Posts filed under ‘Economy’

Here’s An Important Order You May Have Missed

Good morning folks. I am going to assume that there is more than enough information available to you about the federal stimulus package that is scheduled to pass the House later today. Instead, I want to highlight one of extraordinary orders you may have missed this week amidst the onslaught of guidances, emergency regulations, etc.

On March 22, 2020, New York’s Court System was shut down for all but essential services. This means that anyone wanting to file papers to start a legal action, such as a foreclosure action, is out of luck. The good news is that the order does not prevent clerks from accepting mortgage recordings. This order is in addition to New York’s decision to freeze statutes of limitation. This is important for those of you involved in potential legal disputes.

Have you identified your essential employees?

The timing of this guidance from NCUA and the Treasury Department is a real head scratcher. Yesterday, NCUA issued this guidance informing those of us in critical industries, which includes credit unions and banks, of the importance of identifying the employees who are critical to the maintenance of your operations. I’m getting annoyed by guidance that imposes additional burdens on all businesses precisely at the moment when people are already working 24/7 to keep their operations going.

On that note, enjoy your weekend. Social scientist tell us that in the aggregate, human beings are intrinsically optimistic, the rest of us become lawyers. So when all this stuff is over, you will not remember it being as bad as it seems right now and you will actually remember parts of it fondly.


March 27, 2020 at 9:08 am Leave a comment

NCUA Releases Annual Meeting Guidance

NCUA yesterday released much needed guidance to Federal credit unions informing them that they had the right to postpone their annual meetings.  NCUA’s clarification is a welcome relief to many credit unions which have been wondering how to both comply with their annual meeting obligations and  state level orders limiting the number of persons who can gather at one space.  In addition, NCUA explained that board members whose terms expire prior to the annual meeting can continue to serve until the rescheduled meeting is held.

In the guidance NCUA also announced that, effective March 16th to March 30th,“all examination related staff are required to be offsite”.  Information will be transmitted through NCUA’s Secure File Transfer Portal.

FinCEN Releases COVID-19 Guidance

Underscoring just how seriously FinCEN takes the reporting responsibilities of financial institutions, it issued this guidance yesterday telling financial institutions to contact FinCEN “as soon as possible” if they have any concerns about reporting delays as a result of the COVID-19 virus.  FinCEN also said to be on the lookout for an increase in scams related to the COVID-19 pandemic.

White House Issues Voluntary Guidance

The White House issued voluntary guidance yesterday which I would strongly suggest making a good faith effort to comply with.  Among the recommendations that caught my eye are ones to not congregate in groups of 10 people or more and to work from home if you can work from home.

On that note, Happy St. Patrick’s Day.  Fortunately, I was able to get a bottle of Jameson before my neighbors hoarded that as well.  Unfortunately, the same cannot be said for toilet paper.  By the way, unless you want to drink a lot, don’t read about yesterday’s stock market.

March 17, 2020 at 9:08 am Leave a comment

Seven Ways COVID-19 Is Impacting Your Operations

Greetings from the state that is number one in COVID-19 cases; as of Sunday afternoon.

There have been an amazing number of developments affecting your credit union over the weakened.  I am emphasizing those that you may not have heard about yet.

New York Delays New Servicing Regulations

I actually have some good news to tell you this morning.  I found out over the weekend that New York’s  Department of Financial Services has issued an emergency regulation putting on hold for an additional 90 days new servicing regulations which many credit unions and mortgage bankers were wondering how they were going to comply with.  In announcing the delay DFS Superintendent, Linda A. Lacewell explained that “the volume and complexity” of the new regulations, especially since they require new programing and disclosure requirements for home equity lines of credit, has led the department to conclude that businesses need more time to comply, particularly at a time when they have to concentrate on the pandemic.

A special shout out to the New York Mortgage Bankers Association, which did a great job alerting stakeholders to the difficulties in complying with this regulation.

State Issues COVID-19 Emergency Relief Order

New York’s Department Of Financial Services issued an order exempting state licensed and state chartered financial institutions including state chartered credit unions from some regulations with which they would normally have to comply.  Most importantly, these institutions can now close and relocate branches and offices without first providing notice to DFS.  In addition, licensed individuals such as mortgage originators can work from home with the understanding that they are still subject to New York’s regulations.  Entities are still expected to inform New York State of any relocations.

Additional Developments…

Also over the weekend, the Governor asked businesses that could do so, to voluntarily shut down and allow their employees to work from home.

Finally, the state has imposed limits on the size of mass gatheringsHere is his first order.  This situation is very fluid and we may see further reductions in the authorized size of mass gatherings.

Fed Gone Wild

Just how low can the Fed go?  The Federal Reserve Open Market Committee announced yesterday that it was slashing the Federal Funds rate to zero (!) and “expects to maintain this target range until it is confident that the economy has weathered recent events…”

When the history of this pandemic is written, it will be marked as the end of a unique period in American history during which the Federal Reserve exercised a decisive impact on the American economy.  In 1987, Alan Greenspan calmed the stock market following its dramatic decline; it was the Fed that helped minimize the impact when the dot-com bubble popped; and Ben Bernanke mitigated the impact of the Great Recession of 2008 by going on a mortgage buying binge.

My how times have changed.  Interest rates are already too low to have much of a stimulus impact and they will have no effect in coxing Americans out of their homes to hoard more toilet paper.

The Fed did take one important step recently.  It announced a massive infusion of funds into the repurchase market.  It also announced it would accept a broader range of securities for these arrangements.

The repurchase market plays an absolutely crucial role in the economy.  It is the mechanism by which the largest of the large financial institutions manage their liquidity on a daily basis by getting short-term loans of cash in return for collateral such as bonds.  The system has had some hiccups over the past year and no one quite knows why.  Stay tuned.

With the Fed out of bullets, it is up to Congress and the President to come together and agree on a stimulus package.  On Saturday, the house took the first step in this legislative dance by passing legislation which extends limited family leave protections to some employees and increasing funding for programs such as SNAP.  The precise impact of this proposal is being debated this morning, with critics already complaining it contains too many loopholes to help most workers.  If, as expected, the Senate passes the bill this week and the President signs it, the real contentious debate gets started.  Both sides are already jockeying for position over what should be included in a larger stimulus package.

March 16, 2020 at 10:38 am Leave a comment

If You’re Responsible For Your CUs BSA Compliance, You Are On The Hook If Things Go Bad

If your credit union does not have adequate staff to appropriately identify and respond to suspicious activity it may be violating federal law and putting both the credit union and its BSA compliance officer at risk of being fined.

That’s my major takeaway after FinCEN recently announced a $475,000 fine against the individual who had been responsible for U.S. Bank’s AML/BSA program. This fine is in addition to a separate civil penalty already imposed on the bank. It’s a strong warning to financial institutions and should be reviewed by anyone responsible for implementing and overseeing your AML/BSA program, including your board.

The order is a not too subtle warning to all institutions that they are expected to maintain staff levels commensurate with their level of BSA risk and that they can’t rely on software to demonstrate good faith compliance. It is also a reminder that whoever is in charge of BSA compliance at your credit union has an obligation to advocate for appropriate resources.

First a quick reminder. Pursuant to 31 U.S.C. § 5318 (h) your credit union must have an anti-money laundering program that includes, at a minimum: internal policies, procedures, and controls; has a designated compliance officer; an ongoing employee training program; and an independent audit function to test its BSA programs.

Michael LaFontaine was the former chief operational risk officer at U.S. Bank National Association. In this capacity he had overall authority and responsibility for BSA compliance. FinCEN determined that he willfully violated these core responsibilities.

Most importantly, he capped the number of alerts that the bank’s BSA monitoring software would generate resulting in thousands of potential BSA violations going unreported. He did this even after Wachovia was fined by FinCEN for engaging in almost identical activity and despite being told by employees that capping reports was inappropriate.

Secondly, he was repeatedly warned by regulators and staff that the size of the bank’s BSA staff was not commensurate with its level of risk. FinCEN explains that “While he did take certain steps to upgrade the AML Program, including advocating for and receiving funding for the replacement of the system in its entirety, his actions were inadequate to correct the deficiencies.” This is a reminder to you BSA compliance people out there to document the efforts you take in the event you conclude that your staffing levels and resources are not commensurate with the credit union’s BSA risk profile.

Will The Fed’s Rate Cuts Do Any Good?

With the Dow Jones Industrial Average declining quicker than Democrats are exiting the presidential primaries, the Fed announced an emergency 50 Basis Points cut in the Fed Fund Rate on Tuesday. Let’s call this the Corona Cut. Far be it for me to question the aggregate wisdom of the Fed, but this one is a bit of a head-scratcher. My sentiments are summed up nicely by Greg Ip of the WSJ who wrote (subscription required):

“The Fed cannot save the U.S. economy from the coronavirus, for two reasons. First, it can’t restart factories that are missing parts as the virus disrupts supply chains, nor can it persuade worried vacationers to fly. Second, and potentially more important, central banks are losing their grip on the business cycle.”

March 5, 2020 at 9:50 am Leave a comment

No More Ignoring The Coronavirus

Governor Cuomo’s announcement that New York now has its first confirmed case of the coronavirus is simply the latest in a deluge of news indicating that the virus may very well be coming to a credit union near you in the coming months. In addition to the Governor’s announcement, the L.A. Times reported on West Coast cases which included the first case of “community spread”.

All this has me more than a little surprised that we haven’t seen the NCUA coming out with the type of guidance it has released in the past explaining the steps that they expect credit unions to be taking in preparation for a potential pandemic. That being said, any business that isn’t preparing for dealing with a chronic long term public health threat which has already impacted the economy isn’t doing its job.

Against that backdrop in previous guidance responding to earlier potential pandemics NCUA explained to credit unions: that they should have a pandemic preparedness plan to “reduce the likelihood that operations will be affected by a pandemic event” and that the plans should include a comprehensive listing of facilities systems or procedures to continue critical operations “if a large number of staff are unavailable for prolonged periods”.

In an ideal world all you should be doing right now is dusting off your existing protocols since NCUA expects you to be testing your pandemic preparedness on an ongoing basis as well as periodically updating your plans. On the bright side, technology has moved so rapidly in recent years that there are new ways of keeping your members tethered to your branch even if they feel like minimizing the amount of time they spend in public spaces. For example, remote deposit capture in conjunction with your existing online banking ensures that the credit union can continue functioning even if it had to close down a branch for a few days.

Even if the coronavirus threat is ultimately exaggerated, its economic impact is real. The yield on the Ten Year Treasury closed at a miniscule 1.082 on the 28th and Bloomberg Radio is reporting this morning that there is an increasing likelihood that the Fed will make an emergency rate cut of .25%. Furthermore, depressed corporate earnings triggered by China’s aggressive attempts to curtail the virus have already impacted corporate earnings.

All this means more uncertainty for your members and your credit union. In this environment, good luck predicting what conditions you will be waking up to six months from now.

A Legal Giant Steps Down

After 25 years on the bench, Judge Judy is hanging up her gavel at least for a year. Given the current state of politics in DC is it only a matter of time before we hear her name being floated to fill a future Supreme Court vacancy? After all, she had great ratings.

March 2, 2020 at 9:33 am Leave a comment

NCUA Looking to Unload Taxi Medallions

Hello, folks.

This goes into the “don’t shoot the messenger” category, but in case you missed it, Crain’s New York Business (subscription required) reported on Friday that NCUA is looking to sell off both their New York and Chicago taxi medallion loans. The paper is further reporting that a potential buyer is private equity firm Marblegate.

We are all in somewhat unchartered water when it comes to the medallion issue, but it is likely that if NCUA sells their medallions in bulk, the resulting price will result in at least some credit unions having to write down the value of their medallion participation interest. In addition, it is at best unclear what impact the sale would have on efforts to renegotiate loan terms with cab drivers. NCUA has faced criticism from some credit unions and taxi drivers who claim it has not been flexible enough in negotiating new loan terms.

Bernanke: Fed Has Stimulus Flexibility

As an armchair economist wannabe, I have wondered for quite some time now what the Fed will do when the country once again enters an economic downturn. After all, unless you believe that the business cycle has come to an end, you should be anticipating a slowdown in economic activity within the next couple of years.

Consequently, those of you interested in this subject should take a look at this recent blog post by former Federal Reserve Chairman Ben Bernanke. In it, he argues that the Fed has the resources to provide the equivalent of a 3% drop in interest rates, even without formally dropping the target funds rate any further. Furthermore, he suggest that, maybe, just maybe, there may be scenarios under which it is acceptable for the Fed to tolerate an increase in inflation above its current target ceiling.

January 13, 2020 at 9:10 am Leave a comment

Banks Cynical Love Affair with the CRA

I want to dedicate this blog today to the banking industry. In spite of the fact that as recently as 2018, they were urging banking regulators to reform and streamline the Community Reinvestment Act (CRA), they have now seen the light. They love the statute and its regulations so much that they think it should also be made applicable to “large” credit unions. Surely, they are not so cynical that they secretly continue to believe that the CRA is an over burdensome mandate, and actually are advocating for the CRA to be imposed on credit unions because they think it might hurt credit unions and muddy the water between the important regulatory and legislative distinctions separating banks and credit unions. That would be like the president of the United States criticizing the Vice President’s son for working with a Ukrainian company while at the same time urging his personal lawyer to work with some of those same officials. Surely, our politics haven’t become that cynical.

Perhaps it is a simple misunderstanding. The newest talking point is that somehow, as credit unions grow, the CRA becomes more relevant to their existence. However, a look at the history behind the CRA demonstrates that it was not imposed on banks in 1977 because banks had grown big. The CRA was passed because by that time, banks of all sizes had intentionally discriminated against minority neighborhoods and low income areas for decades. In other words, the CRA was recognition that a for-profit banking charter did not adequately incentivize banks to do the right thing.

In contrast, credit unions have no such history of intentional discrimination. As a matter of fact, credit unions were created to counteract the discriminatory practices of banks, and today, more than half of the federally chartered credit unions in the country are low-income institutions serving an area in which “a majority of its membership (50% + one member) qualifies as Low-Income Members.”

I also find it odd that the banks now whole-heartedly support the CRA even as they take steps to make it as difficult as possible for credit unions to serve communities in need of resources. For example, New York State has for two decades encouraged banks to work with poor communities to apply for the creation of Banking Development Districts. The basic idea is that in return for committing financial resources to areas in need of banking services, the banks receive incentives including low interest public deposits. Despite the fact that the banking industry is so concerned about the needs of low income communities, it has steadfastly opposed extending the program to credit unions. Fortunately, this year, the legislature passed the bill and we are awaiting action by the Governor. Perhaps given the new-found commitment on the part of the banking industry to community investment, they are actually supporting credit unions, and I just haven’t seen their memo in support.

At the end of the day, the banks latest love affair with the CRA is so transparently cynical that it won’t gain the traction it needs to become a serious threat to credit unions based solely on bank lobbying efforts. As I said before and will say again, the real threat to credit unions comes not from legislators influenced by the banking lobby, but from the more liberal wing of the Democratic Party, which has shown signs of becoming impatient with the efforts made by the credit union industry. Their concerns are not cynical, and deserve to be addressed on their merits. Credit unions don’t need CRA to be coerced into doing the right thing, but there isn’t a credit union in the country that shouldn’t be able to explain to its senator or congressperson how it uses its tax exemption to serve members in general and persons of modest means in particular.

December 6, 2019 at 9:43 am 1 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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