Posts filed under ‘General’

DFS Clarifies Zombie Property Exemption

Yesterday the Department of Financial Services finalized its Zombie Property regulations and clarified the exemption standard applicable to most credit unions.  This is a big help since it is now clear precisely what institutions are exempt.

The Governor also released a consumer Bill Of Rights for residents facing foreclosure.  It is yet another piece of paper to be provided to individuals facing foreclosure.

As all New Yorkers reading this blog should know, NY legislation set to take effect December 20th imposes obligations on lenders to maintain abandoned property upon which they have not yet foreclosed.  The good news is that the legislature exempted credit unions and banks that do a smaller volume of mortgage lending from these requirements. Unfortunately, the proposed exemption language was as clear as mud. Without clarification, institutions that the legislature intended to exempt from maintenance requirements would have found themselves having to comply with them. The DFS recognized this problem and made a helpful amendment.

As initially proposed to qualify for the exemption  you had to be a state or federally chartered credit union that:

…B. engages in all of the following activities during that calendar year: mortgage origination, mortgage ownership, mortgaging servicing, and mortgage maintenance; and

  1. It had less than three-tenths of one percent of the total loans in the state which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending two years prior to the current calendar year.

The final regulation amends  subdivision B. It provides that to qualify for the exemption  a bank or credit union must :

  1. engage in mortgage origination and mortgage ownership during the calendar year; and
  2. It had less than three-tenths of one percent of the total loans in the state which the mortgagee either originated, owned, serviced, or maintained for the calendar year ending two years prior to the current calendar year.

Since even credit unions that sell most of their loans originate and own loans, the removal of the maintenance and service requirements will ensure that the exemption works for the institutions the legislature intended to exempt.

There is much more forthcoming on implementing the Zombie law so stay tuned.

December 8, 2016 at 9:11 am Leave a comment

Why OCC’s Fintech Charter Is A Game Changer

Its the end of the world as we know it whether we realize it or not.

On Friday, The OCC announced that it had the power to grant bank charters to financial technology companies and was going to use it.   Specifically, it explained that fintechs could apply to operate “special purpose” banks.

It laid out the case for its legal authority but invited the public to comment on the issues involved as it moves forward.  Needless to say, the CU industry should weigh-in.

How big a deal is this? Time will tell but think of it this way: When Apple introduced Apple Pay it had to partner with banks and credit unions that were willing to use its technology to facilitate payment transactions.  Now, with the OCC moving forward with its plans, the Apples of the world can simply become  special purpose banks so long as they engage in at least one of three “core activities” receiving deposits, paying checks, or lending. 12 C.F.R. § 5.20.

It’s not just the big guys who are going to benefit. Credit unions now meet with vendors anxious to interest them in technology that can do everything from instantaneously underwrite loans to facilitating quicker payments to making toast for members.  These startups need your business to get to consumers.   Now they will have the option of competing against you rather than partnering with you.

As the Comptroller explained in his remarks “Many fintechs will choose to partner with existing banks or provide services to banks and other financial companies, but some will seek to become a bank. In those cases, it will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed.”

The OCC’s announcement is also  likely to set off  a mad scramble among state regulators. After all, why should states give the federal government a monopoly over an entirely new type of financial institution?

As for credit unions, the OCC’s move demonstrates yet again why they need more FOM flexibility.  When everyone is connected in a virtual community limiting CU’s  to physical boundaries makes no sense.

All of this will, of course,  further accelerate changes to a financial landscape that are already affecting  the way your credit union does business and against whom it is competing.  Good luck.

December 5, 2016 at 9:20 am Leave a comment

For CFPB’s Supporters, Wells Fargo is a Gift That Keeps On Giving

If I was one of those conspiracy theory nuts who dream up wild theories and spend late nights scouring the Internet for evidence vindicating my worst fears, I would believe that Wells Fargo is actually working with Massachusetts Senator Elizabeth Warren on a top secret plan to keep the CFPB alive.  The bank’s phantom account scandal was bad enough, but its continued mishandling of the consequences shows why so many well-meaning but misguided people feel that the Bureau in its current form must be protected at all costs and why it’s so important for credit unions to continually distinguish their conduct from that of the banking industry in both word and deed.

Exhibit A- On Monday, the CFPB issued a Supervisory guidance warning institutions against overly aggressive incentive based sales tactics. It warns that strict controls should be used at all financial institutions “where incentives concern products or services less likely to benefit consumers or that have a higher potential to lead to consumer harm, reward outcomes that do not necessarily align with consumer interests, or implicate a significant portion of employee compensation.”  One of the examples cited by the Bureau That Never Sleeps as an area of potential abuse is overdraft opt-In procedures. The Bureau noted that it took action against a financial institution that it alleged was deceiving consumers to opt-in to overdraft services.

In the old days, way back on November 7th, I would have told you that bulletin like this deserves close attention because, even though the CFPB has direct oversight over only the largest of credit unions, these types of warnings signaled that proposed regulations could be coming soon.  This assumption has been thrown into doubt by the Republican sweep.  But until further notice, the Bureau remains a, 1200 pound gorilla that is best not to be ignored. Besides, the guidance is consistent with a similar guidance issued by NYS’s DFS, which regulates state chartered credit unions.

Exhibit B,  With the Bureau pondering regulations that would prohibit financial institutions from including in their account agreements provisions forbidding members from joinning class action lawsuits and forcing them to arbitrate disputes, Reuters is reporting that Wells Fargo is seeking to dismiss a class action lawsuit stemming from the account opening scandal on the grounds that such lawsuits are banned  based in their account agreements.

Don’t get me wrong, if I represented the bank, I would be making the same exact argument, but on a policy level, Wells Fargo’s conduct provides the best argument I have seen for why categorical class action bans are a bad idea.  Never mind the fact that class actions benefit lawyers a heck of a lot more than consumers or that a  well-designed arbitration can provide a cost effective and swift alternative to the legal system.

On that note… enjoy your day!

November 30, 2016 at 8:01 am Leave a comment

Are Independent Agencies Constitutional?

What Executive Orders give, they can also take away. In this video released by President Elect Donald Trump he outlines the Executive Orders that he plans to make in the first 100 days of his Administration. Most importantly for our purposes, the President Elect says he will promulgate a requirement that for every new regulation proposed by an agency it has to eliminate two existing regulations.  It appears that the Trump Administration plans a new meaning of two-for-one.

While proposals such as this are enough to make compliance people giddier than a five-year-old on Christmas Eve, their direct impact on credit unions remains to be seen. Our good friends at the CFPB are challenging a decision by the federal Court of Appeals for the District of Columbia, which found that the CFPB was only Constitutional if its Director could be hired and fired at will by the President. PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 31 (D.C. Cir. 2016). The  NCUA is an independent agency with a three member board appointed to staggered six year terms. Intriguingly, federal law does not explicitly provide that NCUA board members can only be removed “for cause” by the President. Swan v. Clinton, 100 F.3d 973, 988 (D.C. Cir. 1996).

This is pure speculation on my part, but if, as seems probable, the Supreme Court decides to hear an appeal of PHH Corp, the case  could be used as a vehicle by a conservative leaning nine member Supreme Court to re-examine the broader question of whether independent agencies are themselves Constitutional.

In a case called Humphrey’s Executor v. United States, 295 U.S. 602, 624, 55 S.Ct. 869, 79 L.Ed. 1611 (1935), the Supreme Court upheld the creation of independent executive branch agencies.  But even as it upheld the Bureau, the D.C. Court questioned the premise of this decision and the existence of independent agencies.

“[I]ndependent agencies are unaccountable to the President and pose a greater threat to individual liberty because they operate free of the President’s supervision and direction. Therefore, they traditionally have been headed by multiple members who check one another. An independent agency operates as ‘a body of experts appointed by law and informed by experience.’”

Thanksgiving by Executive Order

Speaking of Executive Orders you have Proclamation 106—Thanksgiving Day, 1863 issued by Abraham Lincoln for having Thursday off.  In October of that year he proclaimed that:

“It has seemed to me fit and proper that they should be solemnly, reverently, and gratefully acknowledged, as with one heart and one voice, by the whole American people. I do therefore invite my fellow-citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next as a day of thanksgiving and praise to our beneficent Father who dwelleth in the heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans. mourners, or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty hand to heal the wounds of the nation and to restore it, as soon as may be consistent with the divine purposes, to the full enjoyment of peace, harmony, tranquility, and union.” 

CFPB Looks into Information Sharing Practices

The Bureau That Never Sleeps is in the crosshairs of the Judiciary and the incoming Administration but that is not keeping it from continuing to churn out proposals. Last week it issued a Request For Information regarding consumer access to financial records. These RFIs have been used by the Bureau to help structure more formal regulatory proposals.

It is asking a series of twenty questions starting with wanting to know what types of products and services are currently made available to consumers that rely in part on consumer permission to access consumer account data.

Your faithful blogger will be back on Monday after going over the river and thru the woods to grandma’s house on Long Island. I hope you all have a great Thanksgiving, and that no one gets too fired up when the family banter inevitably turns to politics. I have already promised my mother that I will be on my best behavior.


November 22, 2016 at 11:06 am Leave a comment

While The Nation Tweeted


imagesCARSA2ULI know there is really important stuff to discuss this morning  like the VP-elect’s  Broadway excursion, presidential tweets and SNL skits but there is this nettlesome issue of cyber-security  that keeps on popping up.

I was naïve enough to think that one of the few good things to come out of our long, national nightmare called the 2016 presidential election was the realization on the part of almost everyone, with the possible exception of the president- elect, that cyber security is a  top national security issue. After all, nation’s and groups that don’t  like us  all that much demonstrated that  they have the  ability to steal information not only from businesses and consumers  but also from our government.

This should be a top national priority. Don’t take my word for it, just listen to the Chairman of the Federal Reserve. In testimony before Congress last Thursday, Chairman Yellen was asked what the Fed was doing about cyber- security: “This is something that Congress needs to look at very carefully” She said, “It’s not just a matter of the Fed and financial institutions. Risks involve merchants and others involved in the economy and it is a very broad threat that we alone are not able to deal with adequately.” Amen Sister.

Financial institutions have a crucial part to play when it comes to  cyber security but credit unions and many banks  already do a tremendous amount.  New mandates must be based on the size and sophistication of an institution’s operations as well as the extent to which their problems can spread to the larger banking\commerce system.

Furthermore, for it to be effective a cyber security framework must be coordinated and holistic. It is the type of system that only the federal government can put in place.  Existing regulations don’t cast a wide enough net. Merchants have to have baseline responsibilities.

How big a deal is cyber security? There is much more at issue here than a fight between merchants and financial institutions. We can’t have a truly effective 21st century cyber-economy without a truly robust defense.

November 21, 2016 at 9:59 am 1 comment

The Unlikely Rise of Schumer and NYC to the Center of the Political Universe

90I am going to take a little editorial privilege this morning and channel my inner Paul Harvey.

Among the many strange twists and turns that have taken place over the past two weeks, it is easy to overlook the ascendency of New York City as the center of the political universe, but that is exactly what has taken place.

Consider this:  in the aftermath of a landslide Republican victory, New York City, which to many social conservatives deserves a place alongside Sodom and Gomorrah, and to many Trumpicans personifies elitist disregard for the little guy, is now home base of the most powerful politicians in America.  Think of it, Donald Trump from Queens is going to be the President, Chuck Schumer from Brooklyn is now the defacto leader of the opposition as the leader of the Senate democrats, former NYC Mayor Rudolph Giuliani is rumored to be Trump’s choice as our Nation’s Secretary of State, and transplanted Brooklynite Bernie Sanders is the nation’s leading Socialist turned Democrat.  How’s that for New York values, Ted Cruz?

You all know about Donald Trump’s rise to power, but the rise of Senator Schumer, while much more traditional, has some very intriguing twists and turns of its own that offer important clues as to how he will lead as Senate Minority Leader.

He started his political career in 1974 as a 23 year-old Assemblyman from Brooklyn with a knack for getting media attention and driving policy. As Newsday pointed out in this 2015 profile, there aren’t many freshmen who can get Assemblymen to agree on anything, but as a freshman he was able to get 39 of them to attend a press conference protesting education cuts.  He successfully ran for a congressional seat in 1980.  In Congress, he became known not only for his intelligence and attention to district concerns, but for his eagerness for the spotlight.  Former Senate Majority Leader Bob Dole once said that the most dangerous place in Washington is the space between Chuck Schumer and a TV camera.  In 1998, Schumer knocked off Al D’Amato, no easy task considering that D’Amato himself was a master political operative and also a long serving senator who always put state interests first.

The story gets especially interesting when, in 2000, Hillary Clinton successfully ran for NY’s open US Senate seat. There were more and more press reports speculating  that Schumer was frustrated that even thought that he was the senior Senator from New York, next to Clinton his role was diminished.

This speculation came to a head when Schumer pulled off one of the great political power plays in NY history. Fresh off an easy re-election, he openly flirted with the idea of running for Governor. As reported by the New York Times “Top Democrats vigorously campaigned to keep him in Washington, promising him a spot on the powerful Finance Committee and persuading him to lead the Democratic Senatorial Campaign Committee through the midterm elections of 2006.”

This was the key moment in the Rise of Chuck. Nothing gets you friends quicker in politics than helping get someone elected.  Plus, he had a close working relationship with Senator Reid who endorsed him as his chosen successor when he announced he was stepping down.

Through it all, the Senator has never lost his enthusiasm for constituent work or his love of the spotlight. His Sunday press conferences are a staple of local news and when my uncle, who had met the Senator while working on neighborhood crime fighting initiatives, retired from the NYPD, the Senator posted a tribute in the Congressional Record. Touches like this still matter.  It’s why one former Republican I used to work with called him the best politician in New York.

Why does all this matter? For one thing if I had to come up with a political Moniker for the Senator it would be: “It’s the middle class stupid!” which makes him a natural ally of credit unions as evidenced by his support for MBL reform.

Secondly, no thanks to political or demographic trends, New York City will now be hosting its greatest fight since the Thriller in Manilla. Trump knows how to communicate and doesn’t back down from a fight, neither does Schumer, this should be a darn good show.

Now you know the rest of the story.

November 17, 2016 at 10:10 am Leave a comment

Republicans to Agencies: The Clock Has Struck 12

cinderallaIn the fairytale Cinderella knows her night of magical powers ends when the clock strikes 12.  In the fairytale land of Washington real live people quibble over when midnight arrives.

Yesterday, House Republicans leaders sent a letter to all agency heads requesting that they halt promulgating regulations until President-Elect Trump takes office.   This is part politics as usual – a similar request was made by incoming President Obama in 2008.  But given the robust use of regulatory powers by the Obama Administration, it also makes a heck of a lot of sense.

In my ever so humble opinion, no administration this side of FDR has used its regulatory powers more aggressively than has the Obama Administration. In addition, he championed the creation of the CFPB with a single director authorized to exercise dictatorial control over every federal consumer protection law.

Whether you agree or disagree with these initiatives, it makes no sense for businesses to have to comply with the costs of implementing pending mandates from executive branch agencies until they know for sure what direction the new administration is going to take. For example, the Department of Labor’s decision to raise the threshold for exempt employees will be scaled back. In addition, If the CFPB ‘s director is answerable to President Trump its regulations limiting arbitration clauses and payday loans are on life support.

It is time for everyone to calm down, take a breath and stop imposing regulations to do nothing more than  score political points on the way out the door. I know this is politics as usual in D.C., but in case you haven’t noticed, politics as usual doesn’t exist anymore. The clock has struck 12:00

November 16, 2016 at 9:05 am 2 comments

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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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