Posts filed under ‘General’

Goodbye, Good Luck, and Good Riddance

Image result for Richard CordrayYesterday, Richard Cordray, the benign dictator of consumer finance, announced that he is resigning at the end of the month. There are few industries that have as much to gain and as little to lose from his departure as do credit unions.

It didn’t have to be this way. I’ve been looking back at my old blogs and when I first started listening to Mr. Cordray, I heard a man who understood that credit unions didn’t engage in the shenanigans which lead directly to the great recession and indirectly to the creation of the CFPB. Instead, we were the good guys whose policies and practices could be an example for the larger banking community. As he explained at his Senate confirmation hearing, “. . . one of the things that we absolutely will not do at the bureau, at least under my leadership, is to impose further burdens on the community banks and credit unions. . . [that] have different constraints, have different abilities to comply with excessive regulation and that’s something we will not do on my watch.  We can exempt them, we can have a two-tiered system and we can listen closely to their concerns, which I will do.”

But his rhetoric has become increasingly hollow. Rather than using the power given to him under Dodd Frank to exclude almost all credit unions from many of its mandates, he and his troops of self-styled pseudo-technocrats contented themselves with subtle distinctions which made it difficult for many credit unions to figure out precisely what they had to comply with and penalized credit unions that had the audacity to grow.

When credit unions correctly pointed out that Dodd Frank empowered the Bureau to more aggressively exempt them, they were met with increasingly condescending responses from the former Supreme Court Clerk and Jeopardy champion. He actually told a room full of industry representatives that it was time for them to “drink the coffee” and realize that the Bureau was their friend.

The problem is, with friends like this we don’t need enemies. With a new Director, we can once again make our case; simply put, if we aren’t part of the problem then we shouldn’t be subject to regulations designed to deter the larger lenders who’s activities pose the greatest potential threat to consumers.

Then there is the larger issue of how the CFPB sees itself. It loves to describe itself as a data driven regulator for the 21st Century. In fact, it is no more or less than a hugely powerful regulator, which has cherry picked data to reach predetermined outcomes. If you think this is too harsh, take the time to read the Bureau’s report on arbitration clauses which conveniently downplays the costs of a class action system gone wild.

But in the end the problem is not Mr. Cordray, who strikes me as an earnest, intelligent, and hardworking guy with whom I vehemently disagree; it’s with the CFBP itself. Increasingly both Republicans and Democrats are circumventing the legislative process by using unelected regulators to gut laws they don’t like and implement policies Congress won’t support. The CFPB with its single Director and its exemption from the appropriations process is exhibit 1A of this disturbing and ultimately undemocratic trend.

In my dream world, Republicans and Democrats would use this pending interregnum to seriously discuss ways to make the Bureau more accountable by instituting a Board of Directors and scaling back the Bureau’s enforcement powers under UDAP. But in this increasingly partisan world in which compromise is viewed as treason, I know this won’t happen and that’s too bad.

 

November 16, 2017 at 9:22 am Leave a comment

Joint Tax Committee says Banks and CUs aren’t all that Different Anymore

I learned something new this morning as I skimmed a report by the Joint Committee on Taxation detailing the provisions of HR 1, the House Republican tax legislation.  According to the Committee, “While significant differences between the rules under which credit unions and banks operate have existed in the past, most of those differences have disappeared over time.” (Page 150) Say What?

Is it possible that the Committee staffers never heard of SEG group requirements? Or don’t know about the MBL cap or Restrictions on community expansions? Is it possible that the committee doesn’t think that the inability to  issue stock is a big deal? I doubt it or though it would explain why our tax code is such a mess.

What banking lobbyist got this gratuitous fallacy tucked away in what is supposed to be an objective analysis of a tax bill which doesn’t impact the CU tax exemption?

On the one hand I’ll be happy if this is the worst thing that comes out of the tax debate; besides, its a waste of time to respond to every claim hurled at the enemies of the industry. But when I find these charges imbedded in an important analysis, presumably one that will be used by bleary-eyed legislators and staff  scrambling for additional revenue in the coming weeks,  it is worth responding to

I was reading the   report to get a sense of how the proposed UBIT amendments could impact state charters. FCUs are categorically exempt from the UBIT tax.  According to the analysis,   Sec. 5001 of the legislation  would  define unrelated business taxable income to include any expenses paid or incurred by a tax exempt organization for qualified transportation fringe benefits, a parking facility used in connection with qualified parking or any onsite  athletic facility.

As longtime readers of this blog know,  it’s not a coincidence my father is the accountant in the Meier family and not me. Please take a look if you think this could impact your CU.

November 8, 2017 at 9:08 am Leave a comment

So Far So Good On Tax Reform

Image result for paul ryan announces tax reformWith the caveat that this is just Round 1 of a 15 round fight, the tax reform bill unveiled by the House leadership yesterday, gets a lot of things right. In fact, it shows that the Republicans learned from their healthcare mishaps and are determined to actually show that they can come up with sensible ideas.

First, as for the things that most affect credit unions, it’s of course good news to see that the first draft does not include the elimination of the credit union tax exemption. This does not mean that we can put our  guard down as an industry. Remember, that the House is determined to stay within a $1.5 trillion price tag and a tweak in one part of the code means that revenue has to be gained from another.

Second, the plan is reasonable. In contrast to the healthcare debate where Republicans argued for years that Obama Care had to be reformed only to have no idea how to reform it when they got the opportunity to do so, the tax plan is a thoughtful, mainstream Republican piece of legislation that cuts the corporate income tax, maintains higher tax rates for the wealthy and will probably make paying taxes a little simpler for low-income Americans. In fact, I will bet you right now that the tax plan will get some Democratic votes.

The most problematic part of the legislation is that it takes dead aim at high tax states such as New York. It caps at $10,000, the deduction for state and local taxes. It also eliminates the mortgage interest deduction for loans of $500,000 or greater for new home purchases.  It’s not a coincidence that both of these changes will have the biggest impact in big states that didn’t vote for Donald Trump. For example, the median home price in Palo Alto, California is a mere $2,695,000. While the mortgage interest tax deduction remains intact for existing homes, Congressmen from the most impacted areas are already complaining that the Republican tax plan will hurt resale values.

The question at the end of the day is, will the elimination of these exemptions have a discernible impact on home buying activity for your average credit union? And if I lived in a state other than New York, I would ask why the Federal government should be in the business of subsidizing the high tax policies of the Northeast and West Coast?

Washington has lowered the bar pretty low in recent years but from what I’ve seen so far, this is tax reform we can all live with.

Powell Named New Fed Chair

In case you missed it because of all the talk about tax reform, President Trump nominated Jerome Powell to be the next Chairman of the Federal Reserve, replacing Janet Yellen whose term ends early next year. The conventional wisdom is that Powell will continue Yellen’s gradualist approach to raising interest rates while being more open to mandate relief for the largest banks. Remember, that in recent years under Yellen, the Fed has moved aggressively to have the largest institutions develop credible plans for winding down their businesses in the event of bankruptcy (so-called living wills) and also instituted stress tests.

One more personnel note. I forgot to mention that Jeb Hensarling, the Republican Chairman of the House Financial Services Committee announced he’s retiring from Congress. The American Banker is already speculating that he may be filling a regulatory post for the Trump Administration.

This Just In…

One of the first things Powell will have to decide is how quickly to slow down the economy. The labor department just announced that the unemployment rate fell to 4.1% in October, its lowest level since December 2000. Wages rose 4.2%. I’m going to go out on a limb here and say that these numbers guarantee that the Fed will raise interest rates in December.

November 3, 2017 at 9:12 am Leave a comment

Wacky Week Ahead In D.C. Will Impact CU’s

Image result for Washington DCFor better or worse, this is shaping up to be one of these key weeks in Washington that will impact your credit union operations. Here’s what you should be keeping an eye on:

First, President Trump used this somewhat bizarre video to announce that he would shortly be picking his choice to be the next Chairman of the Federal Reserve. Don’t fool yourself, the Federal Reserve Chairman is the second most powerful person in Washington. And the selection of a replacement for Janet Yellen, whose term expires in February 3, 2018, is particularly important given the many uncertainties that surround the economy. Rarely have there been so many good arguments for taking divergent paths on interest rates.

Second, the tax battle will take center stage as the House leadership unveils a tax legislation on Wednesday. Now we get to see who wins and who loses, setting off a frenzy of lobbying, the likes of which we haven’t seen since the last major tax overhaul in the mid 80’s.

Third, all this is likely to have a unique impact on New York. New York Republican representatives will play a pivotal role in the upcoming House debate. The budget resolution passed by the House on Thursday includes the elimination of tax deductions for state and local taxes. These provisions clearly would hit high tax states like New York, the hardest. It’s not a coincidence that seven House Republicans voted against the plan, including Hudson Valley Congressman John Fasso, Central New York Congresswoman Claudia Tenney, and Veteran Long Island Congressman Peter King. Western New York Congressman, Tom Reed and Chris Collins provided crucial yes votes for the resolution which passed 216-212.

Depending on how things play out in Washington, you may also see pressure grow for legislators to return to Albany before January. The impact that a Republican controlled Congress could have on red state New York has been a question that has been hanging over Albany for several months now. In fact, this year’s state budget even included a provision allowing New York’s Budget Director to adjust spending during the fiscal year to account for a significant loss of federal aid. If federal support is reduced by $850 million or more.

Fourth, all this is taking place against the backdrop of a special counsel investigation and unprecedented attacks between a sitting President and members of his own party. All this makes for an extremely unstable political environment which emphasizes the need for industry coordination on both the state and federal level.

October 30, 2017 at 9:00 am Leave a comment

Treasury Body Slams CFPB’s Arbitration Analysis

The CFPB proudly proclaims that it is a data driven regulator for the 21st Century. So you can bet it went apoplectic yesterday when it received a Treasury analysis of its arbitration rule. The report is a well-reasoned explanation of why the CFPB over-stated the value of class action lawsuits and did so at the expense of financial institutions and their members who will ultimately pay the cost for frivolous class action litigation.

In the Dodd-Frank Act, Congress authorized the CFPB to ban the use of arbitration agreements in consumer financial contracts if it concluded that such restrictions were in the public interest and for the protection of consumers. The Bureau responded to this mandate with a 2015 report that laid the ground work for its rule earlier this year banning arbitration clauses that prohibit consumers from joining class action lawsuits.

What makes the report particularly damning is that it uses the CFPB’s own analysis to demonstrate how flawed the CFPB’s reasoning is. For example, according to the Bureau’s own data, only 13% of consumer class action lawsuits filed result in class-wide recovery—meaning that in 87% of cases, either no plaintiffs or only named plaintiffs receive relief of any kind. In addition, on average, only 4% of plaintiffs entitled to claim class settlement funds actually do so. This suggests that consumers value class action litigation far less than the Bureau believes they should. In fact, according to the Treasury, plaintiffs who do receive claims from class action settlements receive slightly more than $32.

The Treasury’s report amounts to a legal argument that the Bureau did not comply with its legal obligations when it decided to ban the use of arbitration clauses that prohibit class action lawsuits by consumers in financial transactions. In fact, according to the Treasury, “The Bureau has not made a reasoned showing that increased consumer class action litigation will result in a net benefit to consumers or to the public as a whole. Based on the Bureau’s own data, it is far more likely that the Rule will generate massive economic costs—borne by businesses and consumers alike—that dwarf the speculative benefits of the Bureau’s theorized increase in compliance.”

New York Releases Paid Family Leave Form

I just wanted to give you a heads up, courtesy of this blog by Bond, Schoeneck & King that New York State released the forms to be used by employees applying for paid family leave under New York State law. I get the sense that some of you are pulling the blanket back over your head when it comes to getting ready for this new mandate, but this of course is not a good idea. Especially for your smaller credit unions, which could experience an increase in the number of employees that have to be replaced on a temporary basis.

 

October 24, 2017 at 9:44 am Leave a comment

Why Our Tax Exemption Is At Risk

One of my pet peeves about the industry is that, on occasion it lets its fear over losing the tax exemption venture into the realm of paranoia with the result that we crowd out other important legislative initiatives. Then again, in the immortal words of Henry Kissinger, “Even paranoids have enemies” This time I’m leaning with the paranoid group.

There are several factors that make our tax exempt status more vulnerable now than at any point since the last round of major tax reform back in 1986. Here’s why:

By a 51-49 vote last night, the Senate pushed through a budget resolution setting the stage for a detailed debate over tax policy. It includes authority for a $1.5 trillion tax cut while maintaining a commitment – on paper anyway – to balancing the budget in ten years. While the budget resolution doesn’t mean all that much, it does underscore the bizarre dynamics which are going to make this one of the most unpredictable legislative debates any one of us has seen in our lifetime. I say that with full knowledge that many credit union veterans have been around a long time.

First, this is the most partisan environment in which Congress has ever operated in. Coming up with a deal on tax reform is tough enough but in 1986, democrats like Dan Rostenkowski, Tip O’Neill and Bill Bradley were able to cross the aisle and deal with Ronald Reagan without being accused of being political apostates and putting their careers on the line. Today, the budget debate will largely be an internal Republican struggle which makes it all the more likely that last second deals will have to be cut in order to achieve the goal of a tax cut at all costs.

Second, who are our credit union champions? The Affordable Care Act was saved recently, at least in the short-term, because a handful of Republican senators were willing to buck the party establishment. Who in the Senate Republican majority is willing to stand up for credit unions even if it means making tax reform less likely? Remember, this is the same Congress which seriously considered putting NCUA under congressional control just a few weeks ago. It is also the same Congress that is open to considering changes to the deduction of state and local taxes which will directly impact the Northeast and West Coast. A party willing to write off entire regions of the country can’t be entirely trusted.

Third, the banking lobby has never been as powerful as it is today. Back in ’86, community and independent banks still represented a substantial counter weight to large banks. But with the growth of interstate banking and the repeal of Glass-Steagall, banks today have morphed into capitalist oligarchs.

Fourth, the credit union industry itself is vastly different than three decades ago. As credit unions have justifiably and understandably grown bigger and more sophisticated, it has become easier for banks to question the tax exemption. There are responses to each one of these arguments but let’s not fool ourselves into thinking that the responses don’t have to be made.

Hopefully I’m all wrong. Republicans will ultimately figure out a way to get massive tax cuts without engaging in much tax reform but it is better for the industry to be safe rather than sorry. This is one of those times when we all have to be ready to go to the ramparts and defend the industry.

DFS Provides Important Guidance For State Chartered Credit Unions

In case you don’t know yet, the New York Department of Financial Services has released an important guidance streamlining the process for state chartered credit unions to receive low-income credit union designations. This simple change  will make it much easier for credit unions wishing to serve low-income areas.

October 20, 2017 at 9:37 am Leave a comment

If Demographics Is Destiny, Is Your Credit Union Dead?

Image result for millennialsI shouldn’t start my first day of the work week with one of those credit unions are doomed blogs but I can’t resist. The truth is radical demographic shifts are taking place and like any other business, if you’re not adjusting to these trends then you’re destined to fail. In the immortal words of Ted Turner, “You can either leave, follow, or get out of the way.” After all, whoever said demographics is destiny was spot on.

What has me thinking so negatively this morning is this great article in the Wall Street Journal reporting that the biggest single age cohort is 26 year olds who number 4.8 million. People ages 25 and 27 also follow close behind. In other words, we are now seeing the shift away from the baby boomers to people in their 20’s and 30’s who are on the verge of buying a house or getting married for the first time. All those things you typically have to go to a bank or credit union for. Interestingly, Millennials make up about 42% of home buyers today and 71% are first time home buyers. As this survey from the National Association of Realtors shows, Millennials are more skeptical about the economy than their elders but they are still a key part of the home buying industry.

The article goes on to explain how companies ranging from Home Depot to Briggs & Stratton are retailing their retail efforts to respond to this demographic bubble. For example, retailers are responding to a generation which probably spent more time on x-box than helping Dad with a home construction project by offering basic classes such as how to use a tape measure.

The lessons and/or warning signs for credit unions are obvious. The average age of a credit union member is somewhere around 47. And let’s be honest, our conventions can easily be mistaken for retirement village outings. As former NCUA Chairman, Debbie Matz commented a couple of years ago, “If the trend of aging credit union membership continues, many credit unions may have no future”

The good news is that this trend doesn’t have to be a threat. It’s actually an opportunity. For one thing, surveys tell us that this is a generation that has learned the lesson that excessive debt is a bad thing. It also has grown up in an internet culture that at its best emphasizes community relations. In short, credit unions stand for much of what the younger generation finds attractive. To those of you who have tried to capitalize on this, good job. To those of you haven’t, either start planning to do so or decide who you’re going to merge with.

 

October 10, 2017 at 9:04 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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