterday reminding credit unions that they no longer have to get a personal guarantee when making Member Business Loans. This change is the first step in implementing amendments to give credit unions greater flexibility when making MBL loans.  Remember NCUA still considers personal guarantees a good idea, so you should have a policy explaining the circumstances under which they will not be required by your credit union.

https://www.ncua.gov/newsroom/Pages/personal-guarantee-waivers.aspx

 

 

Key NYS Legislation Starts to Move

Albany is getting down to its post-budget business, especially now that the seat vacated by former Senate Majority Leader Dean Skelos has been won by Democrat Todd Kaminsky.  This week’s Senate Banks Committee agenda includes legislation important to credit unions.

Most importantly, legislation sponsored by Senator Savino (S.7183) would clarify when a mortgage is considered consummated under New York State Law.  Under the TRID regulations, closing disclosures must be received by a homebuyer at least three business days before a mortgage loan is consummated.  Currently, there is no statutory definition of consummation and there is case law that suggests that consummation actually occurs at the time that the credit union or bank sends a commitment letter to a mortgage applicant.  The bill clarifies that for purpose of compliance with federal law, consummation occurs when a mortgage applicant signs a promissory note and mortgage.  Here is a previous blog I’ve done on the topic.

A second bill on the Committee’s agenda, S.7434, mandates the creation of a state-wide data base of vacant foreclosed property.  Under this bill, when a bank or credit union obtains a judgement of foreclosure on residential property that is or has become vacant or has been abandoned, the mortgagee is required to provide notice of the vacancy to the Department of Financial Services within ten days.  The Attorney General (AG) and municipalities would have access to the database and the hope is that it will make it easier to hold mortgagees responsible for maintaining the property.  The AG will have the authority to fine institutions that violate this section.  Unlike a proposal previously put forward by the Attorney General, this bill does not seek to impose responsibilities on financial institutions for vacated property on which they have not obtained a judgement of foreclosure.

CFPB Unveils Class Action Protection Proposal

At a New Mexico field hearing yesterday, the CFPB formally unveiled a proposal that would prohibit banks and credit unions from including arbitration clauses in account agreements that prohibit consumers from joining class action lawsuits.  The CFPB is taking this step pursuant to the Dodd-Frank Act which mandated that it study the use pre-dispute arbitration clauses and make regulatory changes where appropriate.

This is a big deal for many industries that have turned to arbitration clauses as a means of controlling liability risks.  It is not clear to me how many credit unions use arbitration clauses, but at the hearing yesterday it was suggested that the use is growing in the industry, particularly by larger credit unions.  If you would like to know my personal opinion of the CFPB’s proposal, here is a blog I did on arbitration clauses earlier this week for CU Insight (how’s that for a shameless plug, I figure if I take the time to write this stuff, I might as well encourage people to read it).

Bankruptcy Cliffhanger

Here is a question for you to ponder over the weekend.  Can a bankruptcy court overseeing a Chapter 13 reorganization vest legal title in residential property in a bank or credit union over the objection of a bank or credit union holding the mortgage on which it has not yet foreclosed?  Or, put another way, you know that abandoned piece of property that simply isn’t worth foreclosing?  Can you be made to take legal title?  I’ll be providing the answer to this question next week.  I am sure you can’t wait, but enjoy your weekend nevertheless.