Posts filed under ‘Compliance’

The Known Unknowns About The Transaction Reporting Proposal

The more I think about the IRS’s tax proposal, the more I want to channel my inner Donald Rumsfeld. The late secretary of defense famously explained that “There are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.”

In the last couple of days I have started to get calls not only from the usual policy crowd that recognizes the Account Transaction Reporting requirement for the lousy idea it is, but also from the compliance crew that would be responsible for translating the idea into a tangible framework. 

Here is some information about what we know and don’t know about this extremely fluid idea:

Where can I find this legislation?

  • No legislation has actually been introduced. What we are debating is a proposal originally outlined by the Treasury as part of the Administration’s Revenue Proposals (starting on page 88).

When would this proposal take effect?

  • If the Treasury has its way this proposal would take effect for the 2023 tax year.

What exactly is the Treasury proposing?

  • In its own words, the Treasury is proposing a “comprehensive financial account reporting regime” (that doesn’t sound too scary does it?) Financial institutions would play a crucial role in this process. They would be responsible for reporting gross inflows and outflows out of accounts.

What information would financial institutions be required to report to the IRS?

  • In a caustically worded fact sheet released two days ago, the Treasury stressed that financial institutions would not report individual transactions to the IRS. Instead, they would only have to provide a mere “two additional data points”.  These data points would be:
  1. The total amount of funds deposited; and
  2. The total amount of funds withdrawn over a year.

(Gee I can’t imagine why your members would be upset upon learning you have to turn this information over to the IRS.)

How exactly would an account transaction be defined by the Treasury?

  • This one’s going to be tougher to clarify than the Treasury may realize. For example, if I internally transfer money from my savings to a checking account, is that an account transaction? This is a particularly important question for credit unions which still utilize the concept of “master” and “sub” accounts (by the way, this terminology drives me nuts but that can be the subject of another blog).

Are there thresholds below which this report would not be issued?

  • As originally proposed by the Treasury, the plan would not have applied to accounts with $600 or less in transactions. In recent weeks there have been proposals to raise that threshold to $10,000.  But remember this is an aggregate threshold.  Over the course of a year, almost all your members would make transactions that in the aggregate exceed this threshold.  Furthermore, with or without a transaction threshold by Congress, your credit union would be responsible for ensuring that this information is appropriately tracked. At the very least this translates into more time and expense working with your core operating system provider. For smaller credit unions, this mandate will be an extremely labor intensive mandate with which to comply.

Isn’t Congress going to ensure that this only applies to certain members?

  • This is where we really need to see actual language. According to the Treasury’s press release, Congress has modified the proposal to include an exemption for wage and salary earners and federal program beneficiaries. Under this approach “such earners can be completely carved out of the reporting structure.”

This is the type of language which drives compliance people crazy. Among the questions that come to mind are: How exactly are financial institutions supposed to differentiate transactions involving employer wages from other types of legitimate transactions not involving an employer?  For instance, many members derive income from driving Uber or having small businesses.

October 21, 2021 at 11:02 am 1 comment

Are You Prepared To Comply With New York’s Gender Recognition Act?

This December, a new law takes effect which expedites the process for individuals to change their name and gender identification on public documents such as driver’s licenses and birth certificates and increases the privacy of individuals submitting these petitions. A recent phone call into our Compliance department reminded me that this change in law will have important implications for your credit union’s operations.

Under existing law, a petition for a name change must be published. The purpose of the Gender Recognition Act (GRA) is to protect the privacy of members of the LGBTQ+ community and protect them from discrimination by providing a mechanism to more quickly change their name and gender identity. Crucially, for our purposes, documentation of a name change may be used to request a “public or private” entity update its records to reflect the new name. This term clearly includes banks and credit unions. The refusal of an entity to honor such a request may result in legal actions for violating several provisions of New York law.

In order to prepare for this law, credit unions should examine their existing protocols to determine what documentation may be subject to a name change request. You may also wish to consider putting your front line staff on notice to expect an increase in such requests as the law’s effective date nears. More generally, the underlying purpose of the law is to ensure people can efficiently change their name and gender identity in a way which maintains their privacy. So the need for employee discretion should be emphasized.  The law takes effect on December 21st but businesses may already be fielding requests for changes.

October 15, 2021 at 9:15 am Leave a comment

Three Things You Should Know To Start Your Credit Union Day

Municipal Deposit legislation, A8289, gained a key sponsor yesterday when the new Chairwoman of the Assembly Banks Committee became the prime sponsor of the legislation in that chamber.

Assemblymember Pat Fahy is the new chairperson of the Banks Committee. She replaces former Bronx Assemblymember Victor Pichardo who resigned from the Legislature this past summer. Pichardo’s departure means that the legislation will have to be reconsidered by the Banks Committee. Last year the legislation advanced to the Assembly Ways and Means Committee.

Assemblymember Fahy is a familiar face in the Capital Region who represents parts of Albany and Bethlehem. In September, the Association met with her office to discuss credit union priorities.

Court Clarifies Foreclosure Notice Requirements

When it comes to foreclosing in New York, minute mistakes can make a huge difference. Most readers of this blog know that state law requires mortgage holders to mail a 90 day pre-foreclosure notice to delinquent homeowners before commencing foreclosure (RPAPL 1304). When there are multiple borrowers, how is this requirement satisfied? In this recent decision a New York Appellate Court addressed this issue for the first time. It ruled that lenders must mail a separate 90 day notice to each borrower in separate envelopes.

Is this arcane? You bet it is. But if this procedure isn’t followed, a foreclosure will be dismissed, at least in Long Island, Westchester, Brooklyn, Queens and Staten Island over which this court exercises its jurisdiction. Wells Fargo Bank, N.A. v Yapkowitz, 2021 N.Y. Slip Op. 05139, 2021 WL 4448061

Yellen Continues To Push For Transaction Monitoring

Treasury Secretary Janet Yellen continues to insist that requiring banks and credit unions to report almost every account transaction by their members is no big deal. Ironically, she is making this argument even as America wakes up to the danger of Facebook controlling so much of our personal information. People don’t trust the IRS any more than they trust Mark Zuckerberg, although it might be close at this point. 

Yellen’s continued advocacy underscores that we have to continue to tell anyone that will listen that intrusive transaction reporting is a bad idea.

I will be back on Tuesday.  Enjoy your long weekend. This year’s World Series prediction, which has been certified as acceptable Secondary Capital by the NCUA, is the Milwaukee Brewers against the Houston Astros, with the Brewers winning in a seven game classic.

October 7, 2021 at 9:55 am Leave a comment

Levy and Restraint Protocols Impacted by NY’s Minimum Wage

Your faithful blogger has just turned the heat on meaning that fall has officially arrived and it’s a good time to remind you of the impact that New York’s minimum wage law has on your levy and restraint protocols.

In 2016 New York approved Legislation with the ultimate goal of phasing in a $15 state wide minimum wage.  But in order to account for regional differences, different regions of the state, New York City, Long Island and Westchester and Upstate were subject to different wage scales.  In addition, the state was given authority to scale back mandated wage increases depending on their economic impact.  On September 22, the Division of the Budget released the mandated regional assessment and confirmed that the minimum wage will rise to $15 on Long Island and Westchester in 2022, joining New York City which already has a $15 minimum wage.  In contrast, the minimum wage for the “Upstate Area” will be $13.20 for the 2020 calendar year. 

Not only do these changes impact your credit union as a New York State employer, but it has an impact on your levy and restraint practices as well.  Under the Exempt Income Protection Act (EIPA) a minimum amount equal to 240 times of the state minimum hourly wage is exempt from levy and restraint.  As a result, in this 2017 guidance, DFS advised banks and credit unions “…that they should, to the extent practicable, calculate the exempt amount based on the account holder’s address and the size of the employer.  However, if, after reasonable due diligence, this information is unavailable, DFS has advised banks to exempt from collection an amount that corresponds to the highest minimum wage in effect in the State at the time of the calculation”, which is now going to be $15.

On that note, enjoy your weekend.

October 1, 2021 at 9:07 am Leave a comment

Four Things You Need To Know To Start Your Credit Union Day

For the first time in a while, I am overflowing with news you need to know to start your credit union day. As long time readers know, what follows is a series of quick hits, any one of which would be worthy of its own blog on a quieter day.

Treasury Pushes For Expanded Reporting Responsibilities

Anyone who thought we were out of the woods after the House Ways and Means Committee approved a plan to pay for a $3.5 trillion spending package that did not include increased reporting requirements for banks and credit unions is mistaken. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig have written letters urging Congress to include the proposal in the final budget package.

With the caveat that there has been no language officially proposed, the idea under consideration would mandate that financial institutions report gross report flows of income in and out of accounts that exceed $600.

Clearly this would impose an onerous new mandate on credit unions and alienate more than a few members. Stay tuned for more information from the Association.

How Was Your Examination Service?

The NCUA announced yesterday that federal credit unions will be asked to submit a post examination survey that will be administered by the NCUAs Ombudsman’s office as part of a pilot program.

If you have fantasies about using the survey to vent after a rough examination, you will be disappointed. The letter explains that “examination disagreements or reports of waste, fraud, or abuse should not be reported through the survey response.” At the risk of being branded a heretic, the industry spends way too much time obsessing over the examination process.  After all, disagreements are inevitable and it’s actually a sign the system is working.

FHFA Makes It Easier To Finance Investment Property

The Federal Housing Finance Administration and Treasury announced that they were suspending certain agreements entered into this past January which placed caps on the number of investment property mortgages that Fannie Mae and Freddie Mac could purchase. This is the latest in a series of moves by the new leadership at the FHFA to use the GSEs to more aggressively provide aid for homebuyers.

Acting Director Thomson discussed the changes at NAFCUs Congressional Caucus. In a closely related development, the FHFA is also proposing changes to the capital requirements for the GSEs.

Let The Redistricting Games Begin

Yesterday marked the first formal step in the once-a-decade political blood sport that is redistricting. By the time the process is complete, the Legislature will have approved new Congressional and Legislative Districts that will shape the direction of politics and policy for decades to come. This morning’s Times Union is reporting that the bipartisan commission designed to propose the initial redistricting plan has instead proposed two separate plans. One supported by Republicans, the other by Democrats. It boldly predicted that a partisan stalemate looms in New York redistricting, which is tantamount to Claude Rains’ character Captain Renault claiming to be shocked that gambling is taking place in a casino. 

September 16, 2021 at 10:14 am Leave a comment

Will Biden’s Executive Order Apply to Credit Unions?

Yesterday, President Biden took his most aggressive action yet to combat the spread of COVID-19.  First, he ordered the Department of Labor’s Occupational Safety and Health Administration (OSHA) to issue an emergency temporary standard that will “require all employers with 100 or more employees to ensure their workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before coming to work” and must give employees paid time off to get the vaccine and paid time off to recover from any side effects.  Secondly, the President is ordering the establishment of guidelines mandating that federal contractors be vaccinated.  The precise impact of these orders on your credit union’s operations remains to be seen.

With the exception of certain industries, OSHA has not promulgated federal workplace safety standards in relation to COVID-19.  This is why New York felt the need to fill this gap by passing the HERO Act.  As I explained in a recent blog, New York’s Commissioner of Health has declared COVID to be a highly infectious disease which means that all New York employers must now have health screening protocols in place.  We will have to wait for the OSHA standards to see precisely what is going to be required of larger employers beyond the state mandates.

Another tricky issue that needs to be clarified is whether or not financial institutions are going to be considered federal contractors for purposes of the President’s vaccine mandate.  The President’s Executive Order technically does not mandate vaccinations, but instead mandates that guidance be issued defining precisely who is to be considered a federal contractor.  However, the President’s order stipulates that the definition of a federal contractor will be based on regulations being promulgated by the Department of Labor mandating that contractors provide a $15 minimum wage to their employees.  In addition, there must be a regulatory finding that the President’s actions will advance efficiency in the federal government’s procurement processes.  This last point is particularly important since the inevitable legal challenges to the President’s announcement yesterday will most likely be based on challenging the regulatory authority of the executive to issue these mandates. 

All this means we are weeks, and maybe months away from any additional vaccine mandates.  In the meantime, an increasing number of employers are mandating that their employees be vaccinated.  Of course, check with your attorney, but they are on solid legal ground in doing so, and your credit union would be as well. 

September 10, 2021 at 10:59 am Leave a comment

Time To Activate Your Infectious Disease Safety Plan

On September 6th, New York’s Commissioner of Health triggered increased employee protections by classifying COVID-19 as a communicable disease that presents a “serious risk of harm to the public health in New York State.” This means that all New York State credit unions should review and activate their workplace safety plans. Remember, failure to do so is a violation of the law.

As readers of this blog know, former Governor Cuomo signed legislation mandating that the State’s Department of Labor, in consultation with the Department of Health, promulgate model standards describing the minimum steps employers must take to protect their employees in the event of an outbreak of an airborne infectious disease. Under the law, all employers had to have these policies and procedures in place by August 5th. However, since the Commissioner of Health had not formally designated COVID-19 as an infectious disease under the statute the policies and standards were not in effect. The Department of Health’s announcement changes all that.

Now that the designation has been made, your credit union should be reviewing its policy and implementing its provisions. I’m assuming that for many of you, this won’t be difficult as many of your practices already complied with steps that have been taken to mitigate the spread of COVID, such as rearranging work spaces and having appropriate PPE. However, for those of you who need to take additional steps, or worse yet, have not gotten around to adopting a policy and standard, you should do so now.

In activating these policies remember that one of the primary purposes of the law was to provide employees increased protections in the event that adequate workplace safety procedures are not being implemented or complied with. Your employees are protected against retaliation in the event they bring alleged violations to your attention and your credit union could be fined and sued for violating the law.  Remember, this applies to you whether you are a state or federal credit union. 

September 8, 2021 at 9:27 am 1 comment

New Governor Moves Quickly To Extend Foreclosure Protections

Good morning, Folks. New York Governor Hochul convened an Extraordinary Session yesterday in which the legislature extended foreclosure and eviction protections for individuals claiming COVID related hardships until January 15th of next year. The measures impact both state and federally chartered credit unions that start foreclosure actions against delinquent homeowners and businesses.

Notice that I did not say that the legislation simply extends New York’s eviction and foreclosure ban. In response to recent rulings by the Supreme Court, landlords and lenders now have the ability to challenge an individual’s assertion that they are delinquent because of a COVID related hardship. The hardship exception applies to mortgages that are held by state or federally chartered credit unions. It does not apply to mortgages held by GSE’s.

We will have to see how this new framework is implemented. But if your credit union is interested in pursuing this option it should start identifying cases where this new exception might be applicable.

Guidance Issued On Lending To Same-sex Couples

In another important move, the Department of Financial Services issued guidance detailing steps lenders should take to prevent lending bias when making loans to same-sex couples. DFS has been working on the guidance for weeks. I will be providing more information about its specifics in a future blog. This guidance just applies to state chartered entities and licensed institutions such as state chartered credit unions and mortgage CUSO’s.

Hochul Nominates New DFS Superintendent

The above guidance was issued the same day that the Governor announced that she had chosen Adrienne Harris to lead New York’s Department of Financial Services. Harris replaces Linda Lacewell who resigned when Governor Cuomo left office.

Judging by her resume, Harris, a Columbia law school graduate, has a broad range of experience. She has served as an economic advisor during the Obama administration and as an adviser to Fintechs.

New York State’s Superintendent has historically been among the highest profile state regulators in the country. She not only oversees the banking industry but the insurance industry as well.

September 2, 2021 at 9:33 am Leave a comment

When It Comes to Protecting Your Data, How Well Do You Really Know Your Members?

When the Federal Financial Institutions Examination Council (FFIEC) issues guidance, all financial institutions should pay attention, irrespective of their size and risk profile. After all, the Council represents the combined wisdom, or at least the consensus of financial regulators, including the NCUA, on the issues of most pressing concern. Conversely, it is my ever so humble opinion that these documents are often written in such vague terms with so many qualifiers that they lack the clarity needed to make them truly useful documents.

With this caveat, I present to you a guidance, Authentication and Access to Financial Institution Services and Systems, issued by the FFIEC on August 11th in which it highlights the need for financial institutions to take a holistic approach to protecting unauthorized access to information by third parties. Specifically, this guidance “sets forth risk management principles and practices that can support a financial institution’s authentication of (a) users accessing financial institution information systems, including employees, board members, third parties, service accounts, applications, and devices (collectively, users) and (b) consumer and business customers.”

Whereas a decade ago your red flag risk assessment was primarily concerned with how to prevent unauthorized third parties from accessing your system, in today’s environment you’ll also face threats from within.  Your Board member, negligent customer and of course, your Luddite employee pose as great a potential threat as the most sophisticated hacker.  As a result, these threats should be considered as part of your ongoing risk assessments. Furthermore, layered security protections, which make individuals provide authentication more than once when inside a platform may inconvenience your members and employees but at the very least this inconvenience should be weighed against the need to protect the data on your system.

Remember, you should pay attention to this guidance for both legal and compliance reasons. Legally, these guidelines provide a concise source for courts to use in assessing whether a vendor or financial institution is taking reasonable measures to protect member information (see for example Shames-Yeakel v. Citizens Financial Bank; Bessemer System Federal Credit Union v. Fiserv Solutions, LLC). From a compliance standpoint, you have an obligation to make sure your credit union is periodically assessing and updating its cyber threat assessments. 12 CFR 748 Appendix A

On that note, enjoy your day.

August 30, 2021 at 9:47 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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