Posts filed under ‘Federal Legislation’

“First” In Credit Union History

Happy Friday from Buffalo, where yours truly should be especially pleased that he is experiencing unseasonably warm, snow-free weather as opposed to one of those freakish lake-effect snowstorms in which Buffalonians take such pride. But there is a lot to be ambivalent about as we take a look at the trends that are impacting credit unions today.

Right now, the economy is spinning in more directions than a five-year-old on a sugar high. As a result, now more than ever, we need economists with more than two hands to capture the impact that all this might have on the credit union industry. So you should all take the time to read the latest economic trends analysis from CUNA Mutual which is filled with plenty of ammunition for the optimist and pessimist alike. For instance, CUNA Mutual is reporting that for the first time in credit union history, share drafts make up a larger percentage of credit union total deposits than share certificates. On the one hand, the armchair economist in me says that this is good news since it decreases the cost of managing accounts, and with the direction of the economy still uncertain, we really don’t have to worry about people rushing to pull all that money out of their credit unions. In fact, the credit union cost of funds is expected to fall 30 basis points in 2021 to 0.4% from 0.7% in 2020. On the other hand, interest rate uncertainty will continue to plague long term planning for years to come, and do we really want an industry dedicated to thrift to be more dependent than ever on members who are not making long term commitments to the industry? 

BSA Examination Manual Updates

Those of you in charge of your credit union’s BSA program will certainly want to take a look at the latest updates to the FFIEC BSA examination manual.

The update that most intrigued me was a new general introduction dealing with customer due diligence which stipulates that:

Examiners are reminded that no specific customer type automatically presents a higher risk of ML/TF or other illicit financial activity. Further, banks that operate in compliance with applicable Bank Secrecy Act/anti-money laundering (BSA/AML) regulatory requirements and reasonably manage and mitigate risks related to the unique characteristics of customer relationships are neither prohibited nor discouraged from providing banking services to any specific class or type of customer.”

It sounds as if some examiners have been a little too aggressive in discouraging financial institutions from opening up certain types of accounts. This is welcome language in the event the federal government ever gets around to legalizing marijuana banking.

Speaking of the Federal Government…

Last night the Congress passed legislation funding Government operations until February. It’s pathetic that we have gotten to the point that this is big news, but so it goes.

On that note, enjoy your weekend. Sorry, Bills fans, but the Patriots are back, don’t expect to win on Monday night.

December 3, 2021 at 9:34 am 5 comments

The Known Unknowns About The Transaction Reporting Proposal

The more I think about the IRS’s tax proposal, the more I want to channel my inner Donald Rumsfeld. The late secretary of defense famously explained that “There are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.”

In the last couple of days I have started to get calls not only from the usual policy crowd that recognizes the Account Transaction Reporting requirement for the lousy idea it is, but also from the compliance crew that would be responsible for translating the idea into a tangible framework. 

Here is some information about what we know and don’t know about this extremely fluid idea:

Where can I find this legislation?

  • No legislation has actually been introduced. What we are debating is a proposal originally outlined by the Treasury as part of the Administration’s Revenue Proposals (starting on page 88).

When would this proposal take effect?

  • If the Treasury has its way this proposal would take effect for the 2023 tax year.

What exactly is the Treasury proposing?

  • In its own words, the Treasury is proposing a “comprehensive financial account reporting regime” (that doesn’t sound too scary does it?) Financial institutions would play a crucial role in this process. They would be responsible for reporting gross inflows and outflows out of accounts.

What information would financial institutions be required to report to the IRS?

  • In a caustically worded fact sheet released two days ago, the Treasury stressed that financial institutions would not report individual transactions to the IRS. Instead, they would only have to provide a mere “two additional data points”.  These data points would be:
  1. The total amount of funds deposited; and
  2. The total amount of funds withdrawn over a year.

(Gee I can’t imagine why your members would be upset upon learning you have to turn this information over to the IRS.)

How exactly would an account transaction be defined by the Treasury?

  • This one’s going to be tougher to clarify than the Treasury may realize. For example, if I internally transfer money from my savings to a checking account, is that an account transaction? This is a particularly important question for credit unions which still utilize the concept of “master” and “sub” accounts (by the way, this terminology drives me nuts but that can be the subject of another blog).

Are there thresholds below which this report would not be issued?

  • As originally proposed by the Treasury, the plan would not have applied to accounts with $600 or less in transactions. In recent weeks there have been proposals to raise that threshold to $10,000.  But remember this is an aggregate threshold.  Over the course of a year, almost all your members would make transactions that in the aggregate exceed this threshold.  Furthermore, with or without a transaction threshold by Congress, your credit union would be responsible for ensuring that this information is appropriately tracked. At the very least this translates into more time and expense working with your core operating system provider. For smaller credit unions, this mandate will be an extremely labor intensive mandate with which to comply.

Isn’t Congress going to ensure that this only applies to certain members?

  • This is where we really need to see actual language. According to the Treasury’s press release, Congress has modified the proposal to include an exemption for wage and salary earners and federal program beneficiaries. Under this approach “such earners can be completely carved out of the reporting structure.”

This is the type of language which drives compliance people crazy. Among the questions that come to mind are: How exactly are financial institutions supposed to differentiate transactions involving employer wages from other types of legitimate transactions not involving an employer?  For instance, many members derive income from driving Uber or having small businesses.

October 21, 2021 at 11:02 am 1 comment

Three Things You Should Know To Start Your Credit Union Day

Municipal Deposit legislation, A8289, gained a key sponsor yesterday when the new Chairwoman of the Assembly Banks Committee became the prime sponsor of the legislation in that chamber.

Assemblymember Pat Fahy is the new chairperson of the Banks Committee. She replaces former Bronx Assemblymember Victor Pichardo who resigned from the Legislature this past summer. Pichardo’s departure means that the legislation will have to be reconsidered by the Banks Committee. Last year the legislation advanced to the Assembly Ways and Means Committee.

Assemblymember Fahy is a familiar face in the Capital Region who represents parts of Albany and Bethlehem. In September, the Association met with her office to discuss credit union priorities.

Court Clarifies Foreclosure Notice Requirements

When it comes to foreclosing in New York, minute mistakes can make a huge difference. Most readers of this blog know that state law requires mortgage holders to mail a 90 day pre-foreclosure notice to delinquent homeowners before commencing foreclosure (RPAPL 1304). When there are multiple borrowers, how is this requirement satisfied? In this recent decision a New York Appellate Court addressed this issue for the first time. It ruled that lenders must mail a separate 90 day notice to each borrower in separate envelopes.

Is this arcane? You bet it is. But if this procedure isn’t followed, a foreclosure will be dismissed, at least in Long Island, Westchester, Brooklyn, Queens and Staten Island over which this court exercises its jurisdiction. Wells Fargo Bank, N.A. v Yapkowitz, 2021 N.Y. Slip Op. 05139, 2021 WL 4448061

Yellen Continues To Push For Transaction Monitoring

Treasury Secretary Janet Yellen continues to insist that requiring banks and credit unions to report almost every account transaction by their members is no big deal. Ironically, she is making this argument even as America wakes up to the danger of Facebook controlling so much of our personal information. People don’t trust the IRS any more than they trust Mark Zuckerberg, although it might be close at this point. 

Yellen’s continued advocacy underscores that we have to continue to tell anyone that will listen that intrusive transaction reporting is a bad idea.

I will be back on Tuesday.  Enjoy your long weekend. This year’s World Series prediction, which has been certified as acceptable Secondary Capital by the NCUA, is the Milwaukee Brewers against the Houston Astros, with the Brewers winning in a seven game classic.

October 7, 2021 at 9:55 am Leave a comment

What To Do When Your Employee Requests A Religious Accommodation

There are three things I know for certain this morning: One is that I will get more sleep with the Yankees not in the playoffs (I have no idea why they have to start games so late).

Secondly, the Bronx Bombers will overpay for marquee talent in the off-season and be proclaimed World Series favorites by the baseball intelligentsia even though they have won only one World Series in the last 19 years.

Finally, your credit union will most likely have to decide how to respond to an employee who wants a workplace accommodation based on their religious beliefs. As much as I would like to continue my Yankee diatribe, I have a sneaking suspicion that the last topic has more relevance to your credit union day. Here is a quick primer designed to get you thinking about your own HR protocols.

First, under both state and federal law, employers are responsible for working with employees whose genuine and sincere religious beliefs conflict with their employment obligations. This means that if your credit union either mandates vaccinations or is ultimately mandated to make sure it’s employees are vaccinated, there may be employees who refuse to get vaccinated on religious grounds. 

What is a genuine and sincere religious belief? Suffice it to say that the courts are not comfortable with employers second guessing what constitutes a religious belief. In one recent case, a West Virginia coal miner successfully sued for religious discrimination after he resigned rather than use a hand scanner to check into work. He explained that hand scanners constituted the mark of the devil. In upholding his lawsuit the court explained that “it is not an employer’s place, nor a court’s place, to question the correctness or even the plausibility of an employee’s religious understandings.” [U.S. Equal Employment Opportunity Commission v. Consol Energy, Inc., 860 F.3d 131 (C.A.4 (W.Va.), 2017)]. On a practical level, this means that if you find yourself debating how religious the employee really is or debating doctrine you are going down the wrong path. You can, however, ask for a connection between the religious beliefs and refusal to get vaccinated. 

Assuming the employee has a genuine and sincere religious belief which conflicts with a vaccine mandate, are you required to accommodate the employee? Maybe, maybe not. Under both state and federal law an employer doesn’t have to accommodate an employee where doing so would constitute an “undue burden.” Under federal law, an undue burden has been defined as any accommodation that requires an employer to make any accommodation for an employee’s religion if doing so would pose more than a “de minimis” burden. Trans World Airlines, Inc. v. Hardison, 432 U.S. 63 (1977).

In contrast, New York has a much higher standard for employers claiming hardship under New York law [N.Y. Exec. Law § 296(10)(d)(1)]. An undue hardship means an accommodation requiring significant expense or difficulty including a significant interference with the safe or efficient operation of the workplace. What standard will ultimately be applied to your credit union may vary depending on the legal basis for a vaccine mandate. For now, keep in mind that as New York employers, your credit union may have to deal with a higher standard. 

So what does all this mean? It means that you are not going to categorically reject an employee’s request for religious accommodation. Instead, you are going to discuss the need for a religious accommodation and assuming that the requested accommodation is genuine and sincere you are going to develop a framework for accommodating employees when it is reasonable to do so and be prepared to explain to both the employee and the courts when you decide doing so constitutes an undue burden. You want to make sure that you treat all accommodations in as fair and equitable a way as possible given the need to run your credit union.

As you can see, these are tricky issues.  If you are confronted with a request, you are being penny wise and pound foolish if you don’t consult with your friendly neighborhood HR attorney.

On that note, Go Rays!

October 6, 2021 at 10:53 am Leave a comment

What The Postal Service Could Learn From Google

Even as the world was struggling to survive several hours yesterday untethered to social media, the postal system was making a big splash with news of a small pilot program which could be the first step in reintroducing postal banking. While the post office was dabbling with banking, Google was quietly announcing that it was pulling the plug on its plan announced two years ago to work with banks and credit unions to provide google bank accounts. The two announcements have more in common than you might think. The announcements also contain important warnings for the credit union industry as it tries to navigate an uncertain future.

An article in the American Prospect reported that four postal branches in Washington D.C, Baltimore, Falls Church, Virginia, and the Bronx, NY were now allowing individuals to convert business or payroll checks of $500 or less onto a single-use gift card for a $5.95 purchase fee. The announcement was lauded by, among others, New York Senator Kirsten Gillibrand, a prominent supporter of postal banking.

It’s easy to dismiss the proposal. After all, it’s somewhat laughable to think that a business which cannot cost-effectively provide its core service to the American public, even though it has enjoyed a virtual monopoly for much of the country’s existence, will find its niche in cost effectively providing banking services.

This is where Google comes in. Your faithful blogger continues to believe that today’s Fintechs are tomorrow’s banks but in pulling the plug on its banking project Google discovered what many other Fintech wunderkinds have also discovered; providing cost-effective consumer financial services in a heavily regulated, highly competitive financial system is not easy. It takes a level of skill and knowledge that you don’t learn simply by attending business school or delivering the mail.

Just as Fintechs think they can easily handle the banking part of things, there are those, predominantly in the progressive wing of the Democratic party, who think that banking is as easy as setting up a branch and allowing individuals with no training as tellers to cost effectively provide banking services in a way which protects union jobs.

Common sense and history tells you that this is simply not the case. Postal banking is not a radical new concept but an idea that has been seriously debated since the 1800’s. In fact, between 1911 and 1966 Americans could open up postal banking accounts and at its height an estimated 10% of deposits were held in the postal system. But, as banking options became more widely available, and federal insurance stabilized the banking system, the system was put out of its misery by President Johnson in 1966. While I don’t think we have much to fear from postal banking, I do think that the industry has to recognize that proposals such as these are the result of frustration among some policy makers that the financial system has not done enough to help people of modest means. We must do a better job of telling our story and making sure our elected officials realize that the way to increase financial inclusion is not to get the government more involved in banking but to allow credit unions to provide more services to a larger group of people.

October 5, 2021 at 9:35 am Leave a comment

Don’t forget to pay your illegal taxes

Time’s running a little short for yours truly today, but I couldn’t resist posting a blog about this column from De Jon Harris, Commissioner of the Small Business/Self Employed Examination of the IRS (that’s one heck of a title).  He reminds aspiring marijuana entrepreneurs that even businesses violating federal law must pay taxes.  Apparently the IRS is going to leave no stone unturned in its effort to help the Biden Administration gather $3.5 trillion for all its spending plans. 

Now, don’t get me wrong.  Everyone knows that it was his failure to pay taxes that landed Al Capone in Sing Sing.  But there is something truly bizarre about the IRS going all in on providing tax advice for an industry it openly concedes is illegal and as a result cannot take advantage of any of the traditional tax exemptions available to other small businesses.  The guidance is another example of how we are well past the time when the federal government should allow marijuana businesses to enter the mainstream.  As the Commissioner himself notes, “. . .these businesses are often cash intensive since many can’t use traditional banks to deposit their earnings. [the federal/state dichotomy] creates unique challenges for the IRS on how to support these new business owners and still promote tax compliance.”

Aside from its Alice in Wonderland aspects, the column has some practical utility.  For example, those credit unions considering taking the marijuana banking leap should assess the business’s tax compliance as part of its due diligence.  Credit unions should pay particularly close attention to beneficial owners.  As the Commissioner notes, a silent partner whose interest is not properly disclosed can bring down an otherwise legal marijuana business.  In addition, because these businesses are so cash intensive, proper CTR filing will always be an issue.

On that note, I hope to see some of you in cyberspace this morning as we kick off the first day of this year’s Legal and Compliance Conference.

September 28, 2021 at 10:01 am Leave a comment

Four Things You Need To Know To Start Your Credit Union Day

For the first time in a while, I am overflowing with news you need to know to start your credit union day. As long time readers know, what follows is a series of quick hits, any one of which would be worthy of its own blog on a quieter day.

Treasury Pushes For Expanded Reporting Responsibilities

Anyone who thought we were out of the woods after the House Ways and Means Committee approved a plan to pay for a $3.5 trillion spending package that did not include increased reporting requirements for banks and credit unions is mistaken. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig have written letters urging Congress to include the proposal in the final budget package.

With the caveat that there has been no language officially proposed, the idea under consideration would mandate that financial institutions report gross report flows of income in and out of accounts that exceed $600.

Clearly this would impose an onerous new mandate on credit unions and alienate more than a few members. Stay tuned for more information from the Association.

How Was Your Examination Service?

The NCUA announced yesterday that federal credit unions will be asked to submit a post examination survey that will be administered by the NCUAs Ombudsman’s office as part of a pilot program.

If you have fantasies about using the survey to vent after a rough examination, you will be disappointed. The letter explains that “examination disagreements or reports of waste, fraud, or abuse should not be reported through the survey response.” At the risk of being branded a heretic, the industry spends way too much time obsessing over the examination process.  After all, disagreements are inevitable and it’s actually a sign the system is working.

FHFA Makes It Easier To Finance Investment Property

The Federal Housing Finance Administration and Treasury announced that they were suspending certain agreements entered into this past January which placed caps on the number of investment property mortgages that Fannie Mae and Freddie Mac could purchase. This is the latest in a series of moves by the new leadership at the FHFA to use the GSEs to more aggressively provide aid for homebuyers.

Acting Director Thomson discussed the changes at NAFCUs Congressional Caucus. In a closely related development, the FHFA is also proposing changes to the capital requirements for the GSEs.

Let The Redistricting Games Begin

Yesterday marked the first formal step in the once-a-decade political blood sport that is redistricting. By the time the process is complete, the Legislature will have approved new Congressional and Legislative Districts that will shape the direction of politics and policy for decades to come. This morning’s Times Union is reporting that the bipartisan commission designed to propose the initial redistricting plan has instead proposed two separate plans. One supported by Republicans, the other by Democrats. It boldly predicted that a partisan stalemate looms in New York redistricting, which is tantamount to Claude Rains’ character Captain Renault claiming to be shocked that gambling is taking place in a casino. 

September 16, 2021 at 10:14 am Leave a comment

Key Week for CUs and Congress

This may be the week when we find out if the Democrats’ spending plan will come to fruition or is destined to be the legislative equivalent of Novak Djokovic’s attempt to achieve the Grand Slam: a historic undertaking which crashed and burned.  Either way, the outcome could have important practical implications for your credit union.

For weeks now the Democrats have been touting the benefits of a $3.5 trillion spending plan and a closely related $1.5 trillion package of infrastructure upgrades. Telling people how you plan to spend money is the fun part of legislating; explaining to constituents whom among them is going to pay for the spending spree is quite another matter. Massachusetts Congressman Richard Neal, who chairs the Ways and Means committee was refreshingly honest in explaining over the weekend that he was reluctant to get too specific about paying for the proposals before getting a sense of what legislation could pass. House Democrats only have a three seat majority and he certainly does not want to be the person who makes vulnerable Democrats support controversial legislation which does not become law. This task became even more complicated when Senator Joe Manchin of West Virginia doubled down on his opposition to the size of the Democrat spending plan.

Nevertheless, several papers are reporting this morning that the Congressman has released a four page outline of legislation to pay for the plan so we are likely to see more specifics in the coming days.

According to CUNA, one proposal under consideration would help the IRS collect more taxes by imposing increased reporting requirements on financial institutions. Specifically, the IRS form 1099-INT would be expanded to include a report on the gross inflows and outflows of accounts and increase scrutiny of cash transactions. At this point, nothing has been formally put in writing but the proposal certainly sounds like one that would impose extensive new mandates on credit unions of all shapes and sizes. Imagine how much fun it would be parsing through proposed regulations in this area. Stay tuned.

Another budget issue under review this week involves increased funding for community development financial institutions.

David Baumann is reporting that today the House Financial Services Committee will be marking up legislation that would provide $10 billion to CDFIs to build or preserve more than one hundred and seventy thousand affordable homes.

September 13, 2021 at 9:34 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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