Posts filed under ‘Compliance’

NCUA on exam cycles; NYS names Banking Chairs; Sessions likely to crackdown on legal Pot

NCUA Details Extended Exam Cycle

In case you missed it, recently NCUA released a letter to credit unions detailing changes to its examination cycle for both federal and federally insured credit unions.

There hasn’t been much good news for state charters recently, let me tell you some. Unless your credit union meets any one of the following criteria you will receive an NCUA evaluation not less than every five years.

  • Assets greater than $1 billion;
  • Composite NCUA CAMEL code 4 or 5 with assets greater than $50 million; or
  • Composite NCUA CAMEL code 3 with assets greater than $250 million

In addition, a working group is being formed to consider ways to further improve the examination process as it relates to state chartered credit unions. Any steps designed to decrease NCUA’s oversight of state charters are welcomed. As readers of this blog will know, yours truly has complained that NCUA has moved so aggressively to oversee the activities of these institutions that it has diminished the value of a state charter.

As for federal credit unions, they will be eligible for extended exam cycles that begin 14 to -20 months after the prior exam completion date. To be eligible for the extended cycle, a federal credit union must have:

  • Assets less than $1 billion;
  • CAMEL code 1 or 2, in both the composite rating and the management component rating;
  • “Well capitalized” under prompt corrective action (PCA) regulations;
  • No outstanding documents of resolution (DOR) items related to significant recordkeeping deficiencies; and
  • Not operating under a formal or informal enforcement or administrative order, such as a cease and desist order (C&D), letter of understanding and agreement (LUA), preliminary warning letter (PWL), or a PCA directive

 New Banking Chairs named

A new session triggers a game of political musical chairs as members jockey to take the helm of key committees. This year is no exception. There are two new faces that credit unions in New York State will be working with more closely over the next two years..

Senator Jessie Hamilton, the newest member of the IDC, representing the 20th Senate District in NYC, has taken the helm of the Senate Banks Committee. He replaces fellow IDC member, Senator Diane Savino, who is moving on be Vice-Chair of the powerful Senate Finance and Code Committees. Savino has been a good friend to credit unions and we wish her the best in her new assignments.

Over on the assembly side, Kenneth P. Zebrowski, was named Chair of the Banks Committee, replacing retired Assemblywomen, Annette Robinson. Zembrowski becomes the first Chairman of the Assembly Banks Committee from outside of the five boroughs in at least twenty years.

Senator Sessions: I’ll enforce Pot Laws

At his senate confirmation to be the US Attorney General, Alabama Senator Jeff Sessions strongly suggested that he would take a stronger stand against states with legal marijuana businesses then has the current justice department. According to this article , when Sessions was asked if he would continue the Obama Administration’s “don’t ask, don’t tell” policy (my characterization) on illegal drugs, the Senator responded “It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws as effectively as we’re able,” said Sessions, adding that “Congress was entitled to change federal law if it so desired.”

Enjoy your day!

January 12, 2017 at 9:28 am Leave a comment

Four things you need to know about New York today

giantI have New York on my mind this morning, and it is not just because I am suffering from post-traumatic stress disorder after watching the second half of the yesterday’s Packers-Giants game. Is the second half over yet?

Instead, I am thinking about New York because there is a lot going on both regulatory and legislatively that financial institutions should be keeping an eye on.

Time to fill out your exemption claim forms

Once again, with a huge assist from Joan Lannon, in the Associations, compliance department, here is a link to the form that your credit union will to claim an exemption from the requirement to maintain abandon property. Remember you have until February 28, 2017 to apply for the exemption, but it makes no sense to wait.

Elder Abuse Legislation to be a top priority for Cuomo

Today marks the unofficial start of the 2016-2017 legislative sessions. This year the governor is foregoing the tradition of speaking before a joint legislative session in Albany. Instead, he is unveiling his State of the State priorities in regional speeches, the first of which is today. On Friday, he announced he would be proposing comprehensive elder abuse legislation.  The specifics have yet to be released, but according to the press release, the governor’s plan would include an Elder Abuse certification program for banks as well as measures to empower banks to place holds on “potentially fraudulent transactions”. Incidentally, I don’t know if the exclusive reference in the press release to banks is an oversight or an indication that credit unions won’t be covered by these measures. I strongly suspect that it is the former.

Rocky start to Legislative Session

A hallmark of the Cuomo administration has been an end to New York’s dysfunctional budget process; most importantly every budget proposed by the governor has been enacted pretty much on time. This run will be put to a test this year. As these legislative preview articles indicate, both the governor and legislature are angry at the lack of progress in negations held late last year and there isn’t quite as much money to spend as there used to be. This could be a very interesting session.

Expressions Hair Design to be argued tomorrow

Expressions Hair Design v. Schneiderman, a case challenging New York’s ban on credit card surcharges above an items headline price, is to be argued before the Supreme Court tomorrow. Both CUNA and NYCUA wrote amicus briefs in support of New York’s law. There will be no blog tomorrow, as yours truly and Michael Lieberman will be headed to D.C to watch the arguments first hand.

As for all you depressed Giant fans, remember, we still have the Knicks. WOW it’s going to be a long winter. Maybe I will start getting ready for fantasy baseball.

January 9, 2017 at 8:45 am Leave a comment

News Flash: FinCen Can’t Legalize Pot Banking

The effort to legalize marijuana on the federal level received a high level push in December when Massachusetts Senator Elizabeth Warren joined a group of senators in a letter to FinCEN. Her celebrity status has triggered another round of  media coverage;  After all, she is already being mentioned as a potential nominee for president with the next election only four years away and she likes to tweet which is  a core prerequisite for the office.

By joining the most recent letter writing campaign she has once again put the spotlight on the Alice in Wonderland world of legalized pot. It makes perfect sense for the senator to join the push for legalizing cannabis. In November, Massachusetts voters approved a referendum to legalize marijuana for recreational purposes. There are now 29 states, including New York, which legalize the possession of marijuana to some extent.

What drives me nuts is that Warren and her fellow senators once again chose to badger FinCEN to approve additional guidance clarifying that banks and credit unions can provide banking services to pot businesses in states in which they are legal. To be clear, I believe that the federal government should legalize the sale and distribution of marijuana in those states where it is legal. I also believe that banks and credit unions should be able to provide services to these legitimate businesses. The senators correctly point out that even though FinCEN issued a 2014 guidance detailing the conditions under which it would allow them to do so fewer than three percent of the nation’s banks and credit unions are willing to serve this industry.

However at the risk of being accused of banging my head against the wall, the way to get this accomplished is not to require more guidance from FinCEN. Federal law and regulation makes pot illegal and there is nothing that FinCEN can do to change that. it is not the DEA. Furthermore even if FinCEN could entice banks and credit unions to more actively engage in servicing this industry the reality is that the continued legal cloud over the industry raises a host of issues, over which FinCEN has no control,. These issues range from the enforceability of contracts to the legality of bankruptcy cases involving marijuana businesses.

It is time for all interested parties to confront the real issues once and for all.

January 5, 2017 at 10:00 am 3 comments

Time to Close The Lawyer BSA Loophole?

firm_logoI am asking this question because of an article in the WSJ last week. The article highlighted the ease with which accounts overseen by lawyers can be used to facilitate money laundering activities. Keeping in mind that credit unions can now offer Interest on Lawyer Trust Accounts (IOLTA), this is one area of compliance that could impact your credit union in the future.

First, a refresher: Lawyers often take funds from clients for short-term purposes. Refundable retainers and money for real estate closings are two good examples. IOLTAs permit lawyers to place these funds in single trust accounts. As many of you probably know, it wasn’t until 2014 that credit unions were given the same rights as banks to establish these and other similar type of accounts.

In December, the Financial Action Task Force (FATF), an independent international body tasked with assessing international efforts to combat Money Laundering, concluded that the U.S. has to do more to clamp down on supervision of funds by lawyers, accountants and real estate agents. They complained that these professions are not subject to comprehensive AML requirements and are not systematically performing due diligence over account activities. The result is that they pose a “very significant risk” of money laundering.

The FATF has a point. Under the FFIEC’s Anti-Money Laundering Examination Manual, my bible for all things BSA, financial institutions are required to do due diligence on attorneys seeking to open an IOLTA account. But since credit unions often have no direct relationship with the clients whose funds are being combined in these accounts, it is the lawyer and not the financial institution that is best positioned to prevent money laundering. The legal profession has however steadfastly resisted attempts to impose AML requirements on attorneys administering IOLTA accounts. After all, there are legitimate confidentiality issues.

How big of a loophole is this? Think of it this way. While your credit union may be facilitating the business activities of a small law firm, major law firms that are international in scope can oversee billions of dollars.

This loophole has existed for decades and it’s possible that the scrutiny it is currently receiving may not result in additional mandates. But if it does, BSA requirements tend to flow downhill. I wouldn’t be surprised to see regulations inspired by the questionable conduct of large institutional players resulting in mandates with which even the smallest credit unions must comply.


January 4, 2017 at 10:24 am 1 comment

Six Things To Ponder Over The Holiday

Yours truly is going on vacation starting tomorrow.  I’m preparing for my feats of strength.  so I wanted to give you a list of things to ponder in the event you need a break from all the merriment.

Your lucky number is…   With a big assist from the inimitable Joan Lannon in our compliance department, I can now tell you that tucked away on the New York DFS website is  the total number of residential real property mortgages originated in New York in 2015. The number is 212,646.  As readers of this blog know, under the zombie property regulations, credit unions will use this number to find out whether they originated or serviced less than 3/10 of 1% of the total loans in the state during the calendar year of 2015. (This equates to 636 mortgages, but please do the calculations for your credit union).   If your credit union did less than 636 in 2015, you are exempt from the property maintenance requirements of the regulation. You are not exempt from the obligation to report abandoned property to the state.

Are you ready for global warming? One of the goals of the Biggert-Waters Act was to introduce more private sector involvement into the federal flood insurance system.  Comments are due on January 6 on a joint agency proposal which explains when “private flood insurance,’’ will satisfy federal flood insurance requirements.  Since it is the lender who will be responsible for deciding if the borrower’s insurance is adequate, this is one to take a look at.

Cyber Security Regulations: A work in progress? Speaking of regulations, New York’s Department of Financial Services is still considering how best to implement its “first in the nation” cybersecurity regulations.  Even if you are not from New York or you are a federal charter these are important to you.  They will provide a template for other states that decide they can’t wait for the federal government to get its act together on this issue.  We may seem some changes proposed, perhaps as early as next week.

UPDATE A friend, neighbor and blog reader just passed along this article indicating that the implementation of the regulation will be delayed.

How much is a pay raise worth? The last time the Legislature got a pay raise Governor Pataki got the legislature to approve charter schools. Everybody wants a pay raise before the end of the 2015-16 legislative Session. So with a week left in the year there is plenty of speculation about what, if anything, will be agreed to that would get legislators back in town next week. Stay tuned.

Eight is enough:  Yesterday, both the Association and CUNA filed briefs with the U.S. Supreme Court in the Expressions Hair Design case.  The case involves an appeal of a ruling by the Court of Appeals for the Second Circuit upholding Section 518 of the General Business Law.  This law makes it illegal for merchants to charge more than the headline price for credit card purchases.  Arguments are scheduled for January 10th.

Mama mia! Although some of us apparently believe in the fantasy of Fortress America, reality has a nasty way of intruding. International events impact your credit union’s bottom line. One of the biggest potential obstacles to growth in 2017 could be the Italian banking system, in particular, and the European banking industry, in general.  Just a few hours ago the Italian Government approved a bailout of its oldest bank.  In a worse-case scenario, Italy’s banking problems spread over Europe as politicians, spooked by the rise of nationalist parties, are unable to agree on a continent-wide response.

I will be back next year with my batteries recharged and one of the most fascinating periods of American history about to start. Until then, I’m signing off. Happy holidays and thanks for reading.


December 22, 2016 at 9:48 am 1 comment

You Need To Read This

required-readingYesterday NCUA released an updated examiner’s guide on including, among other things, new guidance on member business loans and commercial lending regulations scheduled to take effect in January unless they are blocked by the courts.

I hate when people tell me what to read on my free time, but today I am going to be one of those people. If you do MBL/Commercial Loans or are considering them in the future, you should put some time aside to go over this material. Besides, the Giants game doesn’t start till 4:30 p.m., the Jets aren’t worth watching, and the Patriots don’t have a chance of winning anything beyond the AFC East now that their beloved “Gronk “ is out for the season.

Let’s take a trip down memory lane to March of this year: NCUA signed off on a radical redesign of MBL/commercial lending regulations. Specifically, it shifted from a regulatory framework heavy on specific requirements and potential waivers, and replaced it with a more general principles based approach to regulations. For example, whereas regulations currently require credit union MBL programs to be overseen by a person with at least two years of commercial lending experience, the new regulations require them to hire qualified lending personnel.

But this new approach should not be misconstrued as the equivalent of mom and dad leaving the keys to the car, telling the kids not to get into any trouble, and going away for the weekend. Regulations are replaced with requirements for detailed policies and procedures. In the preamble to the final rule, NCUA explains that it remains committed to “vigorous and prudential supervision of credit union commercial lending activities” and that “responsible risk management and due diligence remain crucial to safe and sound commercial lending. “

While I am very supportive of this new approach in concept, in practice, just as less specific regulations give credit unions greater flexibility, they also give examiners greater flexibility to manage aspects of programs with which they disagree or are uncomfortable. That is why the examination guide is so important; it provides the first glimpse of what the new examination parameters are going to be.

The guide also provides a helpful primer between the distinction of member business loans- which are counted against the aggregate MBL cap-and commercial loans, which are not.

Finally, remember that the final regulation also contains important mandate relief. Credit unions with less than $250 million in assets that fall below certain thresholds are not subject to more extensive board management and oversight responsibilities, or the requirement to develop extensive commercial lending policies.


December 2, 2016 at 9:25 am Leave a comment

Consummate Away! Gov. Signs Mortgage Consummation Bill(corrected)


Sorry for the late blog, but I just found out that the Governor signed our  mortgage consummation bill(Chapter 491l. Effective immediately, the measure clarifies that, for purposes of RESPA and TILA, consummation occurs when a mortgage applicant signs both the mortgage and promissory note. This is most commonly done at closing.

This chapter provides welcomed certainty because the CFPB requires closing disclosures to be received by a member at least three days before consummation with certain exceptions. Case law suggested that consummation occurred when a financial institutional provides a member with a signed mortgage commitment.

As expected the Governor indicated that the Legislature will be amending the bill to clarify that it applies to electronic signatures

November 29, 2016 at 9:57 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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