Posts filed under ‘General’

America’s Bad Dream

bad-dream-650x650I have a nagging suspicion lately that I am actually in a weird and wacky dream. I keep on waiting to wake up, only to realize that, yes; things really have gotten this bizarre.

This morning’s headlines provided me with another jolting reality check.

For example, there is no country in the world that has benefited more from free trade, but even though we have just had an election, the best defense of free trade I have heard in the last several years comes from no other than the leader of communist China. He gave the type of full- throated defense of open markets that Democratic candidates are only willing to give behind closed doors, speaking to Goldman Sachs Executives, and Republicans have forgotten as they continue to suffer from Trump induced ideological amnesia.

Speaking in Davos, Switzerland yesterday, Chinese President Xi  explained “Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend”.  Somebody pinch me. Is it true that advocates of free trade must now rely on China to provide the world a much needed dose of common sense?

Closer to home, democrats are continuing to warn President Elect Trump against firing CFPB Director, Richard Cordray. As I explain in this blog for CU Insight (shameless plug), this defense underscores, just how out of control the regulatory state has become.  Simply put, the executive powers outlined in the Constitution have been twisted beyond recognition, when elected officials defend the right of unelected Executive Officers to stay in office presumably to promulgate policies inconsistent with the views of the President.

As a very wise President once said “elections have consequences.” President Trump won and he made it quite clear in the election that he was against much of what the CFPB stood for.

Speaking of President Trump, according to CNN, only 40% of Americans approve of Trumps job performance so far, which is quite the accomplishment for Trump considering he hasn’t taken office yet.  For a slightly better poll result, WSJ reports 48% of the American public view him in a negative light.  That’s right, about half of Americans disapprove of the man they chose to be President.  This confirms, yet again, just how much people disliked Hilary Clinton, and how desperate people are to see change in America, no matter what form that change takes.

This last bit of news is by no means strange, just a little odd. Governor Cuomo released his budget proposal last evening. He trampled on tradition yet again; first he turned the State of the State Address in to a traveling road show, then he released his budget overview at 7:30 P.M. before legislators at the Governor’s mansion.  I missed the web broadcast. I will be spending part of my day performing an adult version of Where’s Waldo. Specifically, Michael and I will be looking over the budget to see what impact it may have on credit unions.  I will tell you what we find.

You may be wondering if any of these issued impact you. For economies to function well they need a stable political system. There are more questions about what America stands for and what policies it will pursue than at any time since the end of WWI. This continued uncertainty is sure to impact all of us. Financial institutions are, after all, Canaries in the Economic Coalmine.

Thanks for listening! Have a nice day!

January 18, 2017 at 9:46 am Leave a comment

fintechWhen it comes to financial innovation, the financial industry can either lead, follow or get blown away;  nevertheless Consumer groups are weighing in in opposition to   OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking services. Keeping in mind that the views I express in this blog are mine and mine alone, their reactionary opposition to the proposal envisions a world that does not exist and minimizes the important role technology can and ultimately will play in bringing services to the almost 20 percent of American’s who are underbanked.

In December, the OCC released a white paper outlining a framework for providing Special Purpose Charters to technology companies offering financial services. At this point we are dealing with a very general overview. The OCC contends that it can use its power to authorize special purpose banks to grant fintech charters to technology companies that want to offer core banking services, including, receiving deposits, paying checks or lending money. Depending on which one of these a company wants to take on, it may not even need deposit insurance.

Consumer groups and some legislators are concerned that this framework will permit payday lenders to offer their products even in states such as New York, where usury laws make payday loans illegal. In a recent letter signed by a large array of consumer groups including Arcade Credit Union, critics of this proposal argue that, as presently drafted “ the OCC , with the stroke of its pen, will put millions of people and years of state level enforcement at risk of exploitation by high cost lenders”. In addition, they argue that by giving these corporations a federal charter, state level enforcers, including AG’s will not have the ability to appropriately regulate their activities.

It is these types of well-intentioned but misguided arguments that drive me nuts about consumer groups. The world is not perfect. Even though there will undoubtedly be some companies that take advantage of a fintech charter to offer Payday Loans, this legitimate concern has to be weighed against the very real value of a more efficient banking system. For example, a fintech charter would make transactions cheaper by allowing corporations to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a branch. If our goal is to help as many people as possible get banking services, then technology is the way to do it.

Finally, and most importantly the ship is leaving with or without regulation. fintech charters make sense, if only because anyone under the age of 30 is much more likely to use a mobile banking app than a branch.

One more thing, some of the same groups that are arguing against the fintech charter are the same groups supporting the CFPB’s Payday Loan Proposal. It seems to me that they can’t have it both ways. Either state level regulation of Payday Lending is adequate, in which case there is no need for national standards, or state regulation of payday lending can already be circumvented by consumers in need of a short term loan. I strongly suspect the latter is closest to the truth. Why should a framework that doesn’t work be used to block financial innovation?

January 17, 2017 at 9:38 am Leave a comment

Is your job in jeopardy?

_85487012_robots_promoThe most interesting bit of news I read this morning is about how quickly technology is going to eliminate your job.

On Thursday, McKinsey & Company released a report analyzing the future impact of automation on the global workforce. The report is unique in that it tries to assess the impact that technology will have on occupational tasks rather than entire occupations. Its conclusion is that “given currently demonstrated technologies, very few occupations-less than 5%- are candidates for full automation, however, almost every occupation has partial automation potential.” The result is that while you may not be replaced by a machine, you certainly will have to want to work with one, if you want to stay employed.  Just how big of change is taking place? Researchers estimate that half of the world’s occupations, representing $16 trillion in wages could be automated.

Automation may impact those of us in the financial services industry more quickly than other professions. For example, 51% of all work time is spent collecting data, processing data and operating machinery.  Needless to say, a lot of data processing and collection will happen at your credit union today. And although you may not deal with much heavy machinery, many of the tasks employees will take on today are the type of predictable and repetitive duties ideal for automation.

One more thing. If you think your professional status insulates you from automation’s impact guess again. Many tasks performed by professionals such as lawyers, including contract review and document preparation, can actually be performed by increasingly intelligent computers. “Dear God!”

The report optimistically predicts that, while technology will transform the workplace, it won’t do so at the speed or level of job displacement that some pundits suggest. For a more pessimistic view as to where this is all headed, read a book I have previously mentioned  called “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies .”  It argues that technological innovation is increasing exponentially. As a result, assumptions about what technology can and can’t do are short-sided. It wasn’t too long ago that people laughed at the idea of a fully automated car, but now the question is not if such technology will be available but when driverless cars will become as common as smart phones.  By the way, what is a smart phone?

January 13, 2017 at 9:24 am 1 comment

News Flash: FinCen Can’t Legalize Pot Banking

The effort to legalize marijuana on the federal level received a high level push in December when Massachusetts Senator Elizabeth Warren joined a group of senators in a letter to FinCEN. Her celebrity status has triggered another round of  media coverage;  After all, she is already being mentioned as a potential nominee for president with the next election only four years away and she likes to tweet which is  a core prerequisite for the office.

By joining the most recent letter writing campaign she has once again put the spotlight on the Alice in Wonderland world of legalized pot. It makes perfect sense for the senator to join the push for legalizing cannabis. In November, Massachusetts voters approved a referendum to legalize marijuana for recreational purposes. There are now 29 states, including New York, which legalize the possession of marijuana to some extent.

What drives me nuts is that Warren and her fellow senators once again chose to badger FinCEN to approve additional guidance clarifying that banks and credit unions can provide banking services to pot businesses in states in which they are legal. To be clear, I believe that the federal government should legalize the sale and distribution of marijuana in those states where it is legal. I also believe that banks and credit unions should be able to provide services to these legitimate businesses. The senators correctly point out that even though FinCEN issued a 2014 guidance detailing the conditions under which it would allow them to do so fewer than three percent of the nation’s banks and credit unions are willing to serve this industry.

However at the risk of being accused of banging my head against the wall, the way to get this accomplished is not to require more guidance from FinCEN. Federal law and regulation makes pot illegal and there is nothing that FinCEN can do to change that. it is not the DEA. Furthermore even if FinCEN could entice banks and credit unions to more actively engage in servicing this industry the reality is that the continued legal cloud over the industry raises a host of issues, over which FinCEN has no control,. These issues range from the enforceability of contracts to the legality of bankruptcy cases involving marijuana businesses.

It is time for all interested parties to confront the real issues once and for all.

January 5, 2017 at 10:00 am 3 comments

Six Things To Ponder Over The Holiday

Yours truly is going on vacation starting tomorrow.  I’m preparing for my feats of strength.  so I wanted to give you a list of things to ponder in the event you need a break from all the merriment.

Your lucky number is…   With a big assist from the inimitable Joan Lannon in our compliance department, I can now tell you that tucked away on the New York DFS website is  the total number of residential real property mortgages originated in New York in 2015. The number is 212,646.  As readers of this blog know, under the zombie property regulations, credit unions will use this number to find out whether they originated or serviced less than 3/10 of 1% of the total loans in the state during the calendar year of 2015. (This equates to 636 mortgages, but please do the calculations for your credit union).   If your credit union did less than 636 in 2015, you are exempt from the property maintenance requirements of the regulation. You are not exempt from the obligation to report abandoned property to the state.

Are you ready for global warming? One of the goals of the Biggert-Waters Act was to introduce more private sector involvement into the federal flood insurance system.  Comments are due on January 6 on a joint agency proposal which explains when “private flood insurance,’’ will satisfy federal flood insurance requirements.  Since it is the lender who will be responsible for deciding if the borrower’s insurance is adequate, this is one to take a look at.

Cyber Security Regulations: A work in progress? Speaking of regulations, New York’s Department of Financial Services is still considering how best to implement its “first in the nation” cybersecurity regulations.  Even if you are not from New York or you are a federal charter these are important to you.  They will provide a template for other states that decide they can’t wait for the federal government to get its act together on this issue.  We may seem some changes proposed, perhaps as early as next week.

UPDATE A friend, neighbor and blog reader just passed along this article indicating that the implementation of the regulation will be delayed.

How much is a pay raise worth? The last time the Legislature got a pay raise Governor Pataki got the legislature to approve charter schools. Everybody wants a pay raise before the end of the 2015-16 legislative Session. So with a week left in the year there is plenty of speculation about what, if anything, will be agreed to that would get legislators back in town next week. Stay tuned.

Eight is enough:  Yesterday, both the Association and CUNA filed briefs with the U.S. Supreme Court in the Expressions Hair Design case.  The case involves an appeal of a ruling by the Court of Appeals for the Second Circuit upholding Section 518 of the General Business Law.  This law makes it illegal for merchants to charge more than the headline price for credit card purchases.  Arguments are scheduled for January 10th.

Mama mia! Although some of us apparently believe in the fantasy of Fortress America, reality has a nasty way of intruding. International events impact your credit union’s bottom line. One of the biggest potential obstacles to growth in 2017 could be the Italian banking system, in particular, and the European banking industry, in general.  Just a few hours ago the Italian Government approved a bailout of its oldest bank.  In a worse-case scenario, Italy’s banking problems spread over Europe as politicians, spooked by the rise of nationalist parties, are unable to agree on a continent-wide response.

I will be back next year with my batteries recharged and one of the most fascinating periods of American history about to start. Until then, I’m signing off. Happy holidays and thanks for reading.


December 22, 2016 at 9:48 am 1 comment

Failed NY Credit Union Fined For BSA violations

Good Morning from the great Northeast where the only things lower than the temperature are Chris Christie’s poll numbers. Suffice it to say that this is one of those  day that makes those of us who don’t ski or skate wonder why the heck we live here.

I can feel my fingers now so it’s on with the blog.

Yesterday FinCen imposed a $500,000 fine against Bethex Federal Credit Union for “significant violations of anti-money laundering (AML) regulations.” This is an understatement.

The fine is a reminder of the dangers of working with Money Service Businesses. Mishandled programs pose real risks. After all,  Bethex no longer exists.

Bethex was a low-income credit union in NYC that did some really great work in the community.  Starting in 2011, however, it began servicing MSBs. (Businesses such as check cashers and money transmitters).  By 2012 it had established relationships with over 70 money transmitters and check cashing companies. Its transaction volume increased from $657 million in  2010, all of which were domestic, to over $4 billion in domestic and international transactions processed in 2012.

Of course, credit unions can and do service these businesses provided they are within their fields of membership. But, as NCUA has correctly warned, these relationships pose heightened compliance risks of which credit unions have to be aware and account for.

Remember that MSB’s are transferring cash funds for customers who may not have any relationship to your field of membership For example, according to FINCen many of the MSBs the credit union worked with were located in high-risk jurisdictions outside New York and engaged in high-risk activity, including wiring millions of dollars per month to foreign jurisdictions at risk for money laundering.

It’s incumbent on credit unions that service these businesses to have adequate oversight in place to make sure that MSBs are performing customer due diligence before transferring large amounts of cash. Bethex farmed out oversight to third-party vendors and  failed to improve its BSA program  despite being repeatedly  put on notice by NCUA to do so.  The result was that the credit union grew fast but it participated in money transfers to over thirty countries without basic BSA controls.

Don’t be surprised to see your examiners taking a hard look at vendor relationships in general and any MSB relationships in particular. Just make sure that you can show you understand how to construct and implement a BSA compliance program that is adequate to  account for the risks to which the your credit union is exposed. Remember, too, that  third-party vendors don’t relieve you of the ultimate responsibility to know what you are doing.

I know all of this is much easier said than done. The bottom line for me is that is that not all credit unions or banks for that matter should be working with MSB’s. I know the transaction growth can be tempting but at the end of the day a mishandled MSB relationship just isn’t worth it.

December 16, 2016 at 9:37 am 1 comment

Three Things You Should Know This Morning

Yet Another Huge Data Breach.

The Company whose name stands for “Yet Another Hierarchical Officious Oracle” yesterday announced that it has discovered yet another huge data breach.

“Yahoo believes an unauthorized third party, in August 2013, stole data associated with more than one billion user accounts. The company has not been able to identify the intrusion associated with this theft. Yahoo believes this incident is likely distinct from the incident the company disclosed on September 22, 2016” in which a mere 500 million accounts were compromised.“ That’s billion with a B.

Yahoo’s problems underscore yet again why it makes little sense for regulators to pose one set of cyber security standards on financial institutions and another set of lower standards on everyone else. The information pilfered from Yahoo such as passwords, is  ideal for individuals mining for information that can be used to commit identity theft.

The Fed Raises Rates

Just about a year after it raised rates for the first time in a decade, the Federal Reserve Board’s Open Market Committee unanimously voted to   raise the federal funds rate  from a range of 0.25 to 0.5 percent to a range of 0.5 to 0.75 percent. The conventional wisdom is that we can expect additional increases in the coming year which is probably true, but it was conventional wisdom to anticipate multiple rate hikes during 2016.


Following suggestions from the NCUA that credit unions should expect share insurance premiums of between 3 and 6 basis points next year, our good friends at CUNA released an excellent white paper explaining why such a move is unnecessary given the current condition of the industry and the fact that reforms scaling back the size of the corporate system have all but eliminated systemic risk to the fund.

“In light of NCUA’s past successful management of the NCUSIF equity ratio, the prospect of a premium in 2017 is out of character. At the end of September 2016, the Fund’s equity ratio stood at 1.27% of insured shares, up slightly from 1.26% at yearend 2015, but down from 1.29% in 2014.The recent marginal decline in the equity ratio has been caused by healthy growth of insured shares coupled with low earnings resulting from an extended period of very low interest rates. Insurance losses have not been the culprit. In fact, insurance losses have been negative, as excess reserves for losses, expensed during the financial crisis, have been reversed. That process is now about over, removing a positive contributor to net income.”


December 15, 2016 at 8:51 am Leave a comment

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Authored By:

Henry Meier, Esq., 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.

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