Posts filed under ‘Federal Legislation’

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

Get Ready For A Bigger Tax Collection Role

The White House is planning on financial institutions to play an important role in helping to pay for the $1.9 trillion spending plan the President will unveil tonight. 

As explained by the Wall Street Journal, the Biden Administration is proposing increasing the IRS’s budget with the hope of taking in more tax revenue.  An important part of the plan is to expand the reporting obligations of financial institutions.  As explained in this fact sheet released by the White House.  “It would require financial institutions to report information on account flows so that earnings from investments and business activity are subject to reporting more like wages already are.”

Because I’m such a helpful fella, I provided this link to the IRS website just in case you are a little rusty about how backup withholding works.  Call me wacky, but if this plan goes through, it’s going to increase the incentives some people have to be less than truthful about their income. 

Of course this is just a proposal, but if history is any guide, a President’s initial budget proposals are among the most impactful and Congress will have to come up with ways of paying for all of this increased spending. 

Assembly To Hold Hearing On Remote Notarization

One of the initiatives being advocated for by the Association is to make remote notarization – the ability of notaries to certify documents in a virtual environment – a permanent part of New York State law.  An important step towards that goal will take place a week from Friday with the announcement that the Assembly Government Operations, Banks, Consumer Affairs and Protections and the Judiciary Committees will be holding a joint virtual hearing on the subject.  We will be following up with additional information in the coming days.

This Can’t Be Good…

According to a statement released by the CFPB yesterday, mortgage servicer Mr. Cooper made unauthorized withdrawals resulting in hundreds of thousands of consumer bank accounts being debited for multiples of their mortgage payments.  In a terse statement, the CFPB said it is taking immediate action to “understand and resolve the situation”.  This sounds like it is going to get worse before it gets better.  Brace yourself for the reactionary guidance that will undoubtedly be issued by financial regulators in the coming days.

On that note, enjoy your day.

April 28, 2021 at 9:35 am Leave a comment

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

Good news!  I just heard that Ted Lasso is coming back for another season starting July 23rd.  Nothing at all to do with your credit union day but I’m passing this on as a public service to those of you with Apple+ who want to watch an above average show that’s almost family friendly. 

House Passes SAFE Act, Again.

Yesterday the House Of Representatives passed legislation, supported by CUNA and NYCUA, permitting financial institutions to legally provide banking services to cannabis businesses as a matter of federal law in states such as New York where the sale and possession of marijuana is legal.  Similar legislation was passed last year only to die in the Senate.  It would appear that with 50 Democrats in the senate odds for Senate passage this time around have improved but this is by no means a sure thing.  The legislation may get caught up in a larger debate about criminal justice reform… stay tuned.

It’s a Watershed Moment For CDFIs

 That is the gist of this American Banker article which points out that recent months have seen a dramatic increase in funding for CDFIs.  Once again your credit union should at least take a look at whether or not it qualifies for a CDFI designation and if it does it should consider the costs and benefits of getting and maintaining this designation.

CFPB Issues Emergency Rule To Block COVID Related Evictions

Yesterday the CFPB issued an interim regulation mandating that debt collectors provide tenants information about the CDC’s eviction moratorium which bans tenants from being evicted while COVID emergency orders remain in effect.  The CFPB is taking this step out of concern that “…consumers are not aware of their protections under the CDC Order’s eviction moratorium and that FDCPA-covered debt collectors may be engaging in eviction-related conduct that violates the FDCPA.” 

I’m sure a few of my Compliance hotshots are squirming right now because they know that the Fair Debt Collection Practices Act and its accompanying Regulation F does not apply to employees of creditors provided that they are collecting on a loan they originated or that was not delinquent at the time it was purchased (15 USCA § 1692a).  But I think you are well advised to track developments in this area particularly if your credit union provides credit to commercial landlords. 

Enjoy your day folks.

April 21, 2021 at 9:47 am Leave a comment

Are You In Compliance With The Durbin Amendment?

For an industry of debit card issuers the Durbin amendment is like a bad back; you can learn to live with it but there is always enough chronic pain to remind you that there is something a little off. So it is that once again the Amendment is back in the news and once again large debit card issuers and Visa are in the crosshairs of merchants and the Department of Justice: Here is why.

The Durbin amendment had two major components: First, it capped the interchange fees that financial institutions with $10B or more in assets could charge the merchants; secondly it required that all debit card issuers give merchants the ability to process payments through two unaffiliated networks (e.g. Visa and NYCE).  

The problem is that the system was designed in the ancient times of a decade ago when only futurists were talking about online shopping doing away with retail.  PIN based authentication to trigger Point-Of-Sale transactions has long been an industry standard.  However, PIN based authorization is of course not an option for the wine sipping, sweatpants wearing consumer buying toiletries online on a Friday night.  Networks such as NYCE can now process such transactions but critics argue that large issuers and the Visa networks have been slow to turn on these updated systems.  As explained in this blog “…there is a fundamental issue with Bank Identification Number (BIN) enablement, preventing the growth of PINless. In a nutshell, many issuers are not switching on PINless functionality when they issue bank cards, which means merchants are unable to use it for a large proportion of transactions. In our experience, a merchant is unlikely to be able to use PINless more than 50% of the time.”

Not surprisingly, this complaint has gotten the attention of Senator Durbin and Congressman Welch  who wrote this letter to the Federal Reserve urging it to take a look at whether large issuers and Visa are violating Durbin.

Of course, the Durbin amendment is only relevant to the extent that a transaction involves a debit card.  There are now FinTechs that specialize in scraping up a consumer’s financial information—with their permission— and allowing them to quickly provide this information to a wide range of businesses such as financial planners.  One of the leading companies in this area is Plaid.  Plaid has an ingenious business model in which it will allow consumers to replace debit card transactions with ACH payments.  It has a growing network of merchants who are willing to accept the occasional ACH transaction from individual consumers.  Suffice it to say, ACH transactions are a lot cheaper for merchants than are interchange fees.  Visa decided it was worth buying Plaid for $5B.  DOJ moved to block the deal and with the case on the verge of going to trial last summer, Visa and Plaid decided it was best to leave each other at the altar. 

The scrutiny is increasing.  The WSJ was one of several papers reporting on Friday that Visa is being investigated over its debit card practices.  With Senate democrats in control of hearing agendas, brace yourself for another round of payment processing investigations as merchants once again claim to be victimized by the debit card processing system.   Cue the violins.

March 22, 2021 at 10:00 am Leave a comment

There’s a New Old Sheriff in Town

In its latest step to underscore just how aggressively it intends to regulate consumer banking and products, the CFPB issued a statement rescinding an order issued by the CFPB in the waning days of the Trump administration which critics argued limited its ability to sue companies for abusive practices.  Normally, there is nothing noteworthy about an agency’s new leadership rescinding regulations put in place by an agency led by a different party, but the CFPB’s action impacts how it is going to use one of its biggest weapons in its regulatory arsenal. 

12 USCA § 5536 gives the CFPB its key civil enforcement powers.  Under the Dodd-Frank Act, it is unlawful for entities subject to CFPB’s jurisdiction

  • to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law; or
  • to engage in any unfair, deceptive, or abusive act or practice;

State laws had long given attorneys generals, and in states like New York, private parties the right to sue financial service providers for engaging in Unfair and Deceptive Acts and Practices (UDAP).  In addition, the Federal Trade Commission has had the right to exercise similar powers for decades.  This traditional language wasn’t enough for Congress.  So when it drafted subdivision B, it added abusive to the list of potential wrongs. 

As readers of this blog know, every word matters and in extending the traditional UDAP powers to include abusive conduct, many a lawyer, and the occasional law professor were perplexed.  In fact, several lawsuits challenge the new standard as so vague that it did not give people adequate notice of what constituted illegal conduct.  The Bureau has beaten back these challenges [CFPB v. All Am. Check Cashing, Inc., No. 16-cv-356, 2018 WL 9812125, at *3 (S.D. Miss. Mar. 21, 2018)].  Since 2011 it has brought 32 enforcement actions that have had an abusiveness and unfairness claim but only two of those were predicated solely on abusiveness.

With these statistics in mind, reasonable people asked if an abusiveness standard could really be distinguished from an act which is deceptive and unfair? After all, in testimony before Congress Director Richard Cordray explained “[W]e have determined that [the definition of ‘abusive’] is going to have to be a fact and circumstances issue; it is not something we are likely to be able to define in the abstract. Probably not useful to try to define a term like that in the abstract.”  While I admire the director’s honesty, this is hardly the type of statement that companies investing millions of dollars in complying with a new set of highly nuanced regulations wants to hear. 

Which brings us to the reason for today’s blog.  As one of her last acts, Director Kathy Kraninger issued a policy statement explaining that the bureau had to do a better job of explaining when conduct was abusive.  The statement explained that it would also not penalize good faith attempts to comply with the standard and most importantly would not use abusiveness as the sole criteria for a civil action. 

In repealing this statement, the bureau announced yet again that like Reggie Hammond in the classic movie 48 Hours, there’s a new sheriff in town.  He’s not going to unilaterally take any of his enforcement powers off the table. 

“In particular, the policy of declining to seek certain types of monetary relief for abusive acts or 10 85 FR at 6735-36. 11 12 U.S.C. 5511(b)(2). 5 practices—specifically civil money penalties and disgorgement—is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund. Likewise, adhering to a policy that disfavors citing or alleging conduct as abusive when that conduct is also unfair or deceptive is contrary” to Congressional intent. 

Suffice it to say, regulation by enforcement is back with a vengeance.  Make sure you pay attention to the Bureau’s enforcement actions and the legal rationale underpinning their decisions. 

March 17, 2021 at 10:29 am Leave a comment

Does Your Deposit Agreement Contain an Arbitration Clause?

If your answer to that question is no, then my next question is why not?  Let’s face it, the world is changing.  Members are more willing to sue you than they were just 15 years ago; more lawyers have become skilled at cost effectively bringing class action lawsuits over alleged violations of consumer banking orders; and, as credit unions grow, they also become bigger litigation targets.

In many ways, now is an ideal time to be considering the issue.  The law now firmly establishes the right of credit unions and banks to include arbitration provisions in their account agreements.  For instance, just last week a court upheld the legality of a credit union’s amendment to its deposit agreement stipulating that members agree to arbitrate disputes arising under the agreement and to waive participation in class action lawsuits.  The credit union’s victory reflects increasingly settled law in this area.  I just popped in the words arbitration agreement/class action/credit union into Westlaw and it came back with 85 cases, many of which have been decided within the past year.  Secondly, a rule promulgated by the CFPB banning class action arbitration charges was repealed by Congress and President Trump, albeit after a 50-50 vote in the Senate.

Equally as important, the Supreme Court has made it quite clear that state courts have very narrow grounds upon which to invalidate arbitration clauses.  “Simply put, even though contract law is governed by state law, the Federal Arbitration Act demonstrates a strong federal commitment to ensuring that individuals have the right to arbitrate disagreements.” DIRECTV, Inc. v Imburgia, 577 US 47, 136 S Ct 463, 193 L Ed 2d 365 [2015]

Those of you who decide to go forward with these clauses shouldn’t just run a Google search and cut and paste language into your agreement.  Many arbitration clauses give your members a certain number of days to opt out of the class action ban and always clearly explain precisely what these agreements do.  Otherwise, you are engaging in precisely the type of activity which the courts will find the contracts unenforceable. 

Last, but not least, arbitration agreements and account agreements are only valid to the extent that members were given adequate notice of the language.  Your attorney should review cases in which courts found that members received adequate notice.  One more thought, some credit unions are reluctant to incorporate arbitration agreements because it just doesn’t seem like a credit union-y thing to do (hey, I just invented an adjective).  But remember, suing the credit union isn’t a particularly credit union-y thing to do, either, but with potentially millions of dollars at stake, there are going to be plenty of members willing to do so on issues ranging from NSF fees to overdraft disclosures.  Why wouldn’t you take basic steps to cut them off at the pass?

March 15, 2021 at 8:57 am Leave a comment

Older Posts Newer Posts

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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

Join 741 other followers