Posts filed under ‘Compliance’

Get Ready for NY’s New And Improved Settlement Conferences

Readers of this blog know that many credit unions dodged a bullet when the New York State legislature imposed requirements on larger financial institutions to maintain abandoned property.  It is important to understand, however that it still imposed new, and I would argue, onerous and untimely counterproductive requirements on all institutions dealing with delinquent residential property. These changes take effect on December 20, 2016. Merry Christmas.

For instance, right now you don’t have to send out a 90 day pre-foreclosure notice to a borrower more than once over a 12-month period. Starting in December you will have to send out this increasingly nettlesome tripwire anytime a borrower cures a delinquency only to go delinquent again.

Then there is New York’s pre-foreclosure settlement conference framework mandated by Section 3408 of the Civil Practice Law and Rules.  It currently requires lenders and borrowers to attend pre-foreclosure settlement conferences where they must make a judicially overseen “good faith effort” to reach settlements short of  a foreclosure.  The new and improved 3408 provides examples of potential resolutions including, but not limited to, a loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option.  Does the legislature really believe that these options were not being considered?

Furthermore, while existing law already requires the parties to come to settlement conferences authorized to make deals, the amendment describes in much more detail, precisely what documents need to be brought to the table, including, but by no means limited to a summary of the status of the lenders or servicing agents evaluating eligibility for home loan modification programs or other loss mitigation options. This actually makes some sense, but we will have to see how it is used.

But wait there’s more. There has always been an obligation to negotiate in good faith but the courts have struggled to explain precisely what that means. The new and improved statute explains that this determination should be based on a totality of the circumstances review of the negotiations , taking into account compliance with the requirements of this rule; compliance with applicable servicing rules and regulations  and consideration of  loss mitigation standards or options as well as “conduct  consistent with efforts to reach a mutually agreeable resolution.”  Where a lender acts in bad faith a must  “at a minimum” freeze the accumulation and collection of interest, costs, and fees during any undue delay caused by the lender.

The good news is that the failure of either party to make or accept an offer is not sufficient to establish a failure to negotiate in good faith. But, by specifically listing out some of the options lenders  are expected to consider  and giving  judges greater power to  make bad faith Determinations,  the statue is clearly designed to bring about more settlements.

So why do I think that all this is ultimately going to do more harm than good? For one thing, encouraging parties not to turn to foreclosure sounds nice but in a lot of instances it is often the equivalent of negotiating a travel itinerary for the Titanic. Keeping people in homes that they can no longer afford to live in doesn’t help anyone in the long run.  Furthermore, New York already has one of the longest foreclosure processes in the country and the existing settlement conferences are in part to blame; imposing more legal requirements into this framework will not make them more orderly and efficient it will simply make them more litigious and time-consuming.

See you tomorrow.

 

September 20, 2016 at 9:52 am Leave a comment

NY Proposes “First in Nation” Cybersecurity Requirements

Updated-Because of a technical glitch(i.e. I forgot to press the send button) today’s post was never sent out.  Here it is; better late than never .

With a special shout-out to those of you who attended the Legal & Compliance Conference at the beautiful Turning Stone Casino,  good morning.

In case you missed it, on Tuesday, New York State made big news when Governor Cuomo announced that the state was imposing Cyber Security Requirements on Financial Service Businesses. This is just a proposal but it is the culmination of years of work by the DFS in this area.  Those of you affected will only have six months to get up to speed, so pay attention.

First, the real basic stuff. The regulation would apply to any person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law.  A “person” means any individual, partnership, corporation, association or any other entity.  A carve out from many, but not all, of its requirements is made for entities with fewer than 1,000 customers in each of the last three calendar years, less than $5,000,000 in gross annual revenue in each of the last three fiscal years, and less than $10,000,000 in year-end total assets.

What are the requirements?  Institutions would be required to have a cybersecurity program that addresses six major functions, including: the identification of cybersecurity threats based on the sensitivity of the nonpublic information stored by the institution; an infrastructure for defending against cyberattacks; the ability to detect cyberattacks; the ability to respond to and mitigate attacks; plans for recovering from attacks; and procedures for meeting new regulatory reporting obligations.

It’s really hard to argue with the general thrust of this proposal.  There is very little being suggested that you shouldn’t already be doing.  In fact, I would like to see the DFS clarify the extent to which procedures that financial institutions already have in place can be used to satisfy many of these requirements.  For example, both state and federal credit unions are already required to have policies that implement “administrative, technical, and physical safeguards to protect the security, confidentiality, and integrity of member information.”  (12 C.F.R. § Pt. 748, App. A).

Stay tuned and feel free to give me feedback as the Association ponders what comments it should make to the DFS.

Epilogue

If Wells Fargo thought it was out of the woods by firing over 5,000 low level employees and giving a $124 million “sorry we had to fire you” severance to a departing executive, it may have miscalculated.  The WSJ is reporting that Federal Prosecutors are in the early stages of investigating possible criminal malfeasance on the part of the bank.

 

September 15, 2016 at 12:04 pm Leave a comment

three Quick Notes For Tuesday

I’m about to leave for the Association’s Annual Legal & Compliance conference, at the Turning Stone Casino, but there are Three things I want to give you a  heads- up on.

First, NCUA Yesterday released a letter reminding credit unions that guidance was issued on August 26 intended to clarify questions surrounding Military Lending Act Regulations that take effect on October 3rd.  I would make fun of NCUA for coming out with guidance on guidance but your blogger must shamefully admit that he actually didn’t realize that this guidance was even issued in the closing days of summer.

The MLA regulations are a big deal. As I have explained in a previous blog, almost all consumer credit transactions subject to Regulation Z  involving military personnel and their dependents will now be subject to greatly enhanced consumer protections, including a Military APR  interest rate cap of 36%.  Since this APR is calculated differently than a traditional APR under Regulation Z,  this creates yet a new level of complexity when it comes to consumer lending.  You may not serve many members of the armed forces but remember  since  the regulation now  applies to so many different products all credit unions should put procedures in place for identifying members to whom this regulation applies.  Frankly, I  think the guidance creates as many questions as it answers but I will let  you hard-core compliance folks out there decide for yourselves.

Is This The Credit Card Of  The Future?

Everything I have read about millennials is that they are debt averse so take the time to read this intriguing article in the New York Times explaining why millennials are so interested in a new credit card being offered by J.P Morgan Chase with an annual fee of $450. Are they crazy?  Or just crazy like foxes?

You Have To Know When To Fold Em

Finally if you find yourself tempted by the Turning Stone’s poker tables tonight remember: Those who chase straights and flushes arrive on planes but leave on busses.

On that note, I hope to see you at the Turning Stone, if our paths cross please be sure to say hello! I will be back on Thursday.

 

 

 

 

 

September 13, 2016 at 8:31 am Leave a comment

Consider Yourself Warned

As the saying goes “problems” flow downhill, so as I started reading the details of the Wells Fargo account opening scandal and the $100 million fine imposed on it by the Consumer Financial Protection Bureau, I wondered how this might impact the operations of credit unions.  The Bureau has already had an interest in account issues and, suffice it to say, you can bet that examiners and regulators will be taking a closer look at how your credit union opens and manages member accounts.

In case you missed it, on Friday the Bureau That Never Sleeps announced that it had imposed a $100 million fine on the bank.  Employees opened up to 2 million accounts without customer permission and shifted funds into these accounts on behalf of customers without their knowledge or approval in order to meet cross selling targets and get bonuses. Frankly, what the Bureau describes goes beyond civil misconduct and I hope its allegations are being investigated by prosecutors.  This is identity theft on a grand scale.

First some practical advice.  The Federal Credit Union Act requires supervisory committees – or their designated representatives – to verify member accounts with your credit union’s records at least once every two years.  As explained in Chapter 24 of NCUA’s Supervisory Committee Guide – which I strongly suggest all supervisory committee members take a look at – “the purpose of the verification is to detect errors and it is also a good control to prevent fraud.”  You can either verify all accounts or rely on a statistical sample, but the basic idea is that you send selected members a confirmation letter or request in their monthly statement asking them to confirm their account status. 

Another thing I would consider reviewing are your abandoned property procedures.  Members are expected to use accounts and you have no obligation to keep inactive accounts open indefinitely.  Fee orphaned accounts out of their misery.  They are costing you money and are ideal for abuse.  Here is one of my favorite opinion letters on the topic.

Finally, do you have a culture that emphasizes doing the right thing?  I can’t stand it when I give advice and I’m told that it’s not what everyone else is doing. We owe it to ourselves and the people we hire to make sure that we have a culture that, in the immortal words of Vince Lombardi, encourages people to play to win but to play within the rules.  Wells Fargo employees were in a culture where breaking the rules was the norm.

September 12, 2016 at 8:37 am 2 comments

NY’s DFS “encourages” acceptance of Municipal IDs

I swear we have been through this before.

New York’s Department of Financial Services Superintendent Maria T Vullo recently sent a letter to my boss, the inimitable William Mellin,  president of the New York Credit union Association  and Michael P Smith, his counterpart with the Bankers encouraging state chartered and licensed banks and credit unions to accept New York City’s Municipal Identification Card as valid identification for purposes of satisfying the requirement that they know their customer or member when they open an account.

The Guidance explains that   “The CIP rule does not prescribe a specific type of government-issued identification card for use by institutions. Institutions that rely on documentary forms of evidence to verify a customer’s identity should have procedures in place to identify the types of documents the institution will accept for such verification. Accordingly, it is the Department’s position that institutions may accept the Municipal ID as a means of documentary verification as provided in the institutions’ CIP procedures.” It goes onto encourage state chartered and licensed financial institutions to accept the municipal IDs.

First, I’m sure the Department is pleased to know that I agree 100  percent with its legal analysis. As described in a FinCen Q&A , your credit union’s responsibility is to “verify enough information to form a reasonable belief that it knows the true identity of the customer.”

The purpose of the CIP rules is to have procedures in place so you can know who your member is and establish a baseline of expected account activity for account monitoring purposes. After all,  a twenty-something investment banker is going to have different account activity than his eighty year-old grandma.  So long as a government issued ID tells you that a member is who she says she is it satisfies your CIP requirements.

Where the Department’s Guidance makes me a little nervous is in its encouragement to use these IDs.  I hope we don’t start hearing reports of institutions that may not wish to accept  these IDs being pressured to do so.  We are dealing with federal laws and regulations that give institutions flexibility to choose appropriate identification.  Nothing the Superintendent says changes that.

There is really nothing new here, just the same old song with a different tune. Every so often the issue of bank identification flares up in tandem with debates over immigration.  More than a decade ago  Governor  George Pataki, a Republican who was smart enough to know that you won’t win many more elections in America pandering to embittered white males, pushed for the acceptance of   matricula consular  identification cards and NCUA opined that the use of such identification was acceptable.

Let’s be honest about what we are really talking about here: illegal aliens.   To those of you whose views on illegal immigration make you uncomfortable accepting non- traditional forms of Identification I say:  Get Over It.  Your  credit union doesn’t have a dog in this fight. To those of you with well-established policies that have worked well for your credit union and that you don’t feel like changing I say: stick to your guns. Your ultimate responsibility is to run a well- functioning credit union not advance political agendas coming from either  side of the political  spectrum.

September 7, 2016 at 9:05 am Leave a comment

New GSE Application Can Help With HMDA Compliance

I had a great time the other night hanging out with the Association’s Young Professionals Commission.  I even got to celebrate the birthday of one of their newest members.  Regardless of age, one of the questions that always comes up at such gatherings is what issues are lurking out there to sneak up on the unsuspecting credit union.  The one I keep coming back to is HMDA and yesterday Fannie and Freddie took a huge step to help those of you who have to comply with this data reporting regulation be ready when the expanded mandate becomes effective in January of 2018.

The uniform residential loan application which you may know as either Form 1003 or Freddie Mac Form 65 is a standardized document that has been around for 20 years.  So many mortgages are connected in some way to Fannie and Freddie that the application is used by almost all lenders in the country.  Yesterday, the GSEs announced that they have created a new, redesigned URLA form.  Most importantly, for my purposes, the form includes the expanded data fields that impacted lenders will have to fill out to comply with the HMDA regulation.  In addition, if the GSEs are correct, the new form will be easy to integrate into your existing lending systems and better suited for an online application process.  For those of you dinosaurs who still rely on paper, the updated URLA will still be available in a hard copy.

Even though the form doesn’t become effective for over a year, you can use it as an easy way to cross reference the information you collect now against the information you will need to gather in the relatively near future.  Don’t underestimate just how much more information you will have to collect.  According to a summary provided by the CFPB, the new HMDA reporting requirements include data points for applicant or borrower age, credit score, automated underwriting system information, unique loan identifier, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features, interest rate, and loan originator identifier as well as other data points. The HMDA Rule also modifies several existing data points.

The good news is that the CFPB narrows the scope of the institutions to which HMDA applies.  Starting in 2018, if your institution didn’t originate 25 covered mortgage loans in each of the preceding two years, or at least 100 open-end lines of credit in each of the preceding two calendar years, HMDA doesn’t apply to you regardless of your asset size.  Still, this is not the type of regulation you want to keep to the last second.  The CFPB and Congress want this additional information for a reason and I doubt regulators are going to have much patience for those of you who aren’t prepared for this mandate.  The new and approved application is a great way to get ready to comply.

August 24, 2016 at 8:23 am Leave a comment

TRID Clarifications Proposed

The Bureau That Never Sleeps is at it again!  On Friday, the Bureau released proposed amendments to its “know before you owe” TRID regulation, which took effect in October of 2015.  I’m going to dub these proposed changes Death Wish classics because some of the amendments are so technical that the only way I am going to get through them is to drink Death Wish coffee, which for the uninitiated, makes Starbucks taste like your mother’s Chock full o’ Nuts.

At first glance, it doesn’t seem like there are any major changes.  But there are several proposed amendments and clarifications including extending TRID’s coverage to all co-op units; clarifying the applicability of tolerances in early disclosures; and clarifying information that can be shared with third parties without violating a consumer’s privacy.  According to this morning’s American Banker, this last one was put in at the urging of the National Association of Realtors.  This is one to have your mortgage person take a look at.

Economic Growth Declines

Those of us of the opinion that the economic glass is half empty received further support for our negativity with the release of news on Friday from the Commerce Department that the U.S. economy grew at a seasonally adjusted annual rate of 1.2% in the second quarter.  According to the WSJ, this means that economic growth is now at its weakest level since 2011.

The thing that really perplexes me is that business investment declined for the third straight quarter.  American corporations are sitting on a record pile of cash.  For years, optimists have been waiting for businesses to start spending some of this cushion and really jump start the economy.  Wouldn’t it be something if business sits out an entire period of economic growth without making any sizable investments other than to buy back their shares?

On that note, grab your coffee and get to work.

August 1, 2016 at 8:36 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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