Posts filed under ‘General’

Are Changes to the OTR Worth It?

The Overhead Transfer Rate is the formula NCUA uses to determine how much money it spends in  its role as protector of the Share Insurance Fund. A couple years ago I got into a rather spirited discussion over the OTR with a credit union veteran whose opinion I respect a great deal. (I really do need to find  more hobbies and learn to drink less coffee).  I argued  that the NCUA was making a mountain out of a molehill by being  so reluctant to explain the OTR. The person to whom I was speaking argued that the OTR was a discussion that credit unions really didn’t want to get into; it would expose  faultlines between state and federal credit unions since there is no perfect way to divvy up the funds.

We are about to see which one of us was right.

At its board meeting last Thursday the NCUA proposed important changes that will simplify the OTR and make it more transparent. It will also impact your credit union’s bottom-line For example, according to the NCUA  in 2017, under the current methodology 67.7% of NCUA’s operating budget is comprised of transfers from the Share Insurance Fund.  In contrast, if the methodology being proposed by the NCUA was used that number would drop to 60%, resulting in operating fees paid by federal credit unions increasing by approximately 24% or $23 million. It will be seeking public comment.

Why is NCUA making this proposal? Let’s take a trip down memory lane.  NCUA is unique among financial regulators in that it is charged with overseeing both the Share Insurance Fund and the general regulation of credit unions.  There is no FDIC for our industry. The OTR is the formula NCUA uses to allocate insurance related expenses to the Share Insurance Fund.  This puts it in a tricky spot.  The more money it takes from the Share Insurance Fund to cover insurance related costs for its  operations, the less money it has to charge federal credit unions for costs related to their oversight and the more money state charters have to pay for federally related expenses.  Industry groups led by NASCUS has been critical of NCUA’s allocation practices and the secrecy with which it has shrouded the process.

NCUA’s proposal, which is not a formal rule and can be implemented unilaterally by the agency, would greatly simplify things in a way that’s going to result in clear winners and losers. For example, currently, NCUA uses an examination time survey in which a sample of examiners are tasked with estimating the amount of time they spent on Share Insurance related activities.  If NCUA goes forward with this plan, the examination time survey will be eliminated and instead there will be a categorical assumption that NCUA employees spend 50% of their time on insurance related activities.  In this proposal, NCUA also states that “it’s only role with respect to federally insured state chartered credit unions” is as an insurer.  This might be a good thing for state credit unions to remind federal examiners of next time they take too aggressive a view of their oversight powers.

The result of all this would be a greatly simplified OTR mechanism which you could understand in less than the 2 ½ hours it has taken me  to watch the first six innings of  the  Yankee game.  This is a good thing.  I’ll leave it up to the numbers folks to decide whether or not the NCUA’s proposed revisions are a step in the right direction or a classic example of opening a can of worms that could divide the interests of state and federal credit unions.


June 26, 2017 at 8:43 am Leave a comment

Close But No Cigar on BDD’s

As succinctly summarized in this morning’s Albany Times Union, the 2017 Legislative session fizzled out late Wednesday night with no grand finale. Unfortunately our Banking Development District Legislation bill was also victimized by this inaction.

Although the Assembly passed a bill that authorized credit union to assist underbanked communities, in the end the Senate Rule Committee didn’t pull the trigger, failing to put the bill on the floor for a vote of the full chamber. The result is disappointing, but remember the legislative process is a marathon not a sprint. The fact that one house has passed the legislation and the senate has now seriously considered it is progress we can build on for next year.

It appears that many of the highest profile bills dealing with employment also withered on the vine. For example, legislation passed by the assembly which would have prohibited the use of consumer credit history in hiring employment and licensing determinations as well as legislation prohibiting inquiries about an applicant’s salary history, didn’t make it through the gauntlet .

On that note yours truly is taking tomorrow off and selling lemonade at my daughters lemonade stand- I have to pay for college somehow. I will be back on Monday.

June 22, 2017 at 9:01 am Leave a comment

In Defense of Debt Collectors

My gripe with consumer advocates is that they posit a kumbaya world in which there are no tradeoffs between consumer protections and access to credit. The CFPB scrutinizes debt collection practices and payday lending, and Congress mandates that lenders offer “Qualified Mortgages” without any acknowledgement of the fact that these restrictions will result in fewer people owning houses, fewer people in desperate need of short-term financing getting a loan and an increase in the number people who could but simply don’t want to repay a debt getting more legal protections.

It’s not that the evidence isn’t out there, it’s that they choose to ignore it. Recently the New York Fed published a paper which analyzed the impact on state laws regulating third-party debt collectors and the availability of credit. According to the researchers, there is “consistent evidence that restricting collection activities leads to a decrease in access to credit and a deterioration in indicators of financial health.” Moreover this impact is concentrated primarily among borrowers with the lowest credit scores.

By the way, their finding are not some research anomaly but are broadly consistent with other research findings. This will come as no surprise to those of us in the credit union industry. The more members consistently and promptly pay back their loans, the easier it is to keep the branch lights on and the more money there is to provide reasonably priced loans to other members.

This is common sense, but all too often it’s a point that legislators and regulators just don’t get or choose to ignore. New York and other so-called progressive states reacted to the mortgage crisis by providing delinquent homeowners with a panoply of additional protections ranging from 90 day pre-foreclosure notices and stringent lender affidavit requirements, to making larger lenders responsible for maintaining abandoned property on which they haven’t foreclosed. In isolation, all of these are defensible and well-intentioned, but in the aggregate they make home-buying a more expansive proposition for those on the lower end of the economic ladder.


Fed raises rates

As expected, the Fed raised the Federal Funds Rate again yesterday. I wanted to pass along this article from the Economist arguing against the Fed’s latest move.

June 15, 2017 at 9:22 am Leave a comment

News Flash: Treasury Report is Worth Reading

No administration is truly complete without at least one Treasury Department Report calling for radical reforms to the banking system. They are like a Sean Spicer press conference: they generate lots of headlines and are sometimes entertaining, but they are almost always meaningless exercises.

The report released by the Trump Administration on Monday however proposes a series of changes for credit unions that are worth paying attention to. First, many of the proposals can be implemented without legislative action; Secondly, with the Trump administration being able to pick a new director of the CFPB next July, these proposed changes could be viewed as a blueprint for the type of reforms we could see under a Trump chosen director. Here is a best- of- list in which I am highlighting the reforms that would both impact credit unions positively and are actually achievable.

  • The report calls on NCUA to apply its risk based capital requirements only to credit unions with $10 billion or more in assets. Instead credit unions of all sizes should have a single leverage test.
  • Currently RBC requirements are scheduled to be imposed on credit unions with $100 million more in assets, starting in 2019.
  • The proposal calls for the CFPB to raise the threshold for compliance with Dodd-Frank’s ability to repay/qualified mortgage requirements from institutions with $2 billion in assets to those with assets somewhere between $5 and $10 billion. This is an example of the type of change we could see with a new director.
  • Treasury calls for the coordination of cybersecurity requirements.
  • Amen to that. Do we really want 50 different state and competing federal cybersecurity requirements?
  • The report endorses the expanded use of supplemental capital by credit unions. This clearly will provide further support to NCUA as it considers what authority it can give credit unions to use supplemental and secondary capital.
  • If I had to list one warning sign in the report, it is Treasury’s call to consider streamlining and coordinating regulatory activities. While this sounds harmless in theory, in practice it could open the door to elimination of the NCUA.
  • The report recommends raising the threshold for mandated credit union stress testing from institutions with $10 billion to $50 billion in assets.

On that note enjoy your day!


June 14, 2017 at 9:11 am Leave a comment

What bubble are you in?

I’m a little bit more bemused, bewildered and irritated by the world around me than usual this morning and it’s not just because my Dunkin Donuts’ frozen coffee cost more than $5.00. If I’m going to spend that much money, I’m stopping at Starbucks and getting some real coffee. Let me tell you why I’m annoyed and how it relates to the landscape in which CU’s find themselves competing.

Yesterday we had a former FBI director testify that a sitting U.S. President can’t be trusted even as the president’s lawyer announced that his testimony vindicated our Commander and Chief;

The House passed mandate relief while effusively praising community banks. In reality the bill does much more to help the largest banks in the country than credit unions or small banks.

Our erstwhile ally in Great Britain suffered another self-inflicted wound as voters denied the conservatives a majority in parliament despite polls suggesting an electoral landslide for them. The vote comes less than two weeks before they begin negotiating the U.K.’s divorce from the European Union.

What does all this have in common? They are just the latest examples of a world in which we can not only choose our neighbors but our own “reality bubbles”. The explosion of information brought about by computing power isn’t creating a more meritocratic society in which we hash out issues in a virtual town square, but a more balkanized one in which a collection of tribes increasingly have nothing in common with each other. At the touch of a smartphone button we can find people who think what we think; buy what we buy; eat what we eat; read what we read; live where we live and bank where we bank. We even let kids choose their college roommate lest they be stuck with someone different than themselves.

It’s gotten so pathetic that a Google engineer designed an App to force himself to meet different kinds of people.

The practical point here is that there are two ways to prosper in this environment, either become one of the handful of companies like Facebook and Amazon that have the resources to be all things to all people, or become associated with a tribal niche. Netflix shows don’t get great ratings but they dominate specific demographics. Now, more than ever, credit unions have to pick the tribes they are going to appeal to.

Banking doesn’t mean the same to the socially conscientious millennial as it does to the fifty something year old investment banker or the first generation immigrant and it never will. They are in different tribes and they always will be.

So why am I irritated? This experiment we call the United States of America is predicated on the recognition that America is an incredibly diverse polyglot and the belief that, despite this diversity, its citizens can muddle through and reach consensus on the key issues of the day.

Increasingly though there is not the slightest desire for people to forge a common reality; instead we retreat to our respective bubbles with our “alternative facts”, complain about politicians, and wait for the next election to see what uncompromising band of tribal representatives will tally the most votes.

On that note, have a great weekend!

June 9, 2017 at 9:37 am 1 comment

Are You Really Ready For Remote Deposit Capture?

One of my compliance pet peeves has been the rush to embrace remote deposit capture without a clear framework for apportioning liability. “Check 21” authorized “substitute checks” which are truncated electronic images of paper checks that are treated as real checks. The idea was to speed up settlements between banks.   At the time no one envisioned a world in which your average consumer would have the ability to create electronic images with a smartphone. As a result, what happens if a credit union receives a deposit of an original paper check that was returned unpaid because the check was previously deposited using a remote deposit capture service and paid?

So I was pleasantly surprised that the Federal Reserve finally approved regulations slated to take effect in July 2018 which updated regulation CC for the new century. There is a lot of important stuff in here so in the coming weeks I will be periodically highlighting some key changes as well as an additional proposal the Fed is seeking comment on. Remember this impacts your credit union irrespective of its size.

A new section 229.34 addresses this precise issue and I’m quoting extensively from the accompanying commentary:

“Depositary Bank A offers its customers a remote deposit capture service that permits customers to take pictures of the front and back of their checks and send the image to the bank for deposit. Depositary Bank A accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in turn, pays the check. Depositary Bank A receives settlement for the check. The same customer who sent Depositary Bank A the electronic image of the check then deposits the original check in Depositary Bank B. There is no restrictive endorsement on the check. Depositary Bank B sends the original check (or a substitute check or electronic check) for collection and makes funds from the deposited check available to its customer. The customer withdraws the funds. Paying Bank returns the check to Depositary Bank B indicating that the check already had been paid. Depositary Bank B may be unable to charge back funds from its customer’s account. Depositary Bank B may make an indemnity claim against Depositary Bank A for the amount of the funds Depositary Bank B is unable to recover from its customer.”

Does all this mean that you are at the mercy of your member? Not entirely. The commentary goes onto explain that if the original check deposited in Bank B contained a restrictive endorsement “for mobile deposit at Depositary Bank A only” and the customer’s account number at Depositary Bank A. Depositary Bank B may not make an indemnity claim against Depositary Bank A because Depositary Bank B accepted the original check bearing a restrictive endorsement inconsistent with the means of deposit.

What all this means on a practical level is that you may want to limit access to remote deposit capture to your more seasoned members. Remote Deposit Capture is the future but it’s also ripe for abuse. The new regulations make clear that the credit union offering the service is ultimately vouching for its member’s trustworthiness.


June 8, 2017 at 9:28 am 1 comment

Are You Prepared For Paid Family Leave?

Greetings. It is back to reality after what I personally believe was a phenomenal Annual Convention in Bolton Landing.

Judging by the dramatic dive in my readership that takes place around this time of year, I know that many of you take a break from the nuances of the legislative and regulatory developments of our industry. I call it summer hibernation.

One thing that you should be paying attention to though is the roll out of NY’s Paid Family Leave law. In case you haven’t been paying attention, starting in January 2018 New York is going to start phasing in paid family leave. For example, starting January 1,2018 – eligible employees will receive the lesser of 50 % of their weekly wage or 50% of the states average weekly wage , whichever is less, for a period of 8 weeks during any 52 week calendar period. By the time it is fully phased by 2021, employees will be eligible to receive 12 weeks of paid leave in any calendar year. This law applies to your credit union regardless of its size or charter type.

Even though the law and its benefits don’t kick in until January, New York State is giving employers the option of starting to deduct money from paychecks starting on July 17, 2017 for benefits that kick in January 2018. This is optional and I would certainly recommend checking in with HR folks to see what the best approach is for your credit union.

IF the plan works as intended its cost will be paid for through employee contributions. On June 1st the DFS issued the 2018 premium for Family Leave Benefit Employee Contributions. For coverage beginning January 1, 2018 the amount will be 0.126 of the employees weekly wage provided it doesn’t exceed the average weekly wage of NYS.

Stay tuned. This law is the HR Professional Employment Act in waiting.

June 5, 2017 at 10:36 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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