Posts filed under ‘Economy’

Bank Preemption Takes Center Stage

There is currently a case before New York’s Court of Appeals for the Second Circuit that could have a direct impact on your credit union’s bottom line even if you don’t have the great fortune of living in New York. The issue is whether or not federally chartered banks are subject to a New York law mandating that lenders provide interest payments to borrowers with mortgage escrow accounts. If the court upholds two lower court rulings, federally chartered credit unions should be prepared to also provide interest payments. NCUA preemption standards are less stringent than those typically exercised by the OCC.  The cases being appealed are Hymes et al. v. Bank of America NA, case number 21-403, and Cantero v. Bank of America NA, case number 21-400, in the U.S. Court of Appeals for the Second Circuit.

I have blogged about these cases before, and I just wanted you to know that I am not the only one paying attention.  Law360 reported that the OCC has weighed in with an amicus brief.   The issue is the applicability of New York General Obligation law 5-601 which requires banks and credit unions to pay interest on mortgage escrow account balances. The statute has been around for decades, dating to the early 80’s when high inflation rates chipped away at member’s savings. But since the law’s inception, courts have ruled that its provisions don’t apply to federally chartered institutions.  The OCC argued that in refusing to preempt New York’s law, the lower courts adopted a legal standard which violates long standing precedent.

If you think you got it bad…

If you’ve been obsessing about your credit union’s influx of cash, you are not alone.

Yesterday, the FDIC released this report detailing the impact that the unprecedented influx of cash has had on banks. The report was required as part of a restoration plan that had to be imposed on banks after they fell below their statutory deposit baseline.

What struck me about the report is just how much financial institutions have riding on the assumption that this glut of money is a short-term phenomenon.  Obviously, if people start spending money again now that the COVID restrictions have been lifted, the savings glut will be a short-term glitch that we can reminisce about over drinks when we look back at the pandemic. But what happens if inflation continues to rise and consumers are weary to spend too much money as the economic outlook remains uncertain? Hopefully we will not have to find out.

June 16, 2021 at 10:09 am Leave a comment

Muddled Economic Outlook for CUs Continues to Challenge Industry

The economy continues to send out mixed signals when it comes to the environment in which credit unions will be operating for at least the next year. Unfortunately, the conditions seem to be ideally suited to accelerate the bifurcation of the industry between those credit unions large enough to compensate for historically low interest rates with increased lending and those primarily dependent on investment income.

That is the take of this armchair-economist-wannabe of the NCUA’s first quarter summary of the industry’s financial performance. It paints a picture of an improving economy which will nonetheless continue to squeeze the profits of many small to medium sized credit unions.  For example, credit union share deposits rose 23 percent over the last year to $1.69 trillion (incidentally, money market accounts were up 28.5 percent.) Unfortunately, the statistics underscore that loan demand has not increased nearly fast enough to make money off these deposits. The industry’s loan-to-share ratio currently stands at 68.8 percent down from 81.1 percent in the first quarter of 2020. In the aggregate, credit unions are seeking higher yields by putting some of this money into longer term investments. Investments with maturities of 5-10 years rose $54.4 billion to $86.5 billion. Investments with maturities greater than 10 years increased to $9.4 billion.

The bottom-line is many credit unions continue to be caught in a classic vice in which the economy is growing but not fast enough to nudge up interest rates. Furthermore, the consumer is saving more money than ever before and has even dramatically decreased credit card debt over the last year.

In contrast, the number of federally insured credit unions with assets of one billion dollars increased to 388. These intuitions experienced a net worth increase of almost 14 percent. They now hold 72 percent of the industry’s combined assets and experienced robust loan growth at 8.3 percent.  In contrast, net worth for the industry as a whole decreased from 11 to 10 percent. 

Not surprisingly, consolidation is continuing. The number of federally insured credit unions declined to just over 5,000.  There are now 3,167 federal credit unions and 1,901 state chartered credit unions.

June 7, 2021 at 10:10 am Leave a comment

Is the Fed Squeezing Small Lenders Out of Existence?

Good Morning, folks.

In the 1930’s the Federal Government responded to the collapse of the farming industry by putting in place a government back framework meant to stabilize the farming industry and stem the impact it was having on everyday Americans. Today, the family farm is largely a relic of a bygone era but the government subsidies designed to keep it alive are still alive and well and disproportionately benefiting larger corporations that don’t need the money.

Many of the same trends are taking hold in the banking industry to the detriment of credit unions.

I’m not going out on much of a limb here to say that you should expect your credit union to have to pay more into the Share Insurance Fund in approximately six months. That’s my takeaway from NCUA’s report on the Share Insurance Fund provided at yesterday’s monthly board meeting. It is also the assessment of one Todd Harper who put credit unions on notice that “absent some unknown external event, these forces seem likely to eventually” push the equity ratio below the 1.20 level at which point NCUA must pass around the Share Insurance Hat.

This unfortunate development isn’t all that surprising. This past week many New York credit unions have had the opportunity to listen to Steve Ricks pithy overview of current credit unions economic trends. Members are stocking away savings at unprecedented levels thanks to all of that government stimulus spending. The bad news is that loan demand isn’t keeping pace and investment returns are non-existent. Put this all together and you have the profits of many credit unions, particularly smaller ones, being squeezed even more than they have been in the past. Perhaps as the economy picks up even more, so will loan demand. We will have to wait and see.

But let’s take a look at the big picture. The trend we are seeing is nothing more than the continuation of forces put in place by the Federal Reserve more than a decade ago. When the mortgage meltdown looked as if it might trigger a depression, even Janet Yellen explained that, while she was empathetic to the difficulties faced by community banks, the economy as a whole benefitted from the stimulus resulting from historically low interest rates.

At the time this argument made sense. But by continuing to take extraordinary steps to suppress interest rates, the Fed’s intervention is feeling more like a permanent lifeline to large banks then a short-term necessity. As someone who believes in the free market this doesn’t feel like a fair competition.

May 21, 2021 at 12:48 pm Leave a comment

NY Extends and Increases Foreclosure Moratorium

The New York State Legislature just passed what it is proclaiming to be the strongest moratorium law in the country.  

Specifically, it has passed a measure (S6362-A) extending until August 31, 2021 an eviction and mortgage moratorium. The law, which was originally passed in December and signed by the Governor applies to both tenants facing eviction and individuals with ten or fewer residential mortgages, one of which is their primary residence.  This prohibition does not apply to mortgages owned by Fannie Mae or Freddie Mac, which are subject to a separate moratorium.

A second closely related measure (S5742) extends the foreclosure moratorium to commercial tenants in New York State that employ up to one hundred or fewer employees or was closed to in-person operations by executive order between May 15, 2020 and May 1, 2021 and employs up to five hundred employees.

May 5, 2021 at 9:50 am Leave a comment

NCUA Provides Capital Relief to CUs Facing Surge in Deposits

NCUA used a fast-track regulatory procedure late last week to provide regulatory relief to credit unions facing capital downgrades as members continue to save funds during the pandemic even as they received the latest round of stimulus checks. 

When a federally insured credit union’s net worth ratio slips below 7% it must put aside additional funds until it becomes well capitalized again.  The NCUA Board voted late last week to waive the additional capital requirements for “adequately capitalized” credit unions-those with net worth ratios below 7% but greater than six percent (6%) §702.102 

If this regulation sounds familiar it is because NCUA promulgated similar regulations last spring but let them expire at the end of last year.  Credit unions not only got the message out to NCUA that they wanted this relief, but NCUA is concerned enough about the capital position of credit unions that it took the highly unusual step of enacting this regulation by “notation”.  This allows the NCUA Board to act on time sensitive regulatory matters § 791.4  

April 19, 2021 at 9:20 am Leave a comment

What Will the Next Nine Months Bring To Your CU?

Will the next six months bring about a rise in delinquencies as government support begins to wane or will your credit unions be in store for a boom in lending activity as consumers break out of the plastic bubbles otherwise referred to as their houses and break out the credit cards, splurge on big ticket items and generally feel better about their economic prospects? Even as NCUA understandably makes examining your credit union’s ALLL policies it’s top priority for 2021, there is mounting evidence that the more optimistic scenario is the one most likely to unfold. 

Most importantly, credit unions have been telling me for a long time that the problem isn’t deposits, it’s getting members to spend some of that money.  How right they are.  Worldwide consumers have squirreled away an extra $2.9 Trillion in savings with the Unites States alone accounting for half of the total.  In fact, according to Bloomberg if consumers decide to spend all that extra savings, the economy would grow at a 9.6% rate this year.  While such speculation is crazy talk, the increased savings are in addition to the checks that many of your members will be receiving, assuming Congress passes another economic relief package within the next couple of weeks.

In another sign that things are going to end up better than anyone would have predicted a year ago, many states are not suffering the decline in tax revenue they anticipated.  In fact, the New York Times ran this front page story yesterday reporting that by some measures many states will end up with almost as much revenue this year as they took in last year.  Some states have even benefitted from the crisis with Idaho seeing an increase in population and tax revenue.  So much for my Own Private Idaho. 

To be sure, there are also signs that for many the economic recovery is not strong enough.  On Monday, the CFPB released a report detailing the millions of Americans dependent on forbearance programs to stay in their homes and Janet Yellen has been quick to point out that the economy is still down ten million jobs.  Still, my guess is that the biggest concern that your credit union will face in the coming year will be interest rate risk as examiners turn their attention from the adequacy of the reserves to the possibility that inflation will once again start appearing on the horizon.

Legislature to Scale Back Governor’s Powers

The Legislature has agreed to pass legislation to curb the Governor’s power to issue Executive orders which he has used to run the state since the COVID crisis started last March.  According to the Times union the new restrictions “will prohibit the governor from unilaterally issuing new executive orders related to the pandemic without legislative review. He will retain the ability to tweak or renew existing orders relating to slowing the spread of COVID-19, including the state’s mask mandate or business restrictions”

We will have to examine just how this will affect Executive Orders that have impacted CU operations.  For example, as readers know, the Governor has established the criteria for vaccine shot eligibility and he has authorized the use of remote notarization. In addition, even though the Legislature has passed mortgage forbearance legislation-Section 9X of the Banking Law-these protections expire with the end of the EO’s.  We will keep you posted.

March 3, 2021 at 9:32 am Leave a comment

Four Key Issues to Know As You Start Your Credit Union Day

This morning has provided your faithful blogger with a treasure trove of important tidbits to pass on to you as you begin your credit union day. So with the caveat that many of these issues are worthy of future expansion, here goes…

Wells Fargo Folds and Settles Patent Litigation

In one of the highest-profile patent litigation cases in more than a decade, according to Law360, Wells Fargo has agreed to pay $300 million to USAA to settle claims that it violated patents related to remote deposit capture technology. The litigation was seen as a key bellwether of the extent to which financial institutions would have to enter into licensing agreements regarding this technology. Yours truly is no patent attorney, but this announcement should trigger a call to your legal counsel to discuss next steps for your credit union, particularly if it has been subject to a letter from USAA requesting that it license its RDC technology. 

Biden Administration Announces Additional Mortgage Forbearances

The Biden Administration announced yesterday that it was extending mortgage forbearance opportunities for certain government-backed mortgage loans. As a result of the announcement, the Department of Housing and Urban Development, the VA and the Department of Agriculture will extend mortgage forbearance and foreclosure relief, which were otherwise due to expire in March, until June 30th of 2021. Similar steps were recently announced by Fannie Mae and Freddie Mac. New York State has also extended forbearances for non-federally backed mortgage loans for individuals impacted by COVID-19. Let’s hope that the additional stimulus that Congress is expected to provide to consumers will allow policymakers to phase out these protections by the end of this year. Believe it or not, a properly functioning mortgage lending system is in the best interest of consumers.

New York’s Department of Financial Services Issues Cybersecurity Fraud Alert

The DFS issued a cybersecurity fraud alert informing its regulated entities that it has “recently learned of an aggressive campaign to exploit cybersecurity flaws in public facing websites to steal non-public information.” Although the guidance primarily focuses on websites designed to give consumers quick insurance quotes, the DFS is also reporting that similar attacks have been lobbed against mortgage companies. The focus of these threats is apparently to steal information such as licenses, which consumers are sometimes asked to provide when getting instant quote information. DFS is reporting that at least some of the stolen information is being used to engage in fraudulent attempts to obtain pandemic-related unemployment benefits in New York. Remember, under New York’s cybersecurity regulation (NYCRR 500.1 (g)), information that is considered “non-public” includes a name, number, personal mark or other identifier which can be used in conjunction with a social security number, drivers license, account, credit or debit card number in identifying an individual. Incidentally, you should pass this on to your vender to make sure they are aware of your New York State-based obligations. 

NCUA IG Investigates Consumer Complaint Process

As many readers of this blog know, Board Chairman Todd Harper supports increasing NCUA’s scrutiny of credit union compliance with consumer protection laws. Many individuals, including your faithful blogger, have questioned what evidence there is that compliance with consumer protection laws is lacking within the industry. An esoteric report recently issued by the inspector general investigating NCUA’s complaint review process may take on exaggerated importance in this debate. I haven’t read the entire report yet, but the inspector general is suggesting that NCUA should do a better job of making sure that examiners are aware of complaints issued against a credit union. 

On that note, enjoy your day. I would also like to extend a special thank you to the Buffalo Sabres. Two nights ago, my NY Islanders did not surrender a single shot on goal to the Sabres. This was the first time the Islanders had ever shut a team out this way since they started in the early 70s. In the immortal words of Wayne Gretzky, “you miss 100% of the shots you don’t take.”

Image result for michael scott wayne gretzky

February 17, 2021 at 10:02 am Leave a comment

For New York, Things Are Worse Than They Appear

Yesterday, the Federal Housing Finance Agency highlighted just how long the pandemic has lasted by announcing that mortgages backed by Fannie Mae and Freddie Mac may be eligible for an additional forbearance extension of three months. Although the agency cautioned that other conditions may apply, the extension will generally apply to borrowers who are on a COVID-19 forbearance plan as of February 28th, 2021. By extending forbearance plans through May, GSE forbearance policies are now more consistent with New York State’s forbearance requirements for non-GSE loans held by your credit union. Remember that in early January, the State Legislature passed legislation granting forbearance extensions to individuals claiming to have been negatively impacted as a direct result of COVID-19. 

The announcement underscores that on a national level, the economic conditions under which credit unions will operate remain unclear, even as the vaccination rollout picks up speed. This uncertainty is particularly true for credit unions in New York. The state has been among the hardest hit by the pandemic – for example, New York currently has an unemployment rate of 8.2%, the fifth highest in the country. In addition, New York has some of the highest numbers of delinquent mortgages in the country, with New York City standing out among other metropolitan areas for its reported number of mortgages past due. 

Of course, these statistics are as predictable as they are depressing. In October 2020, the Empire Center reported that New York’s second quarter GDP dropped 36.3%, marking the biggest decline on record in New York state history. To put it in perspective, New York’s drop was almost five percent higher than the national average for the same period. 

On that inspiring note, enjoy your credit union day. 

February 10, 2021 at 9:22 am Leave a comment

What’s Old is New Again – BSA Takes Center Stage

Let’s face it – these are heady days for cyber criminals. Crypto currencies provide an ideal means to facilitate illicit payments, an unprecedented number of people are working from home, the worldwide economic slowdown ensures a steady supply of potential fraudsters, particularly in countries that look the other way at this type of crime, and you have the US government throwing unprecedented amounts of money to consumers in as quick a way as possible. Put this all together and, in my ever so humble opinion, (at least in the short term) your credit union has to dedicate more of its compliance resources to ensure it is taking the steps necessary to detect and react to nefarious cyber activities, i.e. the “red flags” of criminal activity. 

Recently, there has been a sharp increase in the number of advisories of which your credit unions should be aware. With regard to PPP loans, FinCEN recently sent updated guidance reiterating your due diligence requirements and confirming what procedures can be used when assisting individuals applying for “second draw” PPP loans. This guidance is particularly useful for navigating your beneficial owner obligations. Remember that the PPP loan application requires you to identify any owner with a 20 percent stake in an applicant’s business, whereas FinCEN’s beneficial owner requirements kick in for individuals with a 25 percent stake. 

Just yesterday, FinCEN issued this guidance providing examples of how fraudsters are gaming the system to facilitate healthcare fraud. One of the examples it provided involved an individual who set up several shell pharmaceutical companies to get reimbursement for transactions that never took place. It looks like somebody better call Saul (for the uninformed, that is a Breaking Bad reference). 

The Anti-Money Laundering Act of 2020 contained in the National Defense Authorization Act ordered FinCEN to provide guidance to financial institutions that are asked by law enforcement to keep an account open, even though they suspect or know that it is being used to facilitate criminal activities. The statute provides that financial institutions honoring such “keep open requests” shall not be liable for maintaining the account. This guidance, which was issued jointly by all the federal financial regulators, including the NCUA, implements this language. Finally, I want to remind you all of the guidance issued in October related to financial institutions that facilitate ransomware payments. Statistically speaking, there is a very good chance that many of your credit unions will either facilitate a ransomware payment, or be victimized by a ransomware attack. As I explained in this blog from the fall, OFAC is reminding third parties like insurance companies, banks and credit unions that they could find themselves subject to strict liability penalties for facilitating these payments if they are going to individuals on the OFAC list. While yours truly continues to believe that this is a woefully misguided warning, you should all have contingency plans for dealing with a ransomware scenario, and be cognizant of its potential OFAC implications.

February 3, 2021 at 9:26 am Leave a comment

Like it or Not, CUs must Engage in the Climate Change Debate

Good morning, folks.

First, I want to assure you that the purpose of today’s blog is not to debate the science of climate change, or to suggest where I think it should be on the list of concerns considered by your executive team as it tries to position your credit union operations for the months and years ahead. The purpose of this blog is instead to inform you that, with yesterday’s announcement of executive orders calling for a government-wide approach to climate change, the industry at large as well as your individual credit union has become part of a discussion. It’s not if your credit union is going to take steps to mitigate the impact of climate change – but what those steps are going to be when regulators come knocking.

In reviewing yesterday’s executive order, the President didn’t specifically mention banking initiatives, but by including the Treasury Department and the HUD Secretary on the task force and emphasizing the relationship between economic justice and climate change initiatives, there’s little doubt that financial institutions will be asked to play a role in mitigating the effects of climate change. Plus, even though NCUA is an independent agency, there’s nothing to stop it from voluntarily working with the Biden administration on these issues and efforts. 

New York State’s Department of Financial Services has been at the forefront of this debate. In October, it issued this guidance making the argument for financial institutions to take an active role in integrating climate change considerations into their operations. It pointed out, for example, that extreme storms could have a disproportionately negative impact on regional and community banks which provided mortgages in impacted areas. On a more nebulous note, it argued that the transition away from a carbon-based economy will over time impact the underlying value of assets. DFS also issued specific expectations for the institutions it regulates. These include that they “start integrating the financial risks from climate change into their governance frameworks, risk management processes, and business strategies,” as well as to “start developing their approach to climate-related financial risk disclosure.” New York’s Superintendent Lacewell has recently highlighted the importance of this initiative. 

I know how much work all of you already have on your plate, and I also know that this has become one of those issues that can end a dinner party quicker than one hurricane can put a significant portion of Long Island underwater. But the sooner we lay out how we’re going to do our part, the better positioned we will be to prevent overly cumbersome, one-size-fits-all mandates.

January 28, 2021 at 9:49 am Leave a comment

Older Posts


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.

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

Join 726 other followers

Archives