Posts filed under ‘Compliance’

New York State Proposes Expanded Student Branching Powers For State Charters

Good morning, folks.

New York State’s Department of Financial Services continued to signal its increased support for the State credit union charter by providing notice that it intends to allow state chartered credit unions to operate student branches to the same extent as their Federal brethren. The proposal will provide much needed guidance and flexibility for state chartered credit unions interested in offering such branches. The beauty of wild card is that it also provides assurances to existing Federal charters that if they were to flip to the state’s oversight they can be assured of exercising the same powers.

While state charters have long had the ability to operate student branches in New York State (See §450-b) Federal credit unions have much more flexibility in operating such branches as I explained in this previous blog under the DFS’s proposal, state charters will be able to open student branches provided they give the Department at least 30 days prior notice. Eligible members would include all students enrolled in the school as well as teachers and staff.

If approved, this would be the most important use of the wild card power ever authorized on behalf of credit unions so comments in support of this notice would be appreciated. Remember, a strong state charter helps both Federal and State credit unions.

NCUA Board Meeting Today

The NCUA has a Board meeting scheduled for today. If all goes according to plan, NCUA will quickly be finalizing its proposal to create a more formalized appellate process for credit unions challenging material examiner findings. I think this is potentially a very big development but I will talk about that more in tomorrow’s blog. Incidentally, tomorrow’s blog should be timelier than other blogs have been in recent days as there’s no Yankee game tonight. For those of you interested, the next game is tomorrow night.

 

 

October 19, 2017 at 9:11 am Leave a comment

Five Things I Have To Tell You Before The Yankee Game

Don’t tell anyone but If all goes according to plan, I’ll be sneaking out of the office a little early today so I can be comfortably ensconced in my leather recliner with my opened IPA and my perfectly positioned remote control by 5:08 p.m. so I don’t miss a pitch in Game 5 of what’s turning into an epic battle between the Yankees and the Astros.

But in the meantime, just in case you don’t care about baseball or actually need to get some work done before the game starts, here are five things I should tell you about before I sneak out.

1. New York Finalizes Tough New Title Insurance Regulations

New York State’s Department of Financial Services continued its crackdown on what it perceives as abuses by the Title Insurance industry. Yesterday, it finalized a set of regulations which generally further restrict the fees that title insurance companies can charge and further narrow the flexibility that title insurance companies have to enter into affiliation relationships. Some of the specific prohibitions include limits on “ancillary fees.” For example, it caps so-called ancillary fees or other discretionary fees such as fees for bankruptcy and municipal searches. New York State is concerned that title insurers get around existing limits on premium charges by charging additional costs for such services. The regulation also places new limits on the activities of title insurance agents or corporations from affiliated persons or corporations. This means, for example, that if your credit union has a title insurance CUSO it should reexamine how this relationship is structured.

2. Trades Call On Congress And Justice Department To Provide Clarity On Website ADA Compliance

CUNA urged Congress and the Justice Department to clarify once and for all the obligations of companies to provide accessible websites under the Americans With Disabilities Act. The call comes amid a wave of lawsuits against credit unions and other financial institutions for failing to comply with the ADA. In 2010, the Department of Justice issued an Advance Notice of Proposed Rule Making which provided guidance on websites in the ADA but the regulations have gone nowhere. On the legislative front, CUNA voiced its support for HR 620, the ADA Education and Reform Act of 2017.

3. Temporary Exceptions To Appraisal Requirements In Storm Impacted Areas 

If you provide mortgages in an area impacted by Hurricane Harvey, Irma, and Maria then you should know that Federal regulators including the NCUA issued an order specifying that financial institutions will not be required to obtain appraisals for affected transactions. The agencies will not require financial institutions to obtain appraisals for affected transactions (1) if the properties involved are located in areas declared major disasters; (2) if there are binding commitments to fund the transactions within 36 months of the date the areas were declared major disasters, and (3) if the value of the real properties support the institutions’ decisions to enter into the transactions.

4. NCUA Budget Briefing Today

Don’t forget that NCUA is holding a briefing on its proposed 2018 budget from 2-4pm. The briefing is more important than usual for those of us in Region I as it may provide us with additional information about the cost savings to be generated from shutting down operations in the Albany area. By the way, if NCUA doesn’t want to remain my neighbor then they shouldn’t expect a Christmas card from me this year.

5. Rally Chants That Didn’t Make The Cut

Yours truly ran out of time to get a blog out yesterday. I had to get downtown to participate in the credit union rally hosted by the Association. Thanks to all of you credit union people who showed up. While the rally was a success, I remain a little upset that some of my proposed chants and slogans were not incorporated into the rally. So here they are:

  • All’s Well That Ends Wells!
  • Credit Unions Rule, Bankers Drool! (Courtesy of my 8-year-old.)
  • 100 Years Of Opening Accounts that People Actually Know They’ve Opened

October 18, 2017 at 9:23 am 2 comments

Time To Make Your Website ADA Compliant

Image result for ADATwo recent developments demonstrate that it’s time to start making your website ADA compliant if you haven’t done so already. 

 First, the Credit Union Times reported recently that at least nine credit unions have been sued in recent weeks because their websites allegedly violate the Americans With Disabilities Act (ADA). Second, there is now a district court decision in the 2nd Circuit, which has jurisdiction over New York State that websites must comply with this federal law.  Andrews v. Blick Art Materials, LLC, — F. Supp. 3d –, 2017 WL 3278898, (E.D.N.Y. Aug. 1, 2017).

To state a claim under Title III of the ADA, a disabled plaintiff must prove that a defendant owns, leases or operates a place of public accommodation and that the defendant has discriminated against him by denying him a full and equal opportunity to enjoy the defendant’s services. The key issue, increasingly involving credit unions, is whether or not a business’s website is a place of public accommodation.

 For example, I pulled down the complaint to one of the lawsuits to which the CU Times is referring. The legal argument in Carroll v. Roanoke Valley Community Credit Union is a straight forward one. The plaintiffs are visually impaired consumers who argue that the credit union’s website lacks basic software that enables the visually impaired to navigate and utilize web services. Specifically, they point to standards promulgated by the International Website Standards Organization which have been “successfully followed by numerous large business entities to ensure that their websites are accessible” and which the credit union has allegedly not adopted.

Despite the ubiquity of the internet, the courts have still not come to a consensus as to whether or not a website is a place of public accommodation covered by the ADA. Very generally speaking, some courts argue that the ADA can’t apply to websites because they are not physical locations such as buildings. Other courts have concluded that the ADA should be read broadly as including websites at least to the extent that they assist individuals wanting to enjoy a business’s physical location.

This is why the Andrews decision is potentially so important. It marks the first time that a New York Federal Court has directly ruled on the issue of whether Title III of the ADA applies to a retailer’s website. If appealed.  It will give the Court of Appeals for the 2nd Circuit the opportunity to provide clear guidance to credit unions and other businesses about what their website obligations are. If the case is upheld on appeal, it clearly stands for the proposition that your website must be ADA compliant.

 

October 11, 2017 at 9:48 am 1 comment

Where Do You Stand On Payday Lending?

Image result for payday lendingMore than any other mandate imposed by the CFPB, your opinion about what it accomplished yesterday by severely restricting the payday lending industry  depends on what you think the financial industry can and should do to help consumers.

If you fancy yourself a consumer protection advocate, yesterday’s announcement by the CFPB that the benign dictator of consumer finance has finalized regulations cracking down on payday lenders may very well be a high watermark.

If you are like your faithful blogger and would like to see a world without payday loans but are realistic enough to realize that this is never going to happen, yesterday marks the high point of the CFPB’s delusion that, with just the right amount of nudging, government can protect people from themselves;

And if you are a credit union person whose job it is to see how this regulation will impact your operations, you have a lot of reading to do but there appears to be some positive signs.

So what is a payday loan according to the CFPB? As described in the Bureau’s executive summary, payday loans are “Short-term loans that have terms of 45 days or less. Closed-end loans are covered short-term loans if the consumer is required to repay substantially the entire amount of the loan within 45 days of consummation. Open-end loans are covered short-term loans if the consumer is required to repay substantially the entire amount of any advance within 45 days of the advance.” In addition, longer term balloon payment loans are covered if “1) it is structured as a loan with multiple advances where paying the required minimum payments may not fully amortize the outstanding balance by a specified date or time; and 2) the amount of the final payment to repay the outstanding balance at such time could be more than twice the amount of other minimum payments under the plan.”

The core of the CFPB’s proposal is a requirement that payday lenders underwrite these loans in a way that demonstrates that a borrower has the ability to repay them. In order to accomplish this, lenders would have to obtain certain baseline documentation including a written statement of the consumer’s net income and the amount of payments required to meet the consumer’s major financial obligations.

Could a lender get around these new regulations with simple changes to make sure that their loans don’t meet payday lending criteria? For example, could they simply stipulate that your payday loans have to be paid in 46 as opposed to 45 days? Not if the CFPB has its way. One of the final provisions of the new regulation gives the CFPB the power to examine a lending program to determine if it is set up with the intent of evading payday loan requirements. In making this determination, the CFPB is giving itself the power not only to examine the terms of a given lending program but also “the actual substance of the lender’s action as well as other relevant facts and circumstances” to  determine whether the lender’s action was taken with the intent of evading the requirements. I’ll bet you right now that if the CFPB is sued over this regulation, its authority to exercise this power will be challenged on due process grounds.

The good news is that if your credit union makes less than 2,500 of these loans a year it can provide short term loans to its members provided it does not generate 10 percent of its receipts from such loans.  The CFPB clearly listened to CUS that pointed out that they sometimes make short term loans that actually help members. In addition,  NCUA’s PAL loans are also exempt.

Now for some commentary. This is the type of proposal that will warm the hearts of consumer advocates who are justifiably disturbed by the abusive practices of some payday lenders. But whether or not it will have any discernible benefit for the people inclined to get these loans remains to be seen. In an ideal world, Dorothy clicks her heels three times and returns to Kansas. And in an ideal world, no one would be desperate enough to need usurious loans and no lender would be willing to make a living off such loans. But the reality is that all the regulations in the world won’t change the fact that there will continue to be people in need of short-term loans and lenders willing to profit from their misfortune.

Over the Summer I read the book “Hillbilly Elegy” by J.D. Vance. Vance grew up dirt poor in rural Ohio and eventually became an Ivy League trained lawyer. He uses the book to explain why so many white working class Appalachians are disillusioned and willing to turn to radical political solutions. Vance had the opportunity to work for a state senator in Ohio during the time that the state was debating a bill to ban payday lenders. His observation about the well-intentioned but misguided views of the bill’s supporters is worth quoting. “To them payday lenders were predatory sharks, charging high interest rates on loans and exorbitant fees for cashed checks. The sooner they were snuffed out, the better. To me, payday lenders could solve important financial problems. My credit was awful thanks to a host of terrible financial decisions (some of which weren’t my fault, many of which were). So credit cards weren’t a possibility…The lesson? Powerful people sometimes do things to help people like me without really understanding people like me.”

 

October 6, 2017 at 9:32 am Leave a comment

Why I Hope This Blog Doesn’t Matter To You

I pride myself on getting up bright and early to provide you with informative rants on the news of the day that will impact your credit union, but today is different. I’m hoping that the information I give you is obsolete and unnecessary. Here it goes.

On October 3rd regulations extending the “Military Lending Act” (MLA) officially to credit card transactions took effect. This means that when providing credit cards to a member of the armed services or dependent, you may not charge a Military Annual Percentage Rate (MAPR) greater than 36%. In addition, there are unique disclosures that must be provided.

The most important thing to keep in mind is that the MAPR is calculated differently than the traditional APR. For example, in calculating the APR you would include any premium or fee for credit insurance or debt suspension agreement.

The good news is that the regulation permits lenders to exclude from the MAPR calculations. Bona fide and reasonable fees can be excluded from the MAPR calculation. A fee meets this criteria if it is similar to fees imposed by other creditors for “the same or substantially similar product or service.” If you don’t want to risk being challenged over whether a fee is in fact bona fide, a compliance “safe harbor” (see yesterday’s blog) is provided. A bona fide fee is reasonable “if the amount of the fee is less than or equal to an average amount of a fee for the same or a substantially similar product or service charged by 5 or more creditors each of whose U.S. credit cards in force is at least $3 billion in an outstanding balance (or at least $3 billion in loans on U.S. credit card accounts initially extended by the creditor) at any time during the 3-year period preceding the time such average is computed.” This notice from CUNA Mutual provides guidance on how you can make that calculation.

When the MLA was first implemented, you could rely on information provided by your member to determine if they were entitled to the MAPR’s protection. But since October of last year, you only receive safe harbor protection for complying with the law’s requirements if you run a member’s identification information in the DMDC database. In addition, the major credit reporting agencies can also flag MLA eligibility.

Remember, this regulation simply expands on requirements that were already imposed on lenders as a result of the Department of Defense’s decision to expand the coverage of the Military Lending Act from just high cost pay-day loans, vehicle title loans and refund anticipation loans to virtually all types of consumer transactions.

When the DOD decided to expand the coverage of the MLA, about the only regulator who thought that the DOD’s updated regulatory framework made sense was the CFPB. Need I say more? Both the banking and credit union trade groups continue to express concern that the regulations, no matter how well-intentioned, needs to be better explained. In addition, it seems to me that, by basing bona fide fees on the practices of the largest credit card providers the regulations have the unintended consequence of making it more difficult for smaller lenders such as credit unions to cost effectively provide credit cards to military personnel and their dependents.

But the time for complaining is over. Besides, that’s my job. Unfortunately, I get the sense that there are some credit unions that aren’t quite up to speed when it comes to complying with this regulation. Be sure to take a nap when you get home today so you are nice and fresh for tonight’s Yankee game.

October 5, 2017 at 9:27 am Leave a comment

How Safe Are You From Overdraft Lawsuits?

Image result for safe harbor

Just because you use a model form when asking members if they want to opt-in to overdraft protections, don’t assume that your credit union is safe from being sued over the adequacy of these disclosures. That is my takeaway from the latest case I have seen. It joins a growing body of litigation in which members are being allowed to sue credit unions for providing inadequate account balance disclosures which lead to unnecessary overdraft fees.

First some background, with apologies to those of you who already know most of this. There are two basic methods for calculating account balances: the actual or ledger balance method refers to all money currently in a member’s account. In contrast, the available balance method refers only to those funds actually available for use by the member. A second key point to keep in mind is that 12 CFR 1005.17 stipulates that opt-in disclosures for overdraft protections shall be “substantially similar” to model form A9. My guess is, this is the form your credit union uses. The Electronic Funds Transfer Act shields credit unions from liability for any failure to make disclosures improper form provided that the model form is used.

The most recent example I have seen involving this type of litigation is Gunter v. United Federal Credit Union (Dist. Ct. Nevada 2017). In this case, a member wanted to bring a class action lawsuit against the credit union on behalf of persons who were charged an overdraft fee even though the member’s actual balance was equal to or greater than the transaction causing the overdraft. Gunter also wanted to sue on behalf of members who opted into the credit union’s program and were charged an overdraft fee, contending that the overdraft disclosure provided did not describe the credit union’s balance procedures properly.

The credit union argued that since it used the appropriate model form, it was shielded from the member’s lawsuit. It argued that if it included language different from that provided in the model form, it ran the risk of losing its safe harbor against precisely these types of lawsuits. The language, the member argued, should have been included in the disclosure, would have meant that the form used by the credit union would no longer be substantially similar to the form mandated by the regulators.

But the court disagreed. Its logic should send a shiver down the spine of any compliance officer relaxing in their safe harbor. “United could have explained that it authorizes overdrafts based on available balance rather than actual balance without violating Regulation E because Regulation E expressly requires financial institutions to describe their overdraft services. Presumably that description must be accurate and not misleading. United implicitly contends that it would have faced liability for including such a description because its opt-in agreement must be “substantially similar” to Model Form A-9, id. § 1005.17(d), but such a description would not destroy substantial similarity. In fact, such a description would further the purpose of the regulation to help consumers understand the overdraft services their financial institutions offer.”

This decision is not binding in New York but if the court’s logic catches hold, model form language could become a breeding ground for future litigation. Personally, I would discuss this case and other similar litigation next time you catch up with the vendor who provides your account disclosures. In the meantime, make sure that you understand what account method your credit union uses and that your disclosures give your members adequate notice of this method.

October 3, 2017 at 10:10 am Leave a comment

RIP To The Twist

At the conclusion of yesterday’s Federal Open Market Committee, Chairman Yellen confirmed what had been speculated about for weeks now: The Federal Reserve will start unloading the treasury bonds and mortgage back securities it has purchased to keep interest rates low. No one knows for sure what impact this will have on interest rates, but it is certainly something that lenders should be paying attention to.

Since 2011, the Federal Reserve has aggressively brought a combination of mortgage-backed securities and treasury bonds, utilizing a strategy called Quantitative Easing. The idea is that by supporting the price of treasuries and mortgage securities, the Federal Reserve could keep interest rates from growing higher. In 2014, it stopped buying additional securities but it continued to rollover its existing portfolio. It now has a balance sheet of $4.5 trillion which, according to Bloomberg, represents a quarter of the country’s gross domestic product. From the start, the program has been controversial.

Critics had two primary concerns: First, they argued that by keeping interest rates artificially low, the Federal Reserve was effectively subsidizing large banks and companies that had the ability to capitalize on low rates. They argued that the program penalized small lenders such as community banks and credit union that are more dependent on interest rates than are the behemoth lending institutions. Secondly, critics argued that the Federal Reserve would not be able to reintroduce these purchases into the market place without causing economic disruption. It’s that second proposition that is now being tested.

Under the Fed’s approach, it will gradually shrink its balance sheet by not reinvesting in securities once they mature. The Fed will cap the size of its balance sheet reduction in the hope of minimizing the impact of this buy-down.

No one knows for sure what exactly the impact of this unwinding will be, but at the very least, it should create some upward pressure on interest rates. Given the start of this grand experiment as well as continued uncertainty about the direction of the economy, now is one of the key times for your credit union to be keeping a close watch on how sensitive your credit union is to sudden changes in interest rates.

CFPB Releases Important HMDA Regulations

I have not yet had time to read these babies, but I wanted to give you a heads-up that our good friends at the CFPB released two important regulations related to HMDA yesterday. A final regulation harmonizes the requirements of the Equal Credit Opportunity Act, which forbid lenders from taking an applicant’s race into account when making lending decisions with the mandates of HMDA which require lenders to obtain information about a lender’s race and ethnicity.

The new HMDA regulations will not only result in the collection of much more information about applicants, but also will result in much more of this information being readily available to the general public starting in 2019. Yesterday, the CFPB released a proposed guidance and is seeking feedback on how to balance greater transparency with the need to protect consumer privacy.

September 21, 2017 at 9:01 am Leave a comment

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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