Posts filed under ‘General’
The 100 day milestone of the experiment called the Trump Presidency combined with a Saturday deadline for the country to either expand its borrowing authority or default on the credit card payment called the national debt is conspiring to make this one of the most intriguing political weeks since the election.
Back from its two week Spring break, the House of Representatives will begin to focus in earnest on the roll-out of CHOICE Act 2.0, the radical blueprint for regulatory reform. A Hearing is scheduled for Wednesday, April 26th at 10:00 am. While I am somewhat skeptical that the Senate will have the ability to grapple seriously with the issues raised by this Legislation any time soon, it will provide a wonderful opportunity for credit unions to continue to make the case that Dodd-Frank has done more harm than good when it comes to credit unions and true community banks.
Part 2 of the State Legislative Session kicks off as Assemblymembers and Senators reconvene after their break. Not coincidentally, this coincides with our Annual State Governmental Affairs Conference. The Executive and Legislature have each signaled an interest in taking a fresh look at some old classics. Whether you like politics or find it more distasteful than a glass of orange juice after brushing your teeth, we participate in the most highly regulated financial industry in the country. Everyone reading this blog has an obligation to engage policy makers at the state and federal level in our efforts to provide relief. Besides, on Tuesday morning, you’ll hear a presentation from E.J. McMahon, the Research Director of the Empire Center for Public Policy. I’ve always been a big fan of his since he’s the only man I know in Albany who has been able to make a living being an unabashed Conservative.
As part of this frenzy to solve all the world’s problems in the first 100 days of his Administration, President Trump surprised friends and foes alike when he announced on Friday that he would outline plans for the mother of all tax reform on Wednesday. No one honestly believes that this will be accompanied by anything resembling Legislation anytime soon, but depending on who you talk to on Capitol Hill, if Congress does get serious about a major tax overhaul, everything is on the table.
There may be a lot of sizzle this week, but with Congress’ spending authority about to run out, there will be some serious brinksmanship. This is a particularly common and dangerous game of chicken in which opposing parties threaten to let the nation default if they don’t get a major priority included in the debt extension agreement. The conventional wisdom, as reflected in the Sunday papers, is that the Wildcard this year is the Administration. Democrats and Republicans have quietly worked toward an extension agreement but Budget Director and former-Congressman Mick Mulvaney threw a fly in the ointment when he suggested that President Trump would not sign off on a deal unless it included funding for a Border wall. This is a poison pill for Democrats. By the way, everyone knows that a default on the national debt would be an absolute disaster, but the more commonplace this game becomes, the more likely we are to see it spin out of control.
Last but not least, keep an eye on the outcome of the French elections. Now that the French have decided on the two finalists who will face off for the Presidency, we have another important referendum on whether or not the world still supports the post-WW II order based on free markets and Democratic values or whether people are so angry that they want to blow it up and start from scratch even if they have no ideas for its replacement. Don’t fool yourself, the same debate rages on in this country.
Yours truly has a busy schedule this week, I will be checking back in with you on Thursday.
Yesterday over 20 state regulators and the CFPB took action against Mega-Servicer Ocwen for its continuing inability to address sloppy servicing practices.
Ocwen fueled its amazing growth (as of December it serviced approximately 1,393,766 loans with an aggregate unpaid principal balance of approximately $209 billion) by specializing in sub-prime loans.
Since the vast majority of credit unions are out to help their members, as opposed to squeezing every last penny out of them, there is a natural tendency to view news reports such as this one as simply one more example of “Lenders Gone Wild”.
That being said, Ocwen’s legal troubles hold lessons that all lenders would be wise to pay attention to. Most importantly, your compliance regime is only as good as your IT department. Let me explain.
Front and center in the CFPB’s complaint is the servicer’s alleged inability to properly use its major platform, REALServicing and its sub-systems, to manage its servicing responsibilities. The CFPB contends that Ocwen’s employees failed to put accurate borrower information into the system, but “Even when the information in REALServicing has been accurate, REALServicing has generated inaccurate information about borrowers’ loans due to system deficiencies. Because of these system deficiencies, Ocwen has had to rely upon manual processes and workarounds that have themselves resulted in errors in borrowers’ loan information. “
Ocwen’s problems are not new, it entered into a consent decree in 2013 including one with the DFS. A particular concern has been Ocwan’s inability to properly reconcile escrow accounts. In fact, according to a Cease and Desist order filed by North Carolina, the company informed regulators in January that it would cost $ 1.5 billion dollars to make borrows whole. Not surprisingly, the CFPB contends that Ocwen is wrongly relying on a “deficient servicing platform” that has exacerbated its use of inaccurate loan information.
Here are some questions for you to ponder this weekend. Does your credit union have the ability to spot mistakes in your core operating systems? Does your compliance team have enough coordination with your IT people to ensure that new regulations are being properly translated into computer code? Do you exercise adequate oversight over your third party vendors? For instance, how quickly can you get out of contracts? Is there someone in your credit union charged with auditing your key vendor contracts and software providers on an ongoing basis? As a a new colleague of mine likes to say “garbage in … garbage out.”
The inspiration for today’s sensationalistic headline comes from this article in the CU Times, which is reporting that Donald Trump has selected Neomi Rao to head the White House Office of Information and Regulatory Affairs, within the Office of Management and Budget. Don’t get me wrong, the NCUA isn’t going anywhere anytime soon, but as Jonathon Adler commented in the Washington Post this may be the most important position you have not heard of. In this role she will be able to put thumbs up or thumbs down on every regulation which must be approved by the White House.
Rao’s nomination warms the heart of conservative legal geeks, such as myself. She is the founding director of George Mason’s Center for the Study of The Administrative State and she has not been afraid to argue that independent agencies are unconstitutional regardless of how they are structured. If she is right this means that even the NCUA is unconstitutional.
As I explained to a group of credit union folks last night at the Southern Tier Chapter dinner, while I am pessimistic about seeing major regulatory reforms passed by congress anytime soon, love him or hate him we have already seen a major shift in regulatory priorities under President Trump, and this shift will only gain momentum as the terms of directors of independent agencies expire. Remember that Richard Codray’s term ends in July 2018.
Ideas matter. Cass Sunstein held this position in the opening days of the Obama Administration and his view that regulations could be used to nudge consumers to make the right choices continues to be hugely influential. The selection of Ms. Rao mean’s that those of us who believe that the existing regulatory system bears little resemblance to powers actually authorized under the constitution are no longer simply obscure bloggers in need of an additional cup of coffee.
Hensarling Talks Up CHOICE 2.0
Confirming what we had already heard from CUNA, the House Financial Services committee publicly announced yesterday that it would be introducing the second version of Chairman Hensarling’s Regulatory Reform Proposal by the end of the month
CHOICE 2.0 is not in bill form yet, but is likely to include substantial mandate relief including measures to scale back the powers of the CFPB. While this is of course positive news, in comments last week Senate Banking Committee Chairman Mike Crapo indicated that major legislation dealing with regulatory reform is unlikely to become law anytime soon.
On that note enjoy your day!
Since the Governor and Legislature agreed to gradually raise New York’s minimum wage starting in January of this year, inquiring minds have wanted to know how financial institutions should comply with the Exempt Income Protection Act (EIPA) which shields a minimum amount of money in a member’s account from being restrained or levied to pay off a debt based on a multiple of the minimum wage.
The good news is that, the newest member of the Association’s compliance staff, Sarah Hodgens, gave me a heads-up that the state has issued guidance to financial institutions in how to comply with the law. The bad news is that the guidance creates more work for employee’s responsible for complying with those ubiquitous levy and restraint notices.
The problem is that when the EIPA was drafted the state had a uniform minimum wage so every account holder could be dealt with using the same thresholds. Now that the state has regionally based minimum wages (which also vary for NYC depending on an employer’s size) complying with the law has gotten even trickier.
New York mandates that an amount equal to the greater of 240 times the state or federal minimum hourly wage (whichever is greater) is exempt from levy and restraints. N.Y. C.P.L.R. 5222 (McKinney). There are certain narrow exceptions, and the exemption ceiling is even higher if federal funds are direct deposited but none of this matters for the purposes of today’s blog.
The guidance explains that when a financial institution receives one of these notices it should use “reasonable due diligence” in trying to obtain the most current information regarding the employment address of the account holder and, if applicable, the most current information regarding the size of an account holder’s employer located in New York City. It should use this information to calculate the size of the account exemption. If your credit union can’t get this information it may use the highest minimum wage in the state to determine the size of the exemption which means as of right now, at least $2,640 is exempt. Remember this threshold amount goes up every December until 2021, when it reaches $15.
The good news is that your credit union now has a clear roadmap with which to comply with levy and restraints, which is vitally important given that this is probably the most common operational issue your credit union deals with, from a compliance stand point. The bad news is that the guidance raises more questions such as what precisely is “reasonable due diligence” when it comes to establishing a member’s address? Can a credit union be found in contempt of a levy or restraint order for failing to exercise it? Finally, how are you supposed to know how many people are employed by your delinquent member’s NYC employer?
Around 5:30pm last night, just as Sergio Garcia was making an eagle on the 15th hole during the most entertaining final round of the Masters I have ever seen, the New York State Senate was taking up consideration of S.2009C. To save you the time, you can start reviewing on Page 99 Section AAA. This bill is lovingly referred to as “the big ugly” since it contains a Hodge podge of the most highly debated issues in the state’s 2017 -2018 spending plan.
The most important news for credit unions is that the bill does authorize Transportation Network Companies (TNCs) e.g. Uber, Lyft to operate in New York State. Credit Unions had two concerns about this legislation: First, we wanted to make sure that members who become TNC drivers were adequately insuring our collateral in the event of an accident while clocked in to the network. Remember that your traditional car insurance policy contains a livery exception. Secondly, given the substantial investment of the industry in New York City taxi medallions, it seems likely that any legislation making it easier for persons to offer ride sharing services without medallions will have an impact on the value of outstanding medallion loans.
As to the first issue, the legislation mandates that TNC networks either provide physical damage protection for their drivers or make sure their drivers have such protections. They will also be responsible for putting drivers on notice that such insurance may be required.
As for the loss impact on medallion prices, the final legislation allows NYC to adopt more stringent regulations than otherwise mandated by state law. Whether this will result in any measure of stabilizing prices remains to be seen.
As we go thru the legislation, I will give you highlights of anything else that impacts credit unions.
JP Morgan Chase’s CEO Jaime Dimon used his first annual letter to shareholders since Donald Trump took office to outline a series of regulatory reforms he says will make more home loans available for first time home buyers and those with less than pristine credit.
Intriguingly, two of the proposals I like could be accomplished without legislation assuming that a more free-market oriented Director of the CFPB will eventually be taking the reins. According to Dimon, post-banking crisis regulatory reforms have resulted in a “complex, highly risky and unpredictable operating environment that exposes lenders and servicers to disproportionate legal liability and materially increases operational risks and costs.” The result: more expensive mortgages and fewer mortgage loans for those without strong credit.
While his description of the ailment didn’t surprise me, his cure did. He wants to see greater use of FHA mortgages as a means of providing credit for first time and moderate income home buyers. But this should be coupled with re-examination of government litigation seeking to make mortgage lenders repurchase mortgages that allegedly don’t meet FHA standards. Specifically, he is calling on the FHA to publicly commit to using the False Claims Act to sue lenders solely for intentional fraud rather than immaterial or unintentional errors.
A second change urged by Dimon would be for the GSEs, Treasury Department and the CFPB to work toward creating a single national regulatory framework for mortgage servicing. He points out that, as of 2015, it costs on average more than $2,000 a year to service a mortgage in default and that the cost of servicing a performing mortgage is $181, annually. A uniform system with uniform rules would go a long way to keeping costs from continuing to sky-rocket. The problem with this approach is that, for it to be truly effective, Congress would have to pass laws strengthening federal pre-emption of state lending law or states like New York would have to voluntarily agree to go along with these standards. Both of these scenarios are highly unlikely.
So much for large scale regulatory reform!
Speaking before the US Chamber of Commerce (that unabashed bastion of capitalism in DC), Senate Banking Committee Chairman Mike Crapo acknowledged the obvious and said that in the near term a broad based overhaul of Dodd-Frank is out of the question. He is quoted in Today’s American Banker as saying “In the near term, we are working to identify bills with bipartisan support that we can move quickly and put points on the board,”
Maybe it is the gloom of a dreary late season wintery mix but this doesn’t sound like the type of agenda that would include scaling back the CFPB’s power, but hopefully I can be proved wrong. On the bright side, he did predict that he and Senator Sherrod Brown, of Ohio would find common ground in areas where they can move pieces of legislation quickly.
What really bothers me is the Senator’s comments, as paraphrased in the article, that larger regulatory changes will have to come from the independent agencies, which will eventually be headed by Trump appointees.
Is this really what representative government has become? Have our elected representatives’ become so comfortable delegating legislative authority to un-elected regulators that they openly pin their hopes for big changes on personnel decisions about who will lead government bureaucracies? I guess I have to re-read the constitution, or simply start ignoring it all together in order to understand what is happening in Washington.
Will there or wont there be an on-time state budget? I was hoping to dedicate this blog to an overview of the 2017-2018 Fiscal Year New York State Budget which kicks in at 12:00am tomorrow. Instead, all I know for sure is that there are a lot of rumors floating around but nothing set in stone yet. As of right now the Assembly isn’t scheduled to go into session until 12:00 this afternoon and the Senate gavels in at 3:00, so it is hard to see how the Governors streak of “on-time” budgets will remain intact.
Those issues that could impact credit unions include insurance requirements for Uber drivers to ensure that car loan collateral is protected, expansion of authority for financial institutions to block transactions involving financial abuse of the elderly and disabled, and language either expanding or clarifying (depending on how you want to interpret it) the regulatory authority of the DFS over licensed individuals and institutions. It is also possible that none of these issues will be dealt within the budget.
By the way, don’t make the NYS budget process more complicated than it is; for more than 30 years budget negotiations have been first and foremost about education aid: when the parties decide on how much school districts will get to spend, and how the pot will be divided – there will be a budget.