Posts filed under ‘Compliance’

More Regs On the Way

All’s quiet on the Western Front today, but there’s plenty of proposed regulations on the horizon that will keep your vendor on speed-dial and make small financial institutions wonder how they are supposed to generate income.

The Bureau that Never Sleeps (CFPB) published its semiannual list of rule-making priorities in a blog Wednesday.  I won’t go over the whole list, as you can read it yourself, but I will point out a couple of areas that could really have an impact on your credit union’s operations. 

The Bureau is still in the process of determining what additional regulations are needed for overdraft services for checking accounts.  Depending on how this is drafted, this could be the one that requires your credit union to make the most significant changes.  For instance, imagine if the CFPB proposes capping overdraft fees, requires additional opt it protection for members to access overdraft services, and mandates the order in which checks must be processed. 

Another area it is considering regulating is one that hasn’t gotten a lot of attention in credit union land:  debt collection.  Most debt collection regulations currently apply to third party collectors.  I wouldn’t be surprised to see the Bureau impose more debt collection requirements directly onto banks and credit unions.  Even if they don’t, debt collection is fast becoming a regulatory land mine and its increased complexity will impact all lenders.

That’s all folks.  Have a nice weekend.

May 20, 2016 at 8:10 am Leave a comment

Regulators Stress Account Reconciliation

This one goes into the “don’t shoot the messenger” category, particularly when the messenger is in a good mood because it sounds as if some warm weather is coming.

Yesterday evening, the NCUA joined with the other merry band of financial regulators to issue a joint edict, I mean “guidance” detailing the responsibility of financial institutions to properly reconcile account discrepancies.  They pointed out that the failure to do so could constitute a violation of federal regulations as well as a deceptive practice.

What are they talking about? Take me for instance.  I am a bank teller’s worst nightmare. The Rosetta Stone is easier to read than my handwriting.  In the Middle Ages, before direct deposit took off, I used to deposit my meager starting salary  at a branch down the block from my apartment in Washington. I used to dutifully fill out the deposit slip, place it in an envelope with the check, and either deposit it with a teller or at the ATM.  If I deposited more than one check, it wasn’t uncommon for me to round off the deposit.  I didn’t think fifty cents was such a big deal   As time went by, however, I got so many notices from the branch that this sweet teller I used to deal with occasionally became increasingly frustrated and unfriendly.  She eventually explained to me, albeit in much nicer terms, that, my shoddy deposit slips never added up and those were messing up the computer system.  I was a little surprised, and in all honesty a little flattered, to find out that my  salary could inconvenience such a big bank, although I didn’t tell her that as I could tell she wasn’t amused.  After all, it wasn’t a big deal to expect customers to accurately record deposits.  Can’t members be held accountable for accurately recording their own deposits?

If only this guidance was around when I was depositing my checks, I could have explained to the exasperated teller that “in some instances, financial institutions do not research or correct all variances between the dollar value of items deposited to the customer’s account and the dollar amount that is credited to that account, resulting in the customer not receiving the full amount of the actual deposit.” Regulators expect them “to have deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.”

https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2016/04-enclosure.pdf

Why are regulators coming out with this edict now as opposed to several decades ago when I could have indignantly responded to my exasperated teller? Pure speculation on my part, but I bet some class action lawyers or AGs  are considering  lawsuits claiming that banks are saving money by not trying hard enough to reconcile deposits.

Payday Lending Reg Coming in June

On June 2, the CFPB is expected to formally issue a proposal to regulate payday loans. The Bureau That Never Sleeps has scheduled a field hearing in the “Show Me” state on small dollar loans. As The American Banker points out, the CFPB typically uses these events to unveil new regulations.  (Of course,   the fact that the Bureau has already decided what it is going to do before it holds these hearings makes them more like Chinese show trials than hearings, but I digress).

The big question is how the regulation will impact the ability of credit unions to offer payday loan alternatives that are currently sanctioned and encouraged by the NCUA.  Inquiring minds also want to know how the CFPB is going to balance enhanced regulation against the demonstrable demand for these loans.  Too tough an approach will cripple the payday lending industry; too light an approach will send the usual suspects in the Consumer Advocate class howling that the Bureau has gone soft.

http://www.consumerfinance.gov/about-us/blog/save-date-kansas-city-missouri/

 

May 19, 2016 at 9:23 am Leave a comment

DOL Finalizes Major Revisions to Overtime Rules

It’s alive! The U.S. Department of Labor finalized regulations increasing the minimum salary level for an employee to be exempt from overtime pay requirements from $455 a week to $913 a week. This means that when the regulations become effective in December, unless your supervisors make at least that amount, they must be paid the overtime rate of time and one-half for each hour they work over 40.

In addition, under current law there was an exception from  overtime pay for highly compensated employees (HCE) who make at least $100,000 annually but whose duties don’t qualify them for exempt classification. This regulation increases the HCE threshold to $134,000. Check with your HR person on this one as there are exceptions that apply to certain professions.

The minimum salary threshold will be updated every three years beginning in 2020. It will be adjusted so that it is equal to the 40th percentile of full-time salaries for workers in the lowest wage region (which is currently the South). As originally proposed, the exempt employee threshold would have been adjusted annually to equal the 40th percentile of full-time salaried workers nationally. This would have resulted in a threshold of over $50,000, which is the number I used in a recent blog. Nevertheless, if and when this regulation becomes effective, it will mark the first time that the exempt employee threshold is automatically updated on a periodic basis.

Why do I say “if and when this regulation becomes effective?” I’ve always thought that this regulation was, in part, politically motivated. I strongly suspect that it will become a major campaign issue with the Donald pledging to annul the regulation and Hillary pledging to ensure that it goes forward untouched.

But with the regulation now finalized, you must find out, if you don’t already know, how many of your currently exempt employees make less than this threshold, how much overtime they work, and if it makes more sense to bump their salaries so that you may continue to classify them as exempt employees, pay them overtime or make sure they don’t work more than 40 hours a week.

Incidentally, there is some good news in all this. Up to 10% of the standard salary level can come from non-discretionary bonuses, incentive payments and commissions, provided they are paid at least quarterly. Furthermore, the final regulation makes no changes to the way in which employers classify exempt and non-exempt employees based on the duties they perform. Many of us were concerned that the Department would institute a rigid test under which employers would have to document that a supervisor spends at least 50% of her time carrying out supervisory responsibilities. This would have harmed many small credit unions.

Finally, when you are done reading this blog, it’s time to reach out to your HR professional so that you can understand precisely how this regulation will impact your credit union. On that note, get to work and enjoy your day.

May 18, 2016 at 8:21 am Leave a comment

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

 

 

May 17, 2016 at 9:46 am Leave a comment

Do You Know Who Your Beneficial Owner Is?

We all know that when you open an account, you have an obligation to identify the account holder and understand enough about that person so that you can identify suspicious activity.  For several years now, FinCEN has expressed concern that financial institutions don’t do enough to identify who really owns and benefits from accounts for businesses and certain kinds of trusts.  So, earlier this week it published final regulations that will require financial institutions to identify the beneficial owners of certain types of accounts, as well as the individuals who control them.

The general idea of the regulation is that when a financial institution opens an account for a corporation or LLC, as part of its customer identification procedures it must identify the beneficial owner(s) of the business – those who own at least a 25% stake – as well as a single individual who exercises legal control of the entity, such as an executive officer or senior manager.

Don’t panic.  The regulation comes with a form that can be used to gather the information from the person opening the account and you can generally rely on that person to provide the information.  In other words FInCen’s goal is not to require that every financial institution have a staff responsible for verifying a company’s structure.  Plus these requirements only apply to accounts for so-called “legal entities.”  Legal entity customers are defined as “a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.”

In addition, there are numerous exceptions to this definition outlined in the regulation and its preamble.  For instance, the preamble explained that accounts opened for unincorporated associations do not qualify as legal entities.  Generally, most trusts do not have to be filed with the state and therefore are also not covered by this regulation.  As for those of you with Interest On Lawyer Trust Accounts (IOLTA), which you only recently were authorized to offer, the preamble explains that your requirements under this regulation are satisfied so long as you perform customer due diligence on the intermediary (i.e. the lawyer opening the account).

None of this is to minimize the importance of this new requirement.  This new regulation will require new policies and procedures.  In addition, there may well be scenarios under which the amount of cash being funneled between a beneficial owner and a corporation necessitate the filing of a Suspicious Activity Report (SAR).  The rule takes effect in July, but compliance is not required until 2018.

Some Good News

In a speech yesterday, newly installed NCUA Board Chairman Rick Metsger committed to thoroughly reviewing the agency’s current exam cycle.  As a first step, he announced that NCUA would be eliminating the requirement that credit unions with $250 million or more in assets be examined each calendar year.  In a press release, he described this mandate as neither effective nor efficient.

In the finest tradition of newscasters everywhere, who always end Friday newscasts on a happy note, I’m signing off.  Have a great weekend.

May 13, 2016 at 9:02 am Leave a comment

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.

 

May 6, 2016 at 8:58 am Leave a comment

3 Things You Should Know on a Friday Morning

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:

  1. 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?
  2. What steps is the CFPB taking to prevent lenders from shifting liability to settlement agents?
  3. Will the CFPB consider forming an internal task force to identify and address issues arising from the implementation of the TRID rule? And
  4. 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.

 

April 29, 2016 at 8:46 am Leave a comment

Older Posts


Authored By:

Henry Meier, Esq., Deputy 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.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 401 other followers

Archives


Follow

Get every new post delivered to your Inbox.

Join 401 other followers