Posts filed under ‘General’
There are two prevalent attitudes in the credit union industry when it comes to technological innovations. In the one group are relative newcomers to the banking world like myself – I’ve only been doing this for a mere 10 years – who see technology fundamentally changing where and how banking is done. The other group is the crusty curmudgeons who pine for the days when underwriters didn’t use computers to figure out who qualified for a loan, but rolled up their sleeves and did their own due diligence.
The last few weeks have been heady times for the curmudgeons. Leading marketplace lender Lending Club forced out its CEO amid allegations of undisclosed interests and inaccurate loan information. The stock has taken a tumble and its supply of investors anxious to snap up its loans is drying up. Score one for the curmudgeons. I can just see the smirk widening across their faces as they read their morning news in the WSJ. They got more good news last night with reports that New York State’s Department of Financial Services is expanding its investigation of the marketplace lending industry beyond Lending Club.
But then again, what do the recent lows of online marketplace lenders really tell us about the direction lending is headed? Not as much as you might think.
First, sophisticated computer algorithms fueled by Big Data will revolutionize banking by allowing lending decisions to be made instantaneously based on information which no human could process in a lifetime. There is going to be more lending without collateral and participation agreements to spread out this risk is going to be crucial
Second, lending is going online. This is true not only of the consumer looking to refinance credit card debt or student loans but also extends to the small business owner. For small business lenders, quick and expanded access to needed capital is a lot more attractive than trudging down to the old brick and mortar.
Third, New York State’s efforts notwithstanding, the Internet has accelerated the nationalization of lending. For credit unions, this means that the industry must continue to push for greater field of membership flexibility. It also means that federal regulators have to take the lead in proposing appropriate regulations, Congress has to strengthen preemption laws and Courts have to do a better job of explaining the interplay between federal and state regulations. In an age when a consumer in New York can qualify for a loan issued by a bank in Utah that is subsequently bundled and sold to a non-depository institution based in Chicago, a state by state approach to regulation will be both ineffective and will inhibit legitimate financial evolution. For those of you that are interested in more background on this issue, here is a white paper issued by the Treasury Department.
On that note, your faithful blogger will be back on Tuesday. Enjoy your long weekend and remember, if there is more than one guy standing around the barbecue, you can guarantee the burger is going to be overcooked.
The Assembly passed a package of bills yesterday that would make New York’s cumbersome foreclosure process even more inefficient and costly and most likely exacerbate some of the very problems it is seeking to address.
Most importantly, the Assembly passed A6932a/S4781a, introduced at the request of the Attorney General, “the New York State Abandoned Property Neighborhood Relief act of 2016.” I’ve already talked about this bill extensively. It makes lienholders responsible for abandoned property on which they have not foreclosed; however doesn’t do enough to expedite foreclosures on these properties or clarify precisely how much maintenance credit unions and banks will be responsible for.
By the way, municipalities often have first lien priority on abandoned property because of unpaid tax bills. This bill is a backdoor means of shifting responsibilities to banks and credit unions that are ultimately the responsibility of localities.
Another bill, A1298/S5242 wouldn’t streamline New York’s requirement for judicially supervised settlement conferences, a proposal that would be in everyone’s best interest. Instead, it expands the explicit scope on these get-togethers by explaining that resolutions can include, but are not limited to, loan modifications, “short sales” and “deeds in lieu of foreclosure.” This goes into the “wow, why didn’t I think of that” category. Lenders have already considered and used these alternatives. There is no need to put this language into statute unless the Legislature believes it knows more about loss mitigation than the lender losing money on a delinquent mortgage. A second possibility may be that it is seeking to give judges greater authority to force lenders to accept “good faith” resolutions.
Finally, if the Legislature is going to propose all these new obligations on lenders, one would hope that it isn’t also inclined to make it even more difficult to foreclose. But, alas A247 would do just that. This bill makes it easier for defendant’s to raise a defense that a foreclosing lender lacks standing.
Taken as a whole, this package of reforms will increase legal protections for delinquent homeowners, make lienholders responsible for homes they don’t own and make foreclosing even more litigious and time consuming. Lost in all of this is the simple fact that delinquent homeowners are in homes they can no longer afford. Fortunately, none of these bills have been passed by the Senate yet. We will have to see if cooler heads prevail in the closing weeks of the session.
All’s quiet on the Western Front today, but there’s plenty of proposed regulations on the horizon that will keep your vendor on speed-dial and make small financial institutions wonder how they are supposed to generate income.
The Bureau that Never Sleeps (CFPB) published its semiannual list of rule-making priorities in a blog Wednesday. I won’t go over the whole list, as you can read it yourself, but I will point out a couple of areas that could really have an impact on your credit union’s operations.
The Bureau is still in the process of determining what additional regulations are needed for overdraft services for checking accounts. Depending on how this is drafted, this could be the one that requires your credit union to make the most significant changes. For instance, imagine if the CFPB proposes capping overdraft fees, requires additional opt it protection for members to access overdraft services, and mandates the order in which checks must be processed.
Another area it is considering regulating is one that hasn’t gotten a lot of attention in credit union land: debt collection. Most debt collection regulations currently apply to third party collectors. I wouldn’t be surprised to see the Bureau impose more debt collection requirements directly onto banks and credit unions. Even if they don’t, debt collection is fast becoming a regulatory land mine and its increased complexity will impact all lenders.
That’s all folks. Have a nice weekend.
It’s alive! The U.S. Department of Labor finalized regulations increasing the minimum salary level for an employee to be exempt from overtime pay requirements from $455 a week to $913 a week. This means that when the regulations become effective in December, unless your supervisors make at least that amount, they must be paid the overtime rate of time and one-half for each hour they work over 40.
In addition, under current law there was an exception from overtime pay for highly compensated employees (HCE) who make at least $100,000 annually but whose duties don’t qualify them for exempt classification. This regulation increases the HCE threshold to $134,000. Check with your HR person on this one as there are exceptions that apply to certain professions.
The minimum salary threshold will be updated every three years beginning in 2020. It will be adjusted so that it is equal to the 40th percentile of full-time salaries for workers in the lowest wage region (which is currently the South). As originally proposed, the exempt employee threshold would have been adjusted annually to equal the 40th percentile of full-time salaried workers nationally. This would have resulted in a threshold of over $50,000, which is the number I used in a recent blog. Nevertheless, if and when this regulation becomes effective, it will mark the first time that the exempt employee threshold is automatically updated on a periodic basis.
Why do I say “if and when this regulation becomes effective?” I’ve always thought that this regulation was, in part, politically motivated. I strongly suspect that it will become a major campaign issue with the Donald pledging to annul the regulation and Hillary pledging to ensure that it goes forward untouched.
But with the regulation now finalized, you must find out, if you don’t already know, how many of your currently exempt employees make less than this threshold, how much overtime they work, and if it makes more sense to bump their salaries so that you may continue to classify them as exempt employees, pay them overtime or make sure they don’t work more than 40 hours a week.
Incidentally, there is some good news in all this. Up to 10% of the standard salary level can come from non-discretionary bonuses, incentive payments and commissions, provided they are paid at least quarterly. Furthermore, the final regulation makes no changes to the way in which employers classify exempt and non-exempt employees based on the duties they perform. Many of us were concerned that the Department would institute a rigid test under which employers would have to document that a supervisor spends at least 50% of her time carrying out supervisory responsibilities. This would have harmed many small credit unions.
Finally, when you are done reading this blog, it’s time to reach out to your HR professional so that you can understand precisely how this regulation will impact your credit union. On that note, get to work and enjoy your day.
Credit unions are not just financial institutions; they are small businesses. This means, of course, that even regulations that have nothing to do with banking can pose challenges to their bottom line. While we can’t prevent the federal government from churning out mandates, the more we can plan ahead, the more we can mitigate compliance expenses.
What triggered this didactic diatribe? Most importantly, the U.S. Department of Labor will be finalizing regulations this year that will increase the minimum salary level for employees to be considered exempt from $455 a week to $970 a week, which equals at least $50,440 annually. This is a big deal for credit unions as it is for all businesses. For example, if you currently have an exempt supervisor who makes $44,000 a year, you will have to decide whether to 1) increase his wage; 2) pay overtime or 3) limit overtime. These types of decisions take time, so my first point in writing this blog this morning is to remind you that if you haven’t started reviewing how your costs may be affected by this regulation, you should.
The second point of this blog is to point out just how out of touch federal regulators can sometimes be with reality. During a hearing of the Senate Committee on Small Business and Entrepreneurship last week, I assumed I had simply misunderstood the testimony of D. McCutchen, who pointed out that the DOL estimates that it will only take businesses about one hour of a midlevel employee’s time to familiarize themselves with these regulations. Sure enough, you can find that estimate in the preamble to the proposed regulations under the Department’s assessment of regulatory familiarization costs.
As up and coming Republican U.S. Senator Tim Scott of South Carolina explained, this analysis was “hogwash.” It also makes me wonder yet again how many of the regulators overseeing workplace conduct in this country have actually ever had a job in the private sector.
Bathroom Access For Transgender Employees Under Federal Law
Given the amount of attention the federal government guidance on the use of facilities by transgendered students received last week, I figured now is a good time to point out that the EEOC recently released a fact sheet on bathroom access rights for transgender employees. The fact sheet, among other things, reminds employers that:
“Gender-based stereotypes, perceptions, or comfort level must not interfere with the ability of any employee to work free from discrimination, including harassment. As the Commission observed in Lusardi: “[S]upervisory or co-worker confusion or anxiety cannot justify discriminatory terms and conditions of employment. Title VII prohibits discrimination based on sex whether motivated by hostility, by a desire to protect people of a certain gender, by gender stereotypes, or by the desire to accommodate other people’s prejudices or discomfort.”
We all know that when you open an account, you have an obligation to identify the account holder and understand enough about that person so that you can identify suspicious activity. For several years now, FinCEN has expressed concern that financial institutions don’t do enough to identify who really owns and benefits from accounts for businesses and certain kinds of trusts. So, earlier this week it published final regulations that will require financial institutions to identify the beneficial owners of certain types of accounts, as well as the individuals who control them.
The general idea of the regulation is that when a financial institution opens an account for a corporation or LLC, as part of its customer identification procedures it must identify the beneficial owner(s) of the business – those who own at least a 25% stake – as well as a single individual who exercises legal control of the entity, such as an executive officer or senior manager.
Don’t panic. The regulation comes with a form that can be used to gather the information from the person opening the account and you can generally rely on that person to provide the information. In other words FInCen’s goal is not to require that every financial institution have a staff responsible for verifying a company’s structure. Plus these requirements only apply to accounts for so-called “legal entities.” Legal entity customers are defined as “a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.”
In addition, there are numerous exceptions to this definition outlined in the regulation and its preamble. For instance, the preamble explained that accounts opened for unincorporated associations do not qualify as legal entities. Generally, most trusts do not have to be filed with the state and therefore are also not covered by this regulation. As for those of you with Interest On Lawyer Trust Accounts (IOLTA), which you only recently were authorized to offer, the preamble explains that your requirements under this regulation are satisfied so long as you perform customer due diligence on the intermediary (i.e. the lawyer opening the account).
None of this is to minimize the importance of this new requirement. This new regulation will require new policies and procedures. In addition, there may well be scenarios under which the amount of cash being funneled between a beneficial owner and a corporation necessitate the filing of a Suspicious Activity Report (SAR). The rule takes effect in July, but compliance is not required until 2018.
Some Good News
In a speech yesterday, newly installed NCUA Board Chairman Rick Metsger committed to thoroughly reviewing the agency’s current exam cycle. As a first step, he announced that NCUA would be eliminating the requirement that credit unions with $250 million or more in assets be examined each calendar year. In a press release, he described this mandate as neither effective nor efficient.
In the finest tradition of newscasters everywhere, who always end Friday newscasts on a happy note, I’m signing off. Have a great weekend.
It’s a lot easier to support free speech when you only support the free speech you agree with. So I am sure that Google’s announcement that it will ban advertisements for payday loans starting on July 13 will win kneejerk plaudits from all the usual suspects and high praise for its “corporate responsibility.” That’s too bad. Here’s why.
First, defining a payday loan isn’t as easy as Google thinks it is. Just ask the CFPB which is still tinkering with its payday loan regulations. In its blog announcing the advertising ban, Google said it would apply to loans where repayment is due within 60 days of the date of issue or to loans with an APR of 36% or higher. Credit union payday alternative loans can require repayment within a month and, depending on how the APR is calculated, Google’s criteria could include loans provided by credit unions. As researchers at the New York Fed argued “36 percenters” may want to reconsider their position, unless of course their goal is to eliminate payday loans altogether.”
Personally, I can’t stand these products and I would love to live in a world where there wasn’t a demand for them. But, there has always been and there will always be people in desperate need of cash. With its usury cap, payday loans are ostensibly banned in New York; but, New Yorkers get them every day. One of the reasons why Municipal Credit Union in New York City is one of the oldest credit unions in the country is because loan sharking was so rampant in the early 1900’s that people demanded a safe alternative. And it isn’t just the poor anymore. Approximately half of American households live paycheck to paycheck. Banning payday loan advertisements isn’t going to change that. Payday loans are a symptom of economic disparity and finding a cure is much more challenging than pretending that there isn’t a need for these loans.
Finally, there are issues here that are much more important than payday loans. I don’t want Google using its power to determine which products are worthy of being in the marketplace and what products are not. There would be a justifiable uproar this morning if Google announced that it was banning ads for birth control pills, for example, or no longer accepting advertisements for marijuana stores in states where they are legal; but you won’t hear an uproar this morning because payday loans are politically incorrect. The problem is that Big Brother is just as dangerous to free speech as a private sector behemoth than as a Government censor.
But, increasingly, Americans are only supportive of the free exchange of ideas that they agree with. This is not just unfortunate, it’s dangerous.