Posts filed under ‘Economy’

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

New York to LIBOR’s Rescue!

The rulers of the financial world typically frown on the state getting involved with their business. But when it comes to LIBOR, you can hear a huge sigh of relief emanating from Wall Street this morning. As readers of this blog know, LIBOR is a discredited benchmark that has been the gold standard for contracts that use indexes. In the credit union world, LIBOR has been used by some for adjustable rate loans, and in the world of high finance, it has been used for complicated derivatives. 

Despite the fact that readers of this blog have known for years that LIBOR would come to an end, perhaps as early as this year, apparently some of the folks on Wall Street haven’t gotten around to adjusting to this new reality. But they’re in luck, because tucked away in the Governor’s Article VII budget language is a provision which will amend New York State law to ensure the continued validity of contracts that rely on LIBOR adjustments even after it is obsolete. Since so many financial contracts are executed in New York, this news benefits the financial industry at large. 

Has the CU Industry Been Impacted by the Russian Cyber Attacks?

Since at least last March, the Russian government has engaged in the most comprehensive series of cyber attacks in the internet era. The attacks, which may still be ongoing – the scope of which is still being determined – raised the very real prospect that a foreign government hostile to the United States has infiltrated the inner workings not only of corporations, but of financial institutions as well. Unfortunately, despite a letter from CUNA on the potential scale of the problem, the NCUA has done little to inform credit unions about the extent to which NCUA itself may have been victimized and the steps credit unions should take to protect member data.

As Michael Ogden succinctly put it in this CU Times piece

“We do not know if the NCUA has been impacted. We do not know if the NCUA is conducting its own investigation or audit of its network systems. We do know the Treasury Department, the Commerce Department, the State Department, the Pentagon and the Energy Department have all been compromised. We do know from reports that other federal regulatory agencies have also been compromised.”

This is one of those situations where what you don’t know can hurt you. It’s time for some clarification from our regulator.

January 21, 2021 at 9:34 am Leave a comment

Three Cheers for the 20th Amendment!

I’m exercising blogger privilege today, and in honor of the quadrennial transfer of power, I’m dedicating this blog to an issue that has absolutely nothing to do with credit unions. Regardless of where you fall on the political spectrum, what cable news channel you watch, or what radio station you tuned into this morning, I hope we can all agree that the interregnum, the period between election and today, has been one of the wackiest since 1876. Imagine if all this mayhem didn’t end until March 4th, and a lame duck Congress filled with members who had lost re-election were still in charge. This is where the 20th Amendment comes in.

1932 was a particularly momentous year. The Depression was raging on, President Hoover was historically unpopular but doubling down on his economic policies, and internationally, previously democratic countries were beginning to backslide. Fortunately, Congress agreed that it made no sense for the country to continue to suffer during the huge delay between election day and the new administration. By early 1933, 28 states had already ratified the amendment, although it did not take effect until Roosevelt’s second term. As a result of its passage, this year’s Congress was sworn in on January 3rd, and by March 4th, we will be well on our way to seeing how successful the new administration is going to be in charting a new course for the country.

January 20, 2021 at 9:36 am Leave a comment

Three Things to Ponder As You Start Your Credit Union Week

Good morning, folks. Here are some things to keep in mind as you start what promises to be an extremely eventful truncated week. 

Meet the New Boss

With the Supreme Court ruling that the director of the CFPB serves at the pleasure of the President of the United States, President-elect Biden has announced his pick to head the Bureau. Even with the Supreme Court ruling, no one in government has as much power to shape the regulations of the consumer financial sector than will Rohit Chopra.

Judging by the press reports I read over the weekend, there are few regulators who will have as much running room at the start of the Biden presidency as the CFPB. The conventional wisdom is that the CFPB was made “toothless” (New York Times) under the parting director Kathy Kraninger. While this is not true, perception is reality, and the list of top priorities is already emerging. Get ready to work on proposals dealing with overdrafts, student loan disclosures, mortgage forbearances and payday loans. All this will be in addition to a much more aggressive use of regulation through enforcement action. 

NCUA and CFPB Enter Into A MOU

David Baumann of the Credit Union Times reported Friday that the CFPB and the NCUA had agreed upon a Memorandum of Understanding. According to the NCUA, the purpose of this agreement is “to improve coordination between the agencies related to the consumer protection supervision of credit unions over $10 billion dollars in assets.” But we won’t know for sure, at least for a while, as the NCUA is making the CUTimes file a FOIA request to learn the contents of the memo.

Under the Dodd-Frank Act, the Bureau has direct supervision over institutions with $10 billion or more in assets. An institution is subject to this supervision once it reports four consecutive quarters of $10 billion or more in assets. If I was at or near this threshold, I sure as heck would want to know what was in the MOU. After all, institutions have a right to know what’s expected of them; what regulators are overseeing them, and precisely with whom their supervisory information is being shared.

It’s Budget Day at the Capitol!

For New York Legislative geeks, today is like Christmas morning. You finally get to know what surprises are under the Budget tree, and there’s sure to be a few lumps of coal. Many of the big picture items are already being debated, such as online gambling and marijuana banking. And of course, the great wild card in all of this is the extent to which Congress will be able to ease New York’s fiscal woes. Goody gumdrops. 

Merry Christmas, Happy New Year, and enjoy your day.

January 19, 2021 at 9:43 am 1 comment

NCUA Proposes Net Worth Mandate Relief

In a deceptively busy day in the world of regulatory and legal oversight, the NCUA moved to provide credit unions with $50 million or more in assets with an intriguing form of mandate relief; entered into an agreement with the CFPB about the supervision of the growing number of credit unions eclipsing the $10 billion asset threshold; after much delay, is proposing to add a new category to the CAMELS rating system; and is proposing to grant additional authority to CUSOs. Of all these developments, the one which intrigues me the most has to do with the incredibly arcane but vitally important world of risk-based net worth and capital requirements, so grab an extra cup of coffee and join me as I dive into the weeds.

The key to understanding yesterday’s regulatory proposal is to keep the distinction between Risk-Based Capital (RBC) and risk-based net worth requirements straight. All credit unions are subject to the Prompt Corrective Action (PCA) framework. Federal law also requires, however, that NCUA have a more complex capital framework for “complex” credit unions. For more than two decades, federal law has given NCUA the authority to define what makes a credit union complex, and currently, credit unions with $50 million or more in assets still qualify for the complex distinction. This means that they have to comply with both baseline PCA requirements as well as the risk-based net worth requirements. In 2015, NCUA opened a whole new can of worms when it updated the risk-based net worth requirement to include a Risk-Based Capital requirement. Originally, NCUA simply increased the threshold to $100 million for the complex credit union distinction where it previously required “assets that exceed $50 million and its risk-based net worth requirement exceeds six percent.” As things stand today, if your credit union has $500 million or more in assets, it will be subject to the RBC requirements starting in January 2022. 

What does this mean for credit unions with more than $100 million in assets but less than $500 million, which are still subject to the erstwhile risk-based net worth requirements? This brings us to yesterday’s NCUA Board Meeting. Among the proposals put forward by Rodney Hood in the waning days of his Chairmanship is a proposal to raise the asset threshold for compliance with the risk-based net worth threshold from $100 to $500 million. The rationale for this increase is to maximize the amount of capital credit unions have on hand to lend out as the economy continues to reel from the impact of the pandemic. With or without a pandemic, it’s past time we recognize that a $100 million credit union shouldn’t be subject to the same requirements as a $500 million credit union. 

On that note, enjoy your weekend with a special shout out to you Buffalo Bills fans as you tune in Saturday night to watch the best football game of the week. 

January 15, 2021 at 10:01 am 1 comment

Georgia On My Mind

Hello, folks. Your blurry-eyed blogger has gotten off to a slow start this morning after watching John King and his magic wall detail what appears to be Senate victories that will put Chuck Schumer in charge of a 50/50 split Senate. Before I get to my regularly scheduled information, I can’t help but offer a few thoughts on what is occurring. 

Most importantly, with the exception of Georgia, no state stands to benefit more from the election results than New York. First, it raises the very real possibility that the Congress could agree on another round of stimulus funding, which trades liability protection for businesses for increased aid to state and local governments. With New York State facing a deficit of approximately $15 billion, this could translate into lower property taxes. We might also see a push to reinstitute the deductibility of state and local taxes in excess of $10,000, which was repealed as part of Congress’ federal tax cuts. 

Secondly, having a New Yorker in charge of the Senate is a big deal. In fact, keeping in mind that the President has changed his residency to Florida, Senate Majority Leader Schumer will become the highest-ranking New York Democrat since FDR. Not only that – the Senator is uniquely qualified to represent New York having worked in the Assembly and the House of Representatives before moving over to the Senate. He is New York politics through and through, and he has consistently told any credit unions that will listen that they’ll lose their tax-exempt status over his dead body. But even as we ponder what may happen, there are still a lot of new developments that your credit union will be responsible for implementing operationally. On that front, here is some good news. As I explained in this blog, the National Defense Authorization Act included legislation championed by New York Congresswoman Carolyn Maloney, which will make businesses responsible for identifying beneficial owners as part of the account-opening process. Under existing regulations, your credit union is responsible for finding out this information as part of the process. Under Section 6403, regulations will now be promulgated imposing reporting requirements on individuals identified as “beneficial owners,” a designation earned by any individual that “directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The Treasury has two years from the date of passage to implement necessary regulations.

January 6, 2021 at 11:32 am Leave a 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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