Victory!

It’s nice to actually be part of a win, isn’t it? Here are a few quick thoughts on the passage of S.2155:

First, it wasn’t just the victory but the size of the victory. Notwithstanding the demagogic nonsense being pedaled by certain unnamed Democrats who made the bill sound as if it was the worst piece of legislation since Smoot Hawley. 258 yes votes means that 33 Democrats quietly voted yes on the bill. A big shout out to Long Island Democrats, Kathleen Rice and Tom Suozzi as well as the Hudson Valley’s Sean Patrick Maloney for looking past the noise and recognizing that the bill was primarily a level-headed approach to helping out community banks and credit unions.

Second, the bill did not repeal HMDA. I repeat, the bill did not repeal HMDA. What the bill did was exempt institutions from the almost two dozen data points which the CFPB and Congress imposed on institutions as an outgrowth of Dodd-Frank. Keep in mind that the institutions which actually have the history and ability to engage in systemic lending abuses are still subject to enhanced HMDA scrutiny but I know that wouldn’t make a good Democratic talking point. Go to §104 of the bill and judge for yourself.

Third, speaking of the nonsense spewed by some of the bill’s opponents, if this bill really is a giveaway to the big banks, the ABA really isn’t as talented as I think it is. A few more victory’s like this and it will be out of business.

Fourth, remember the bill isn’t law yet. It still has to be signed off on by the President which we have every indication he will do.

Fifth, compliance people have had a relatively quiet time of it lately. That’s about to change. There are many good little nuggets in this bill ranging from the protection of financial institutions that report suspected financial abuse of the elderly to greater flexibility for mortgage bankers that employ originators who previously worked in banks and credit unions. This is obviously good news for those of you who have mortgage Cusos. We need to start finding out when these provisions take effect and if regulations will be promulgated along with them.

Finally, a big shout out to CUNA and NAFCU. This is a huge victory. In addition, to get the House of Representatives to agree to pass a Senate banking bill without amendment is a tactical accomplishment which speaks to the quality of our national leadership.

Banker Hypocrisy At Its Worst

I love bankers and banker lobbyists. Some of my best friends are banker lobbyists but the display of hypocrisy that will no doubt be on display at the State Capitol in the coming days is a ritual of which I am tiring.

Assembly bill 6949-B has been put on the Assembly’s debate list, which means that it can be debated and voted on notwithstanding the objections of opponents. The bill would allow localities to participate in Banking Development Districts with credit unions. For more than two decades the BDD program has allowed localities in need of banking services to jointly apply with interested financial institutions for designation as a BDD. In return for opening up a branch in the area, the financial institution receives incentives including low-interest deposits from the comptroller. Despite these incentives, banks have been less than enthusiastic in embracing the program and last year the Governor proposed extending it to credit unions. Nevertheless, the word on the street is that banking lobbyist were scurrying around legislative offices yesterday with memos in opposition to this bill. Don’t get me wrong, I’m not the slightest bit surprised but at some point enough is enough.

I haven’t seen this year’s version but I’m sure it’s the same old song, maybe with a slightly different tune. Credit unions don’t pay taxes – they do, just not corporate taxes – because they are after all not for profit corporations. That’s right, credit unions pay a host of taxes like any other employer in New York State.

I love the fact that bankers become so concerned about tax policy as soon as credit unions enter the conversation. Today’s Wall Street Journal is pointing out that some of the nation’s largest banks, including Wells Fargo, which has done so much to earn the public’s trust over the last couple of years, are among the big winners of the so-called tax reform. I would love to know how much of this tax windfall – $2.5 billion and counting – is going to be returned to consumers in the form of cheaper products and more compliance services, but I’m not holding my breath for an answer.

But having heard the same old arguments for almost two decades now, first in the legislature as a staffer and now as a member of the Credit Union Association, there’s only so much time we should be wasting on responding to tired old arguments. BDD districts should be extended to credit unions because they are potentially innovative economic development tools that help people in areas in need of investment. What I’ve always liked most about the program is that it reflects a three-way consensus between local, financial and state stake holders about the best way to bring needed financial services to an area in need.

In my last blog, I talked about the Lower East Side People’s Federal Credit Union. Even though it was started precisely to serve the areas that banks have historically shied away from serving, it cannot participate in this program. Why? Because the banking industry is increasingly devoid of a positive legislative agenda and instead is obsessed with zero-sum politics in which if credit unions lose, they win, consumers be damned. In fact, if anyone reading this blog today is approached by a banking lobbyist explaining why this bill should be opposed, please ask that lobbyist what positive, constructive proposals the banking community has to make financial services better for New York State consumers?

Of course, the banking lobbyists are just doing their job. It’s time for legislators to stop hiding behind their increasingly hollow rhetoric and do what’s right for the New York State consumer.

 

Sex, SARs, And Politicians

I knew that would get your attention. I’ll be talking about that soon enough but first, here are some things of more immediate concern.

Senate Begins To Debate Regulatory Reform Bill

The first big test vote for S.2155 is expected to come today. Right now it appears that there is more than enough support to take up the bill on the merits, with Senator Mark Warner, (D-Va.) predicting that the vote for ending a procedural filibuster could pass with 70 Senators supporting it. While it doesn’t appear that New York can count on either of its Senators to support the measure, the increasing likelihood of Senate passage means that the attention will turn quickly to the House. Right now the usual suspects opposed to the bill are focusing on the fact that it raises the threshold before banks are subject to heightened oversight to $250 Billion as opposed to the well-deserved and much needed mandate relief it would give to credit unions and community banks.

Ready Or Not The Amazon Bank Is Coming

Amazon’s well-coordinated, ultimately game changing entry into the banking industry is set to take another step in the coming months. This morning’s WSJ is reporting that Amazon is in talks to open up checking accounts with JPMorgan. As the Journal explains, “With millions of customers, troves of data, access to cheap capital and seemingly unlimited leeway from its investors to enter new businesses, Amazon is a fearsome competitor. It’s more-than $700 billion market value eclipses the combined value of JPMorgan and Bank of America Corp, the two biggest U.S. banks.”

Remember when Walmart was the latest unstoppable threat to capitalism as we know it? Remember the fierce backlash against Walmart’s attempts to expand into banking services? Perhaps it’s just a reflection of changing times but I don’t sense a similar backlash this time. This intrigues me because with 38% of millennials saying they would trust Amazon with their money, the company could do to retail banking what it’s done to retail.

Sex, SARs, And Politicians

Let’s say you have a member who is a lawyer working almost exclusively for the Republican candidate for President. Less than two weeks before the election he withdraws $130,000 and wires it to a lawyer representing a porn star. Is this worthy of a Suspicious Activity Report? Would you go back and review the transaction if you found out that the payment was part of a Non-Disclosure Agreement? It appears that at least for one bank the answer is yes. The WSJ is reporting this morning that a SAR was filed by at least one bank where money was sent to Stormy Daniels who was allegedly threatening to disclose the fact that she had an affair with President Trump after they met at a celebrity golf tournament.

You would think that politicians would learn from the mistakes of other politicians. Remember it was a SAR which helped uncover then Governor Elliot Spitzer’s rendezvous with Client Number 9.

The Debt Shall Die With the Debtor, If You Are Lucky

Even though I have arrived in my favorite alternative reality universe called Washington, D.C., the issue that I want to bring to your attention this morning has to do with a proposal by
New York’s Department of Financial Services (DFS). Governor Cuomo has proposed that the sellers of life insurance and annuity must offer products that are in the “best interest” of the consumer. The Association has written a comment letter critical of the proposal. Here is why.

Now is not the time to be making it more difficult for consumers to access financial products that help protect their families if they die with bills to pay. According to one survey, 73% of Americans are dying more than $60,000 in debt. This is not all credit card debt. More and more people are getting 6 year car loans and home equity loans later in life. In fact, if this trend continues, the golden years will be anything but for an increasingly large number of ostensibly middle-class Americans.

It’s not a coincidence that credit unions have offered credit life policies for almost as long as they had been in existence. Properly managed, these policies help consumers by keeping money in the family. They are not a panacea for the disturbing dying with debt trend we are seeing, but they are one part of an overall solution. If my wife and I feel that our children should be protected against certain collateralized losses, then we should have that option.

To be clear, the Governor’s proposal does not ban the sale of this or any other insurance product. But take a look at the nuanced disclosure and underwriting requirements. Credit unions certainly want to make sure that their products work for their members. However,many credit unions will simply decide that the cost and risks of providing this insurance isn’t worth it. In other words, this is another example of credit unions being penalized because of the misconduct of other larger institutions. Fortunately, DFS still has time to make changes exempting credit unions from this proposal.

Sticks And Stones Will Break My Bones But Letters Will Never Hurt Me

Yesterday, CUNA and NAFCU sent a letter to Senator Orrin Hatch responding to the escalating tirade of the Banking Industry against “large” credit unions. I put large in quotes of course because a handful of banks in Manhattan hold more assets than the entire credit union industry combined and that’s not even talking about the other 49 states. Anyway, in many ways the banker’s latest attack is a sign of credit union success, not weakness.

Think of it this way, we just had the biggest tax overhaul since 1986 and not a single credit union issue gained serious traction. This is pure speculation on my part, but I view this latest round of banking recriminations as nothing more or less than a political consolation prize combined with a well-timed tirade to muddy up CUNA’s GAC. Let’s not let the bankers succeed. There are too many other important issues for the industry’s Grassroots lobbyists to get side tracked on debating tax issues.

The consolation prize was a letter from retiring octogenarian and Senate Finance Chairman Orrin Hatch questioning whether some credit unions have grown too big for their mission. For the record, in the heyday of the Regan era, Orrin Hatch was one of my favorite Senators. He was a thinking man’s conservative who wasn’t afraid to work with Democrats like Ted Kennedy do get stuff done. In short, he was the type of Senator who would get primaried out of today’s Republican Party. The letter penned under his name to NCUA is a strange letter to be sending out after your committee completed a tax overhaul.

Then there is the substance of the letter from 52 state banker representatives concerned that credit unions are subsidized by the American tax payer. I can be as cynical as the next guy but the idea that anyone in the banking industry is suggesting that the tax code favors credit unions to the detriment of the American public is beyond cynical. This is as bad as some of the pabulum being peddled on talk radio.

After all, the banking industry is one of the industries that most benefited from the recent tax changes but continues to shut down branches in underserved areas at a record pace. Remember too, that this is the industry whose biggest members are further subsidized in the form of an implicit too-big-to-fail bail out guarantee which makes their products cheaper and makes it tougher for smaller banks and credit unions of all sizes to compete against them.

The bottom line is this: Banker nonsense is here to stay. Let’s not let them side track us when there are so many core issues such as regulatory relief, cyber security, the restructuring of the CFPB and many other issues that have to be addressed in the short to medium term. And by the way, compliment CUNA for a job well done. Just because we didn’t have to send busloads of members down in a last second drive to protect our tax status doesn’t mean it wasn’t very much at risk.

Home Equity Tax Treatment Clarified

Yesterday, the IRS used one of its publications to clarify the deductibility of home equity lines of credit or second mortgages for home improvement projects under the new tax laws. As readers of this blog know, I have pointed out that recent amendments now restrict the deductibility of interest payments on these loans meaning that those of you who offer them should be prepared to see a decrease in the business as well as answer basic questions to confuse members. According to the IRS, even with the new tax limits, there are many instances when home equity loans will remain tax-deductible. This is one of the examples highlighted by the IRS, “Example 1:  In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000.  In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.”

Curling Hits The Big Time

I promised myself I was going to go an entire two weeks without bad mouthing the Winter Olympics but I can’t resist. It appears that the Russians are so desperate to pile up medals that even a mixed couple curling competitor has to use drugs. I don’t know if this person should be thrown out of the Olympics for using banned drugs or being so pathetic that he needs to take drugs to compete in a sport involving a sweeper and a large disc.

Are Auto Sales A CU Sore Spot?

If you look at the aggregate numbers for the credit union industry they remain solid. But that doesn’t keep me from living up to my reputation of having a glass half empty kind of guy.

I’ve been concerned for a while now that the industry is growing too dependent on auto loans and my concerns will be tested if current trends continue. Yesterday it was reported that auto sales fell for the first time in eight (8) years. If this is a blip reflecting an inevitable slow down after years of record growth, then it’s no big deal but if car sales declining becomes a trend then you will see an impact on the industry. I took a look at the latest NCUA statistics and currently loans for used cars grew 11.8% last year and 13% for new cars.

Cuomo: Fed Government Out For Blood

A fired up Governor Cuomo kicked off what promises to be one of the most challenging legislative sessions the state has experienced in years with a State of the State speech attacking the Federal government for attacking New York and promising to sue the Federal government for singling out the state in the recently approved tax plan which capped the deduction for state and local taxes. Here’s a sample of what the Governor had to say, “Washington has launched an all-out direct attack on New York state’s economic future by eliminating full deductibility of state and local taxes. What this is going to do, is this effectively raises middle class and working family’s property tax 20 to 25 percent all across the state. It raises their state income tax 20 to 25 percent all across the state. There is no conceivable justification. New York is already the number one donor state in the nation.”

He announced that he is not going to take this laying down. The state will be filing a lawsuit arguing that the tax plan unconstitutionally singles out New York for unequal treatment. I wouldn’t hold your breath. In the meantime, lawmakers have a deficit of several billion dollars to contend with which could grow if the Federal government follows through on plans to cut funding for entitlements such as Medicaid. Add to all this the fact that the Senate majority is up for grabs depending on the outcome of some upcoming special elections. And you have a recipe for a lot of tricky negotiations and gridlock.

ADA Lawsuits Alive and Well

This is just a friendly reminder that the wave of lawsuits against credit unions and other institutions for having websites which are not accessible to disabled users shows no sign of ebbing any time soon. On Wednesday for instance, a company that organizes marathons in the Miami area was sued over claims that its website violated the Americans With Disabilities Act. Keep in mind that under the ADA, the remedy is to fix the website. The plaintiffs can’t sue for damages.

The Incredible Shrinking Credit Union Industry

The long-term trend of credit union consolidation is continuing with gusto. I double checked this number after reading it in the CU Times this morning and sure enough another twenty-five (25) credit unions merged in November. Is this (a) A good trend (b) A bad trend Or (c) Nothing more or less than a reflection of the free market going about its creative destruction? My vote is (c) but that really is worthy of a blog in itself and I have run out of time for today. Peace out.

 

Joint Tax Committee says Banks and CUs aren’t all that Different Anymore

I learned something new this morning as I skimmed a report by the Joint Committee on Taxation detailing the provisions of HR 1, the House Republican tax legislation.  According to the Committee, “While significant differences between the rules under which credit unions and banks operate have existed in the past, most of those differences have disappeared over time.” (Page 150) Say What?

Is it possible that the Committee staffers never heard of SEG group requirements? Or don’t know about the MBL cap or Restrictions on community expansions? Is it possible that the committee doesn’t think that the inability to  issue stock is a big deal? I doubt it or though it would explain why our tax code is such a mess.

What banking lobbyist got this gratuitous fallacy tucked away in what is supposed to be an objective analysis of a tax bill which doesn’t impact the CU tax exemption?

On the one hand I’ll be happy if this is the worst thing that comes out of the tax debate; besides, its a waste of time to respond to every claim hurled at the enemies of the industry. But when I find these charges imbedded in an important analysis, presumably one that will be used by bleary-eyed legislators and staff  scrambling for additional revenue in the coming weeks,  it is worth responding to

I was reading the   report to get a sense of how the proposed UBIT amendments could impact state charters. FCUs are categorically exempt from the UBIT tax.  According to the analysis,   Sec. 5001 of the legislation  would  define unrelated business taxable income to include any expenses paid or incurred by a tax exempt organization for qualified transportation fringe benefits, a parking facility used in connection with qualified parking or any onsite  athletic facility.

As longtime readers of this blog know,  it’s not a coincidence my father is the accountant in the Meier family and not me. Please take a look if you think this could impact your CU.