Posts filed under ‘Compliance’
Ridesharing a Top Legislative Priority
When the Legislature returns from its late April slumber, the regulation of the emerging ride sharing industry will be a top priority according to Assembly Democrat John McDonald. In an interview published yesterday, the Cohoes Legislator argued that expanded ride sharing options and the traditional taxi medallion industry can co-exist.
“I don’t look at ridesharing as the threat to the (taxi) industry that most people think it is. Most of the taxi business here is medical transport. That’s what they do, 80 percent of it,” McDonald said. “We’re working on a parallel path with the taxi industry to Uber-ize them as well, bring them into the 21st century. It’s the technology.”
The Assemblyman’s comments are worth noting for a few reasons. First, with the biggest issues taken care of (paid family leave and the minimum wage) in the budget, ride sharing has certainly moved up the Legislative to-do list. Furthermore, the fact that an upstate Assemblyman is highlighting the issue demonstrates why it is so complex. Whereas, down-staters are understandably concerned about the regulation of New York’s existing medallion system, up-staters view ride sharing as a means of expanding transportation options. Your blogger will attest that the taxi service in the Albany area is nothing short of atrocious.
Remember that for credit unions the two big issues are proper insurance to protect the value of their auto loans and the value of medallion loans.
CFPB to Make Further Changes to TRID
In a letter to industry stakeholders yesterday, the Bureau said that it would be incorporating much of its informal guidance into proposed amendments to the TRID regulations by late July.
The Bureau has been doing a fair amount of letter writing lately. It recently responded to a letter from Tennessee Republican Senator Bob Corker, who asked the Bureau four questions:
- What is the CFPB doing to address the borrower confusion due to the discrepancies between federal and state law regarding the disclosure of title insurance premiums?
- What steps is the CFPB taking to prevent lenders from shifting liability to settlement agents?
- Will the CFPB consider forming an internal task force to identify and address issues arising from the implementation of the TRID rule? And
- Will the CFPB release technical guidance regarding what constitutes a technical error and potential remediation method?
Here is the Bureau’s response.
By the way, while lenders remain ultimately responsible for ensuring proper disclosures, there is nothing to prevent them from spreading the cost of liability to third parties, nor should there be.
Justice Department Oks KeyCorp Merger
KeyCorp and First Niagara Financial Group Inc. have agreed to sell 18 of First Niagara’s branches in and around Buffalo, New York, with approximately $1.7 billion in deposits, to resolve antitrust concerns that arose from KeyCorp’s planned acquisition of First Niagara,the Justice Department announced yesterday. Here is a list of the branch locations to be divested. https://www.justice.gov/opa/file/846646/download The Department said that with these branch sales it will no longer oppose the merger. Both Senator Schumer and Governor Cuomo have urged the federal government to block the merger which has to ultimately be approved by the Federal Reserve. They argue that it will result in a loss of jobs and financial services in the impacted regions.
Given its size and complexity, it’s not surprising that just about every year there is a provision or two in New York State’s budget that has unintended consequences. Unfortunately for those of you with escrow accounts, this year there is a glitch that affects you (See A.9009-c, Part A).
Under New York’s STAR program, property owners are exempt from paying a portion of their school property tax on their primary residence (see generally Section 425 of the Real Property Tax Law). The way the program has traditionally worked, the school property tax bill that the homeowner receives, usually in early September, reflects the amount of taxes they owe after the exemption is calculated, i.e. already taken out. This means that escrow accounts reflect the amount the member owes.
Here’s where things get complicated. At the urging of Governor Cuomo, this year’s budget begins a transition converting the STAR tax exemption into a STAR tax credit. Under the new approach, taxpayers will be billed on the full amount of their school tax assessment and then receive a tax credit reflecting the amount of their STAR exemption. In other words, they will bear the upfront costs of the assessment and get reimbursed when they file their taxes.
These changes are generally meant to apply to new homeowners, but because of the way the language was drafted if you weren’t in your new home on tax levy day of the 2015-2016 school year, they apply to you.
As an astute reader of my blog recently pointed out, this change creates a whole bunch of issues for mortgage escrows. For instance, since the amount in escrow has to reflect the amount of taxes due, members will have to put more money into their escrow account than they will need. Furthermore, holders of escrow accounts will presumably have to return this extra money to members.
This is one we will be keeping an eye on. Stay tuned.
At Chairwoman Matz’s last NCUA board meeting yesterday, a proposal was forwarded that will give federal credit unions greater flexibility to occupy buildings with retail space. It also explains in quantifiable terms when a building purchased by a credit union is “partially” occupied. This might not sound all that exciting, but NCUA’s fixed asset rules have been among the most needlessly troubling mandates with which credit unions have had to deal.
Let’s say your credit union wishes to buy property located at a prime street corner location. The building not only includes space for a branch but has retail and residential space on its upper floors. Presently, FCUs must have plans to fully occupy the building. During the meeting, Chairman Matz pointed out that this means credit unions can only buy mixed-use property if they plan to evict the other occupants. When this regulation is finalized, this will no longer be the case so long as a credit union has plans to use at least 50% of the building within six years.
Let’s say you aren’t interested in a mixed-use building but are looking to move your headquarters to a bigger space. Under existing regulations, a federal credit union must “partially” occupy property within six years of acquisition. However, there is not a quantifiable definition of when a building is partially occupied. Once this Reg is promulgated, you will be complying with the law provided at least 50% of the property is occupied within six years.
NCUA deserves a thumbs-up on this one. Here is the proposal.
Better Late than Never
One of the lessons drawn from the Great Recession was that CEOs shouldn’t have compensation plans that incentivize short-term and\or reckless behavior. So, Section 956 of the Dodd Frank Act requires federal banking regulators to issue joint regulations “not later than 9 months after the date of enactment of this title,” (I wonder if I could be this late on my taxes?) or “guidelines” to require financial institutions to disclose to the appropriate Federal regulator the structures of all incentive-based compensation arrangements offered by such covered financial institutions. This is the second time the regulators have taken a swing at crafting regulations for this provision.
The good news is that the proposal just applies to credit unions with at least $1 billion in assets. According to NCUA’s summary of the proposed regulation, impacted credit unions will have to, among other things, ensure that any new compensation incentives be approved by a credit union’s board of directors or a committee appointed by it. They will also have to give examiners all on-site records maintained on compensation plans. Here is the summary: https://www.ncua.gov/About/Documents/Agenda%20Items/AG20160421Item2c.pdf
On that note, the Blogger Formally Known As Henry is off to Party Like It’s 1999. Enjoy your weekend.
I have many important lessons to impart to you this morning:
Most importantly, if you live in the Northeast, never ever move the snow blower to the back of the garage before May even if it has been such a freakishly warm winter that golf courses are already open.
Second, always record any sporting event that starts after nine PM on the off-chance that you will sleep through one of the greatest endings in college basketball history.
Third, you should all take the time to read a legal opinion letter on the custodial powers of federal credit unions recently issued by the NCUA.
In response to an inquiry from Paul T. Clark of the Seward & Kissel Law Firm, NCUA’s General Counsel said that a federal credit union is authorized, at a member’s direction, to place funds, which initially have been deposited into the FCU, into an FDIC account and to serve as custodian for that account, provided that several conditions are met. It is an important clarification of the flexibility FCUs have to serve members without crossing the line between acting as custodians of funds to becoming trustees and broker dealers.
Why is this flexibility important? Unfortunately, the letter does not explain what the firm was seeking to do with this authority, but I can think of situations where a credit union and its member may want the flexibility to move funds into a FDIC account without leaving the credit union. For example, as explained in a legal opinion letter from 2009, the CDARS service enables a bank to accept large deposits from its customers and, on behalf of the customer, spread the deposits in excess of FDIC insurance limits to other FDIC-insured banks, so the funds are fully insured. In its 2009 letter, NCUA authorized the participation of credit unions in this program but that opinion dealt specifically with credit unions authorized to accept public funds. (https://www.ncua.gov/Legal/OpinionLetters/OL2009-1022.pdf#search=cdars). NCUA’s most recent letter makes it clear that federal credit unions are authorized to place funds in FDIC accounts while still being the custodian of a member’s accounts. This letter also makes it easier for credit unions to place a portion of a member’s money into a trust.
But be careful when using this letter. The General Counsel stresses that credit unions “generally” don’t have trust powers or broker dealer authority. Why is this distinction important? Because, as explained by Blacks’ Law Dictionary, a trustee must “protect and preserve the trust property, and to ensure that it is employed solely for the beneficiary, in accordance with the directions contained in the trust instrument.” In contrast, a custodian is simply responsible for holding funds, making sure they are available and making sure that only authorized persons have access to them.
Which leads us to my fourth important lesson of the day. I have a sneaking suspicion that there are many credit unions that confuse custodial and trust powers. My simple rule of thumb is that if you find yourself reading a trust document to understand the credit union’s responsibilities, you are probably doing more than you can or should. All you need to do is properly label the account and make sure that only authorized trustees can access it. It is the trustee’s job to make sure the account is properly administered.
Here is where you can access the letter:
Sometimes it’s the little changes that end up making the biggest difference.
At its March 24th meeting, the NCUA Board unanimously approved the creation of two IT positions for the purpose of modernizing the collection and dissemination of data among NCUA and field staff. This may not sound like a big deal, but when the initiative is finalized it’s envisioned that examiners and credit union personnel will have quicker access to necessary information. If it works properly, it will probably result in fewer examiners having to park in your offices for a shorter amount of time. It could even, some speculate, pave the way for an 18 month exam cycle.
To show you what a great idea this is, Board gadfly McWatters questioned NCUA staff as to whether they thought two staff positions over a four year period were sufficient to get the job done. Good luck and Godspeed, this initiative makes a lot of sense.
Investment Authority Expanded
Also at the meeting, the NCUA Board finalized regulations amending 12 CFR 703.14(f)(5) to remove the requirement limiting federal credit unions to investing in bank notes that have “original” weighted average maturities of less than five years. The amendment means that the five year restraint is still in place but NCUA argues that the amendment will provide FCUs with some mandate relief since the current regulations tie a bank note’s maturity to its original date of issue. The amendments will allow FCUs to purchase notes from a larger pool.
I have some good news this morning.
First, Alex Rodríguez announced yesterday that he would be retiring in two years when his 10 year gazillion dollar contract comes to an end. What a guy! I’m counting down the days, although I’m already bracing myself for announcers speculating with every home run he hits whether he will catch Barry Bonds, who holds the record for the most home runs by a steroid-using cheater. By the way, who do you think has a bigger ego Alex or Donald Trump?
Secondly, Congress actually functioned well enough last December to give some important mandate relief to financial institutions that provide mortgages in rural and underserved areas. A few days ago, the CFPB promulgated regulations putting this mandate relief in effect starting March 31st. The system worked, what a concept!
Financial institutions must establish escrow accounts for high priced mortgage loans but there is an exception for institutions with $2 billion or less in assets that “predominantly” provide mortgages in rural and underserved areas in a year, don’t sell 2,000 or more of these mortgages and that don’t otherwise provide escrows. (for the exact criteria see 12 C.F.R. § 1026.35. Similarly, credit unions providing mortgages in these areas can also make mortgage loans with balloon payments that qualify as Qualified Mortgages. In the HELP Act, Congress eliminated the requirement that credit unions predominantly offer mortgage loans in the area to qualify for the escrow exemption. The changes made by the Bureau mean that small credit unions will be eligible for both exemptions so long as they make a loan in an underserved or rural area in the preceding calendar year.
Another change mandated by HELP, which the Bureau finalized earlier this month, is the creation of a process for persons to apply for an area to be designated as rural even though it falls outside of the CFPB’s criteria.(http://www.consumerfinance.gov/newsroom/cfpb-rule-broadens-qualified-mortgage-coverage-of-lenders-operating-in-rural-and-underserved-areas/)
Foreclosure Relief Extended
In the “better a little late than never” category, the House of Representatives passed legislation this week extending until 2017 foreclosure protections for active duty members of the armed forces. Specifically, the Congressional Research service explains that S.2393 keeps in place “the one-year period after a service member’s military service during which: (1) a court may stay proceedings to enforce an obligation on real or personal property owned by the service member before such military service; and (2) any sale, foreclosure, or seizure of such property shall be invalid without a court order or waiver agreement signed by the service member. ” (Currently, the extended one-year period is scheduled to expire on December 31, 2015, and return to a nine-month period under the Servicemembers Civil Relief Act.) http://thomas.loc.gov/cgi-bin/query/z?c114:S.2393 I’m assuming that if the President signs the bill its provisions would be applied retroactively but that is just my assumption.
I Sure Hope You Guys Know What You are Doing
Keith Leggett reported in his Credit Union Watch blog yesterday that there are 251 credit unions with Money Service Business Accounts. According to Keith, “[t]he number of accounts for Dealers in Foreign Exchange fell by 40 over the year to 17 at the end of 2015. Federally insured credit unions reported a drop of 30,620 accounts for Check Cashers from 31,543 accounts at the end of 2014 to 923 accounts at the end of 2015. Accounts for Providers of Prepaid Access fell from 92 accounts to 39 accounts. Also, there was a decline in the number of accounts for Sellers of Prepaid Access from 140 accounts to 116 accounts.” (http://creditunionwatch.blogspot.com/)
That is still a lot of MSB financing. I know that MSBs are legitimate businesses and I know that thy generate much needed fee income, but, remember that these accounts also come with complicated BSA requirements that, if mishandled, can damage the best of institutions.
What’s In A Name?
How important is your credit union’s name?
Well I just heard that in this day in 1962 Mick Jagger and Keith Richards performed together for the first time as Little Boy Blue and the Blue Boys. Had they kept this name, I doubt that we would still be paying hundreds of dollars to see them play.
On that note, I’m off to Grandma’s house for some Easter Sunday lamb with mint jelly. See you Monday.
In my ever so humble opinion, prepaid cards are the most widely used, under regulated financial products in the country. That’s changing. The CFPB is examining how best to regulate them and yesterday federal regulators, including the NCUA, issued guidance on the applicability of Customer Identification requirements to the financial institutions that issue them.
Of course readers of this blog know that credit unions and banks are responsible for identifying persons for whom they open accounts. The question is: Do CIP obligations extend to prepaid cards issued by credit unions and banks? The answer depends on the features of the prepaid cards and the role your institution plays in providing them . Since, as the guidance notes credit unions wishing to offer prepaid cards are restricted by field of membership constraints, credit unions aren’t as able as banks to get into the prepaid card business.
CIP requirements kick in when a credit union or bank establishes an account relationship. The guidance states that ” When a general purpose prepaid card issued by a bank allows the cardholder to conduct transactions evidencing a formal banking relationship, such as by adding monetary value or accessing credit, the cardholder should be considered to have established an account with the bank for purposes of the CIP rule. Further, the cardholder should be treated as the bank’s customer for purposes of the CIP rule, even if the cardholder is not the named accountholder, but has obtained the card from an intermediary who uses a pooled account with the bank to fund bank-issued cards “ In addition, there is no requirement that a card be tangible. It could be purchased off a website and downloaded to your member’s smartphone.
If a prepaid card is an account, who is responsible for implementing CIP requirements? The short answer is that any financial institution issuing a prepaid card “account” is ultimately responsible for complying with CIP requirements but it may contract with third- parties to execute this responsibility provided that it exercises oversight over its vendor. Where a prepaid card has to be activated by a member the guidance advises that the activator (my word) carry out the CIP.
There are many types of prepaid cards ranging from payroll cards-in which an employer opens up a master account from which employee salaries are placed on individual debit cards-to government benefit cards. Does this mean that CIP must be performed on every cardholder? It depends. For example The guidance explains that if only an employer has access to the master account than the issuing institution must only perform CIP on the employer. In contrast if a government benefit card allows the cardholder to load funds other than government funds onto the card than an account relationship is established and the receiver of the benefits must be identified.
A good article in this Morning’s American Banker succinctly summarizes the predicament the CFPB finds itself in as it continues to work on a proposed regulation restricting payday loans .
“If the agency goes too far in restricting short-term, small-dollar loans, there will be a huge backlash from payday lenders and on Capitol Hill, from both Republicans and Democrats. But if the agency fails to stop the most abusive practices, consumer groups will view the first national standards on payday loans as a failure. A chief concern is what will replace payday lenders if federal regulations force many to shut down.”