Posts filed under ‘Federal Legislation’

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

What FDA’s Vaccination Approval Means For Your Credit Union

The announcement yesterday that the FDA has given final approval to the Pfizer COVID-19 vaccine puts employers at the center of the debate about how to respond to the continuing COVID-19 health crisis.

The FDA’s decision provides further clarity regarding the rights of employers to mandate that employees get vaccinated as a condition of employment. Before yesterday’s announcement, vaccination opponents had argued, without legal success, that the emergency process used to initially approve the COVID-19 vaccine meant that individuals could not be forced to get vaccinated as a matter of federal law.

Now that argument is irrelevant. Within minutes of the announcement several employers announced that vaccinations would now be mandatory for their employees. Federal guidance already authorizes vaccine mandates and the Supreme Court ruled more than 100 years ago that there is no constitutional right not to be vaccinated. The vaccine announcement also comes at a unique time for employers in New York State. We have a new Governor and in recent weeks the state has largely avoided imposing new statewide mandates. Once again, this means that as employers you have more flexibility than ever before.

Now don’t get me wrong, just because you can legally do something doesn’t mean it’s a smart thing to do. The goal should be to maximize the number of employees who are safe and vaccinated. Whether this goal is best accomplished with a carrot instead of a stick is a case-by-case decision. But now that the legalities have been dealt with, policies should be clarified. Time to get that HR attorney back on the phone.

August 24, 2021 at 9:21 am 1 comment

How A Federal Interest Rate Cap Would Impact Your Credit Union

There is no statute which provides a better example of legislative mission creep than the Military Lending Act. It was originally passed in 2007 to cap the interest rates that could be charged to high cost payday loans, vehicle title loans, and refund anticipation loans involving members of the military and their family members.

In 2016 its regulations were extended to include most consumer loan products including credit cards. Crucially, these regulations were coupled with a new Military Annual Percentage Rate (MAPR) which capped interest rates on these loans at 36%.

Now, to the surprise of absolutely no one, Senator Sherodd Brown of Ohio is championing legislation which would extend the protections afforded by this legislation to the American public writ large by giving America a 36% MAPR interest rate. Earlier this week, the Senator used NCUA Chairman Todd Harper’s appearance before the Committee to underscore the fact that credit unions function just fine with a 36% cap and even have statutory authority to offer Payday Alternative Loans, albeit with a 28% interest rate.

As the debate unfolds, a few facts are being overlooked. Most importantly, the 36% MAPR is not the same (see appendix in link) as a 36% interest rate calculated under the Truth and Lending Act and regulation Z. For example, the MAPR includes credit insurance premiums and credit related ancillary products. In contrast, such charges are generally not considered finance charges under regulation Z provided certain conditions are met.

These and other differences may not result in dramatic calculation differences but if imposed across the board they would raise a new host of compliance requirements. The last thing we need is thousands of pages of additional consumer lending regulations.

I would love to live in a world where short term loans would not have to be provided. But the evidence is overwhelming that there is a pressing and real demand for these loans. After all, more than half of Americans don’t have savings to cover even moderately expensive financial surprises. To supporters of this legislation, this is evidence of why reasonable caps should be imposed so that desperate borrowers aren’t held up by legal loan sharks.

Conversely, it is awfully tough to make a profit on short-term small dollar loans, unless your business is specifically designed to do so, which is why a whole industry has sprouted up to meet this demand.  While it’s true that credit unions can provide short term loans, according to the preamble accompanying proposed changes to the PAL regulations in 2018, less than 45% of FCUs choose to do so. The reality is, that despite the demand for short term loans it is extremely difficult for financial institutions to cost effectively provide short term loans that are attractive to the people who need them.

Count me in the group of crusty cynics who believe that capping interest rates will simply make short term loans more difficult to get and result in a larger, underground economy.  This is yet another example of an appealingly simplistic solution to a highly complicated problem.

August 6, 2021 at 9:09 am Leave a comment

FinCEN’s Bad BSA Idea and Why It Matters to Your Credit Union

Nudged on by congress, FinCEN has announced that it is moving ahead with plans to establish a framework that would effectively allow it to provide preclearance to corporations and financial institutions subject to Bank Secrecy Act oversight. This is a lousy idea that could negatively impact your credit union, here’s why:

No-action letters are generally letters issued by regulators which review a regulated entity’s proposed actions and determine whether or not they would comply with applicable regulations. For example, the CFPB has issued no-action letters detailing how certain financial products can be offered in compliance with federal regulations. Under the anti-money laundering law passed by congress last year FinCEN was ordered to assess whether it should implement a no-action letter process in which it would state whether or not FinCEN or any relevant functional regulator intends to take enforcement action based on the specified activity. Ostensibly, this could create a streamline process for providing regulatory guidance. In fact, it would do just the opposite.

Most importantly, your credit union is subject to BSA compliance oversight not just from FinCEN but from the NCUA and in the case of New York State chartered institutions, New York State’s Department Of Financial Services. A no-action letter issued by FinCEN would have no binding effect on NCUA or, by implication, the actions of your credit union. As FinCEN notes in its report, currently there is not a single example of a no-action letter which is binding on multiple agencies. As a result, in a best case scenario, no-action letters will simply provide potential precedents to banks and credit unions seeking to take different approaches to BSA compliance.

Why is this such a bad thing, Henry? After all, doesn’t FinCEN issue interpretive letters all the time? Because a no-action letter would give a green light to the company that receives its blessing. On a practical level what this process will do is give some entities a BSA compliance advantage over others. For instance, I can already see lawyers for FinTech charters explaining why they need not comply with BSA requirements to the same extent as their brick-and-mortar counterparts.

In short, if FinCEN goes forward and starts issuing no-action letters it will create greater compliance confusion for the vast majority of regulators and regulated entities while providing a get out of jail free card for a relative handful of corporations which are most likely already going to have numerous advantages over traditional credit unions, and banks for that matter.

If congress really wants to lessen the BSA compliance burden it would have to amend the law to clarify that no-action letters are binding on all agencies that share in BSA compliance. Good luck getting that passed. Of course, congress could take an even bigger look at existing law and categorically exempt small to medium-sized financial institutions from many BSA requirements. This makes sense but I’m not holding my breath.

July 14, 2021 at 9:53 am Leave a comment

Why This Week is an Important One For Your Credit Union

This is not your average July week, especially for those credit unions located in the great state of New York.

July 15th is the target date for eligible members to start receiving child tax credits under the American Rescue Plan (ARP). That means that your credit union may already see federal government ACH payments being sent to your member’s accounts. This also means that your credit union has to decide both operationally and on a policy level how it is going to handle these payments.

In March, President Biden signed the American Rescue Plan. The Act increased the child tax credit from $2,000 to 3,000 and raised the age limit from 16 to 17. This year the tax credits will come in the form of advance monthly payments. Unlike the previous round of stimulus funding, Congress passed this measure using budget reconciliation and could not exempt these funds from Levy and restraint as a matter of federal law.

In March, New York State passed a law (S5923-A) that exempted federal stimulus check payments as well as tax refunds, recovery rebates, refundable tax credits, and any advances of tax credits for under the ARP from Levy and restraint under NYS law. The law does not protect child support payments. The language is intentionally written broad enough to include the tax credits that some of your members are going to begin to receive this week. In addition, the law prohibits state chartered financial institutions from the right of set off against these funds.

Against this backdrop, neither federal nor state credit unions have the legal authority to Levi or restrain these funds on behalf of third parties. In addition, state chartered credit unions don’t have the authority to set off these funds to satisfy delinquencies. Since federal credit unions have explicit authority under federal law to exercise a right of set off then they can set off these funds. Whether it’s smart to do so is an entirely different question.

The anticipated payments also underscore NACHA’s concern with the availability of payments under its existing rules. As I explained in this recent blog, financial institutions frequently receive ACH credits days before the sending entity wants the credits posted for payments. Right now, however, there are no penalties imposed against receiving institutions which make money immediately available to account holders. Later this week comments are due to NACHA about whether or not the existing regulations should be changed. The association would love to get your feedback on this issue.  

July 12, 2021 at 9:56 am Leave a comment

HUD Proposes Reinstating Disparate Impact Rule

On Friday the Department of Housing and Urban Development (HUD) announced that it was proposing regulations to reinstate an Obama era regulation scuttled by the Trump Administration which was designed to outline what had to be proven by individuals claiming a violation of the Fair Housing Act which prohibits discrimination on the basis of race, color, sex, and other protected classifications. Given the level of political discourse in this country, I suspect there will be a great deal of emotional debate. Here is a primer on the actual issues involved:

The core issue is how expansive HUD’s authority is to interpret the FHA and the regulation being debated is 24 CFR 100.500 which outlines how disparate impact in the provision of housing can be proven. Behind this ostensibly esoteric announcement lurks one of the most emotional and important debates that the nation will be having in the coming years; one that I suspect will only grow more intense: how much proof should be required to prove housing discrimination and should intent matter where policies have the effect of discriminating against someone on the basis of race?

In 2013, HUD issued regulations designed to “implement the Fair Housing Act’s discriminatory effect standards” (78 FED. REG. 11460. 2013). Even the title was loaded. At the time some lawyers argued that disparate impact analysis was not even authorized under the FHA.  In 2015, this issue was addressed by the Supreme Court in Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project. The Supreme Court ruled that it was within HUD’s authority to promulgate a disparate impact standard but the issue was still not settled. Ultimately, the Trump administration repealed these regulations and replaced them with a new standard that made it more difficult for plaintiffs to win (see 85 FR60288-01, 2020).

It was back to the courts again. A district court ruled that these regulations clearly made it more difficult for plaintiffs to prove discriminatory impact.  For example, these regulations required plaintiffs to “sufficiently plead facts” to support.  “[T]hat the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective such as a practical business, profit, policy consideration, or requirement of law.” Massachusetts Fair Housing Center v. United States Department of Housing and Urban Development. In this decision, the federal district court in Massachusetts issued an injunction against the Trump era regulations.  Today you can still read these regulations, but they exist in a regulatory twilight zone with no one quite sure of what the legal standard is. 

There is undoubtedly more to come as the issues being debated ping pong between regulators and the courts. This is yet another issue that our system needs congress to resolve and its inability or unwillingness to do so creates a vacuum which leaves financial institutions unsure of what they can and cannot do.  

July 7, 2021 at 10:40 am Leave a comment

New Requirements Finalized for Delinquent COVID-19 Homeowners

Hello Folks,

For those of you who do mortgage lending, your summer just got a little busier.  The CFPB has issued highly nuanced amendments to its existing regulations dealing with delinquent borrowers that have to be in place by August 31st.

For months the CFPB has expressed concern that as federal and state laws protecting individuals from foreclosure end, there will be a huge increase in foreclosures that will disproportionately impact minority communities. As originally proposed, the regulations put forward by the CFPB would have had the practical effect of preventing most foreclosures through the end of this year. These final regulations don’t go that far but they impose nuanced amendments for dealing with homeowners impacted by Covid-19 which your policies and procedures will have to reflect. Remember every box you don’t check off represents one more potential delay in a foreclosure.

I will be getting into the weeds in future blogs, but for now, among the most important things to keep in mind is that the regulations implement a streamline loan modification process under which mortgages that meet certain conditions can be evaluated for potential modifications by a servicer who has not received a completed application. Additionally, the regulations prescribe specific information which must be provided to delinquent borrowers. For instance, a servicer must inform a borrower that there are programs for individuals having difficulty making payments because of the Covid-19 emergency; list and describe the applicable programs and tell the borrower of at least one way they can find contact information for homeownership counseling services.

There is much more but for now, I want to make sure you start delving into this regulation if you haven’t done so already.

It’s Back!

New York Congresswoman Carolyn Maloney kicked off the holiday weekend by introducing the “Overdraft Protection Act of 2021.” If enacted, the bill would restrict overdraft fees by, among other things, requiring that such fees be “reasonable and proportional” to the cost of processing these transactions and limiting the number of overdraft fees that can be imposed on any one consumer. Expect an even bigger push to get the legislation done this year.

July 6, 2021 at 9:45 am 2 comments

Joint Agency Guidance Highlights BSA/AML Priorities

Good morning folks, on Wednesday, federal and state regulators, including the NCUA, took the first step to implement federal law intended to streamline the BSA framework for financial institutions when they issued a list of priorities to consider when monitoring financial activity. 

Last year’s defense authorization bill (H. R. 6395—1162) contained a provision intended to make the federal government better prioritize areas of BSA enforcement and better coordinate the activities of state and federal regulators and financial institutions.  The priorities announced yesterday are the first step in this process, the next step is for FinCEN to translate these priorities into specific regulations, nevertheless, in a joint statement the regulators explained that “in preparation for any new requirements when those final rules are published, banks may wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based BSA compliance programs, such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.”

The list includes general categories such as countering corruption and terrorist financing, it also addresses more specific concerns such as cyber currencies and human trafficking.

Maybe I am getting jaded but as I review FinCEN announcements, I can’t help but think it’s foolish to impose the same regulatory framework on a $50 million credit union with a defined Field of Membership as Bank of America.  Hopefully this can be the first step in promulgating rules which make common sense distinctions between international money lenders and community based institutions.

Enjoy your 4th of July weekend.  For you Giants fans, remember, don’t do a JPP as you set off the fireworks. 

July 2, 2021 at 9:42 am Leave a comment

Juneteenth Creates Compliance Glitch For Mortgage Lenders

The passage of legislation making Juneteenth a national holiday resulted in a compliance glitch which the CFPB could, and hopefully will, fix as early as today.

This issue sent me back to the preamble to the 2013 final TRID regulations. As the CFPB explained, neither RESPA nor TILA defines the term “business day.” As a result, for reasons that have never been clear to me, Regulation X which implements RESPA and Regulation Z which implements TILA contain separate definitions of a business day.

Most importantly, Regulation Z applies a definition of business days which includes calendar days except Sunday and legal public holidays specified in § 5 USC 6103. This is the section of law amended by Congress last week. As a result, from a strict compliance standpoint, June 19th was a national holiday and not a business day for disclosure purposes. This means that your credit union runs the risk of making loans that are out of compliance with federal regulations.

Yours truly is hopeful that common sense will prevail. Hopefully the CFPB will issue guidance clarifying that for purposes of complying with federal regulations. Lenders will not be deemed to be out of compliance for counting Juneteenth as a business day in 2021.

NY to Release Diversity and Inclusion Document to State Regulated Institutions

The Department of Financial Services will shortly release a memorandum to state chartered institutions explaining the department’s expectations as it relates to diversity and inclusion in the workplace. This publication is similar to one issued last October related to climate change initiatives. Its purpose is not to impose specific mandates at this time but to begin a discussion about the requirements that should be imposed on banks, credit unions, and mortgage lenders. When it comes to the efforts they are making to bring more diversity to middle and upper management. Stay tuned.

June 21, 2021 at 9:33 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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