Posts filed under ‘General’

Congress Passes Much Needed Improvements To The PPP  

Amidst all the mayhem that is enveloping the country, a funny thing is happening: Congress is acting in a bipartisan way to address the country’s most immediate economic problems.

Last night, the Senate approved H.R. 7010, which makes much needed changes to the PPP.  In a change that will be particularly helpful for businesses in the downstate area of New York, the percentage of a PPP loan which must be spent on payroll in order to be eligible for loan forgiveness has been reduced from 75% to 60%.  The Bill also gives businesses more flexibility to meet payroll obligations and still be eligible for forgiveness.   The time period for spending money under the bill is extended until December 31, 2020 and the period during which the loan must be repaid has also been extended.

What is not entirely clear is whether additional loans can be granted under the program after June 30, 2020.  According to press reports, in order to receive unanimous consent for a voice vote, Senate Majority Leader Mitch McConnell agreed to a letter being included in the Congressional record classifying that June 30th is the cut-off date for new loans.

The bill now must be signed by the President.

June 4, 2020 at 8:27 am Leave a comment

Why Credit Unions Should be Concerned About The HEROES Act   

From the credit union perspective, what is most noticeable about the HEROES Act is not what’s in the bill, but what is not.  Despite laying out more than 1,800 pages of priorities, as noted by David Baumann in his excellent article, House Democrats did not include any of the industry’s priorities including PCA flexibility, extending the duration of amendments related to the Central Liquidity Fund or expanded authority for MBL loans.

What’s more, there is plenty in the bill to keep credit union executives worried about unpaid mortgages up at night.  Section 4204 would grant “automatic forbearance” to any borrower whose mortgage has become 60 or more days delinquent since March 13th.

If the conventional wisdom is correct, the house bill has about as much chance of becoming law as Donald Trump does of becoming an epidemiologist.  Still, the industry should consider this bill a warning shot.  The real threat to the continued growth of the industry does not come from the bankers.  It comes from the liberal younger base of the Democratic Party which, rightly or wrongly, is becoming increasingly dissatisfied with the efforts made by credit unions to help people of modest means.

Increasingly, the party is looking to CDFIs which is why the news is not as bad for you if you are one of the approximately 300 credit unions which are Certified Development Financial Institutions.  The bill includes $1billion in funding for the CDFI fund.

May 15, 2020 at 9:07 am Leave a comment

What Legal Risks Does The Pandemic Really Pose To Your Credit Union?

Governor Cuomo’s announcement yesterday of a regionally based and phased-in reopening of New York State came the same day that Senate Republicans returned to Washington D.C. and emphasized yet again that any additional Federal Aid will be tied to liability protection for businesses fearful of being sued when employees and customers contract the COVID-19 virus.

Not surprisingly, many credit unions are debating the scope of their liability. I’m afraid this discussion is too narrowly focused. The potential risks of your members and employees contracting the virus is just one of several issues your credit union should be considering as it ramps up services in a world that has been fundamentally reshaped by recent events and has dramatically changed the potential compliance and legal risks confronting your credit union. Most credit unions aren’t going to be confronted with class action lawsuits, but almost all of them are going to have to deal with nervous and sometimes disgruntled employees and customers, financially struggling borrowers, over aggressive regulators tasked with interpreting hastily promulgated mandates and financial strains. All of these pose unique legal and compliance challenges.

Your credit union’s response should be shaped by the size of your credit union and the type of products it offers. What all credit unions, and all businesses for that matter, have in common is the need to take a deep breath, pull back the lens and address those areas where potential legal deficiencies have been exposed or exacerbated by the pandemic.

How should you go about accomplishing this? Credit unions are already used to regulatory mandates requiring that they assess the risks of a broad range of issues ranging from a new member’s business activities to a new product’s vulnerability to identity theft. I would suggest taking the same approach to identifying those areas most in need of improvement as a result of COVID-19.

For example, what is the greater threat to your credit union: a class action lawsuit brought by members or employees who come down with the virus or being sued by an individual employee after not accommodating a request to work from home? For many of you HR issues pose a much greater threat to your financial health than does the direct threat of the pandemic.

Then of course there are the hastily promulgated regulations enacting the PPP and mandating forbearances be granted for homeowners whose finances have been impacted by the pandemic. These are just two examples of regulations which both disgruntled members and curious regulators will be taking a look at in the coming months.

The bottom line is that as your credit union reopens lobbies, expands hours, and calls more employees back to work, it should do so within a new framework which recognizes the various ways both big and small that the pandemic has had and will have on almost every aspect of your credit union’s risk profile. You should recognize the areas of greatest risk and prioritize those areas which most need to be improved. Time to call a virtual meeting and by all means include your outside counsel.

May 5, 2020 at 9:51 am Leave a comment

How Can PPP Borrowers Spend Their Loans?

The PPP can’t get a break. Now that at least some of the glitches involving lenders filing loans with the SBA have been addressed, there are increasing concerns that the program’s terms are too restrictive to help out some of the businesses it was designed to help. The result is that banks and credit unions participating in the program are being asked questions to which they cannot offer definite guidance and the SBA still faces a pressing need to clarify the intricacies of the program even as it is charged with getting more than half a trillion dollars out to the public in record time.

According to the New York Times, many small business owners are afraid to spend the money even after they get the loan. Under the program’s regulations, the PPP loans are completely forgivable provided 75% of the loans proceeds cover payroll costs and payroll is maintained. If those targets are missed then the PPP becomes a normal loan repayable with 1% interest. The article quotes business owners who are concerned that they may be violating the law depending on what they spend the money on if they decide to spend the money on expenses other than payroll.

In fairness to the SBA, this may be yet another example of overcautious legal interpretation as we all dive in to unchartered legal waters. Many of the small businesses interviewed have been advised by lawyers and accountants that they have the flexibility they need to spend the money where it can be of most use for their business. Then again, the same businesses were unable to get yes or no answers from the SBA.

Fortunately there is a simple solution to this problem. The SBA has it within its authority to either adjust the 75% requirement or clarify what small businesses are authorized to do with PPP money if they choose to forgo the 75% requirement. Hopefully it will take these steps quickly. After all, for many small businesses it makes more sense to invest these funds in ways that will keep the businesses viable rather than paying employees for whom they have no work and who are eligible for generous unemployment benefits.

In the meantime, if your members ask you how they can spend the money, I would instruct your staff to tell them that you are still waiting for an answer from the SBA.

May 4, 2020 at 9:42 am Leave a comment

What Would Bill Withers Say?

Updated 04/07/2020 2:30pm

It’s time for everyone to take a deep breath, remember the situation we’re all in, and look at the facts when it comes to the increasingly controversial Payroll Protection Program (PPP) that was signed into law on March 27 and for which initial guidance was just released this past Thursday.

  1. Can the SBA make lenders responsible for these loans?

Concern over participation centers, in part, on well-deserved criticism of the traditional administration of the regular 7(a) SBA loan program combined with some bad memories about how Fannie and Freddie scoured loan documents to force lenders to repurchase mortgage loans for technical violations of lending procedures. A lot of lenders out there are concerned that the 100% guarantee is too good to be true, and that when the dust settles the SBA will look for reasons to deny repayment. But keep in mind when reviewing whether or not to participate in the PPP program that 1) you are not becoming a 7(a) lender for any other purpose but the PPP; and 2) so long as you collect the proper documentation coupled with the appropriate borrower certifications, the scope of your potential liability is limited. You are not engaging in traditional underwriting. You are collecting forms.

2. Should the credit union become certified to make these loans before it decides whether to participate in the program?

My answer is no, and here’s why. The CARES Act Lender Agreement stipulates as follows: “(“Lender”) hereby agrees as a condition and in consideration of authorization by the United States Small Business Administration (“SBA”) and the Department of Treasury for Lender to make Paycheck Protection Program SBA-guaranteed financing available as part of the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”) (P.L. 116-136) to eligible recipients, as follows (the “Agreement”). . .”

3. Are the terms of the loan too restrictive for borrowers?

This is an argument being advanced by the Wall Street Journal this morning. Under the loan terms, the SBA decided to keep non-payroll costs including mortgage interest, rent and utilities to 25% of the total authorized expenditure to focus on payroll. The problem is that for many businesses, these non-payroll expenses are the bulk of their costs.

4. How will this impact my capital ratios?

This will, of course, vary by credit union. But the program does give you the option of selling these loans to the SBA as soon as seven weeks after the loan closes. If you still don’t trust the SBA, then you will be happy to know that the Federal Reserve announced that it would be purchasing PPP loans. This is huge news. There will be a secondary market and there is going to be demand for the product.  Finally, under the CARES Act, if you are one of the handful of credit unions that is already utilizing a risk based capital model, these loans have a risk weighting of zero.

5. Can I limit my participation to my members with existing accounts?

Yes, you can. This is a great compromise for those of you who want to be there for your existing members but are a bit gun shy about taking a big plunge into the program.

6. Are there compliance risks?

Absolutely. As long time readers of this blog know, my wife justifiably accuses me of being a beater of dead horses. I want to stress yet again that you have the same obligations to know your customers when making these loans as you would with any other business accounts. That means that you should identify the beneficial owners of the organization and monitor the account for unusual activity.  That being said, however, the SBA has issued this guidance providing some relief, specifically, the Q & A provides that:

If the PPP loan is being made to an existing customer and the necessary information was previously verified, you do not need to re-verify the information. Furthermore, if federally insured depository institutions and federally insured credit unions eligible to participate in the PPP program have not yet collected beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.

7. What would Bill Withers do?

 Listen, I understand all the cynicism when it comes to participating in the government program, but this is a classic Bill Withers moment.  We are not for-profit cooperatives and we should be there for our members to lean on and to help them carry on.  If not now, when?  If not us, then who?

 

 

April 7, 2020 at 9:25 am Leave a comment

Going Viral: Four Key Reg. Developments Over The Weekend

Regulators are scrambling to keep up with the virus.  In recent days the SBA released the forms to be used when making Paycheck Protection Program loans, the Department of Labor released additional guidance on your COVID-19 related HR obligations, the Financial Crimes Enforcement Network (FinCEN) published guidance on its expectations for lenders during the outbreak and the recently finalized State Budget includes a $25 million commitment to fund the state level Community Development Financial Institutions (CDFI) program over the next five years.

To Loan or Not to Loan, That is the Question

There continue to be numerous published reports about how banks and credit unions need more guidance about the Paycheck Protection Program passed last week.  The good news is that over the weekend, forms were posted to SBA’s website.  The most basic point I want to stress to you is that by signing or submitting the “CARES Act Section 1102 Lender Agreement” posted on SBA’s website, you are committing to participating in the PPP.

On a personal note, I’m a little concerned that the industry is suffering paralysis by analysis.  These are not normal times, and if your plan is to wait for the dotting of all the Is and the crossing of all the Ts before starting to make these loans, you have effectively decided not to participate in the program.

FinCEN Issues Updated Guidance

FinCEN moved quickly to update guidance to address lender obligations related to PPP loans specifically, and lender obligations during the pandemic in general.  Most importantly, it addresses lender obligations under the CARES Act.  The FinCEN guidance informs credit unions and banks that PPP loans for existing customers will not require re-verification of existing BSA information unless otherwise indicated by the institution’s Risk Based Approach.  How’s that for decisive equivocation?  The guidance also touches on timing requirements for the filing of Currency Transaction Reports.

DOL Issues More Guidance on Employee Relief

The Department of Labor issued updated guidance on paid sick leave and expanded family leave under the quickly changing federal law.   I still do not see much relief for businesses with 50 or fewer employees that have to comply with these laws, but I will provide additional information as it becomes available.

State Budget

This year’s state budget was passed with more secrecy than a papal conclave.  But now that the puff of smoke has risen, it appears that credit unions that are CDFI certified have reason to celebrate.  According to the Governor’s press release, the budget includes $25 million over five years to support New York’s Community Development Financial Institutions Fund.  For almost two decades, New York has had this Fund in place, but has never funded it.

The budget also creates an Office of Financial Inclusion and Empowerment to meet the financial service needs of low and middle income New Yorkers.

April 6, 2020 at 9:52 am Leave a comment

Legislature To Pass Coronavirus Legislation

Good morning folks.  If all goes according to plan, the legislature is scheduled to convene today for the first time since two Assembly members contracted the coronavirus.  In normal times, we would be in the homestretch of intense budget negotiations with the state’s fiscal year scheduled to start on April 1st.  But these are not normal times. Instead, one of the most challenging issues facing legislators is how to convene safely.

When the legislature does meet, one of the bills it has tentatively agreed to take up provides leave for all employees who are either subject to  a mandatory or precautionary order of quarantine or isolation issued by New York State, or need to care for someone who is.  This legislation is part of a larger bill mandating that all employees be provided with sick leave.

The Governor in this year’s budget proposal originally proposed the sick leave legislation.  It implements a sliding scale of sick leave benefits depending on the size and income of the employer.

On one end of the scale, employers with four or fewer employees with a net income of less than $1 million dollars would have to provide 40 hours of unpaid sick leave in the calendar year.  In contrast, employers with 100 or more employees in any calendar year would have to provide at least 56 hours of paid sick leave.  This is a tentative deal and if there are changes before the bill is passed, we will let you know.

Incidentally, if the legislators are looking for helpful bills to pass in this time of crisis, one measure they should consider is legislation authorizing remote notarization services.  Many other states already have legislation providing for remote electronic notarization. In tomorrow’s blog, I will provide you all with some information about the impact that the virus is having on mortgage lending – and options that policymakers have to streamline the lending process.

 

March 18, 2020 at 11:16 am Leave a comment

Seven Ways COVID-19 Is Impacting Your Operations

Greetings from the state that is number one in COVID-19 cases; as of Sunday afternoon.

There have been an amazing number of developments affecting your credit union over the weakened.  I am emphasizing those that you may not have heard about yet.

New York Delays New Servicing Regulations

I actually have some good news to tell you this morning.  I found out over the weekend that New York’s  Department of Financial Services has issued an emergency regulation putting on hold for an additional 90 days new servicing regulations which many credit unions and mortgage bankers were wondering how they were going to comply with.  In announcing the delay DFS Superintendent, Linda A. Lacewell explained that “the volume and complexity” of the new regulations, especially since they require new programing and disclosure requirements for home equity lines of credit, has led the department to conclude that businesses need more time to comply, particularly at a time when they have to concentrate on the pandemic.

A special shout out to the New York Mortgage Bankers Association, which did a great job alerting stakeholders to the difficulties in complying with this regulation.

State Issues COVID-19 Emergency Relief Order

New York’s Department Of Financial Services issued an order exempting state licensed and state chartered financial institutions including state chartered credit unions from some regulations with which they would normally have to comply.  Most importantly, these institutions can now close and relocate branches and offices without first providing notice to DFS.  In addition, licensed individuals such as mortgage originators can work from home with the understanding that they are still subject to New York’s regulations.  Entities are still expected to inform New York State of any relocations.

Additional Developments…

Also over the weekend, the Governor asked businesses that could do so, to voluntarily shut down and allow their employees to work from home.

Finally, the state has imposed limits on the size of mass gatheringsHere is his first order.  This situation is very fluid and we may see further reductions in the authorized size of mass gatherings.

Fed Gone Wild

Just how low can the Fed go?  The Federal Reserve Open Market Committee announced yesterday that it was slashing the Federal Funds rate to zero (!) and “expects to maintain this target range until it is confident that the economy has weathered recent events…”

When the history of this pandemic is written, it will be marked as the end of a unique period in American history during which the Federal Reserve exercised a decisive impact on the American economy.  In 1987, Alan Greenspan calmed the stock market following its dramatic decline; it was the Fed that helped minimize the impact when the dot-com bubble popped; and Ben Bernanke mitigated the impact of the Great Recession of 2008 by going on a mortgage buying binge.

My how times have changed.  Interest rates are already too low to have much of a stimulus impact and they will have no effect in coxing Americans out of their homes to hoard more toilet paper.

The Fed did take one important step recently.  It announced a massive infusion of funds into the repurchase market.  It also announced it would accept a broader range of securities for these arrangements.

The repurchase market plays an absolutely crucial role in the economy.  It is the mechanism by which the largest of the large financial institutions manage their liquidity on a daily basis by getting short-term loans of cash in return for collateral such as bonds.  The system has had some hiccups over the past year and no one quite knows why.  Stay tuned.

With the Fed out of bullets, it is up to Congress and the President to come together and agree on a stimulus package.  On Saturday, the house took the first step in this legislative dance by passing legislation which extends limited family leave protections to some employees and increasing funding for programs such as SNAP.  The precise impact of this proposal is being debated this morning, with critics already complaining it contains too many loopholes to help most workers.  If, as expected, the Senate passes the bill this week and the President signs it, the real contentious debate gets started.  Both sides are already jockeying for position over what should be included in a larger stimulus package.

March 16, 2020 at 10:38 am Leave a comment

Can you Postpone Your Annual Meeting?

Judging by the number of people that asked the Association this question yesterday, I would hope that NCUA would shortly be coming out with guidance and other related issues. That being said, here is my opinion, which is of course, not a substitute for consultation with your attorney.

  1. Can my credit union postpone its annual meeting?

Yes it can. Under both Federal and State law, board members and officers have a fiduciary obligation to work in the best interest of the credit union (see Grand Union Mount Kisco Employees Fed. Credit Union v. Kanaryk, 848 F. Supp. 446, 457–58 (S.D.N.Y. 1994); 12 CFR 701.4. Furthermore, while NCUA decided to put its bylaws in its regulations a little more than ten years ago, it is important to understand that the bylaws are ultimately a framework in which the board carries out its obligations.

Against this backdrop, it is my humble opinion that while you should hold your annual meeting on the date and time prescribed in your bylaws whenever practical, you have the obligation to change plans when doing so is mandated by common sense public health concerns. In this case you have the right and maybe even the obligation to postpone the annual meeting to confront a public health crisis. After all, one of the goals of NCUA is to encourage participation in annual meetings and as a board member you have an obligation to make decisions which you believe are in the best interest of your membership.  No one should have to choose between putting their health at risk and attending a meeting which can be postponed.

2. Can we hold a virtual meeting?

Unfortunately the answer to this question is not as cleat cut as it should be. NCUA recently updated its bylaws and explicitly rejected a proposal to give credit unions the option of holding virtual meetings. The preamble to the final rule explained that a movement towards completely virtual meetings could actually disenfranchise some members. CUNA has requested guidance from NCUA on this very issue. For state chartered credit unions in New York you have more flexibility to interpret and implement your bylaws. I would use that flexibility to permit virtual meetings in this particular circumstance.

3. If we suspend the annual meeting, how will this impact our board elections?

That depends. If your credit union accepts nominations to the board at the annual meeting then I would argue that the election can’t be held until the annual meeting. After all, the board has an obligation not to disenfranchise its members. But if you’re like the credit union I was talking to yesterday, nominations can only be made by the board nomination committee and by petition. The time period for these nominations has passed and only incumbent board members are seeking reelection. In this case there is no need to extend the nomination period simply because the annual meeting will be postponed. After all, members had adequate time to run for the board and chose not to.

These are unique times. School districts are shutting down. Entire countries are being quarantined and President Trump is actually reading entire speeches off a tele-prompter. The purpose of this blog is not to provide definitive answers where there are none, but to underscore the flexibility your credit union has to implement its regulations in a way which both is true to the intent of your bylaws while being consistent with your obligations to work in the best interest of your members. This is the prism through which I believe regulators should, and courts ultimately would, examine your decisions.

March 13, 2020 at 9:52 am Leave a comment

Tawdry Misconduct At NCUA Uncovered By Inspector General

Reports of marijuana consumption, visits to strip clubs and possible sexual harassment involving NCUA’s office of General Counsel are some of the highlights from a report released by the Office of Inspector General on Friday. Some news just speaks for itself.

 Reach Out And Block Someone

There are many times when legislators and regulators use a chainsaw when they need a scalpel. The leading example of this unfortunate impulse continues to be the TCPA and its regulatory framework which not only take aim against obnoxious robo-calls but are also making it difficult for legitimate businesses including banks and credit unions to engage in rudimentary member communication.

Just how big a deal is this? Recently NAFCU and CUNA signed on to a letter with representatives of several other industries highlighting the practical consequences of the FCC’s overzealous implementation of the fatally antiquated federal statute.

According to the letter, callers and consumers “are not receiving proper notice or procedural protections with blocked or mislabeled calls. If left unchecked, these issues will have significant negative impact on consumers…” For example, the letter noted that two factor identification requests are being blocked as are security related messages and fraud alerts. These aren’t all that useful hanging out in your SPAM folder.

Of course all this was predictable. Remember that this past summer the FCC rushed out regulations giving telephone companies greater protections to more aggressively block suspected robo-calls. At the time credit unions and others warned that this proposal would result in unintended harm to consumers. The FCC went ahead with the rule but coupled it with a mechanism to create a “safety valve” to ensure that consumers could alert the FCC to the fact that legitimate calls were being blocked. The letter includes suggested modifications to the blocking techniques of phone companies. Hopefully some of these will be implemented but I’m not holding my breath.

Get Ready for One Wild Financial Rollercoaster

I’ve included a graph of the Ten Year Treasury Note which continues to drop lower and lower and lower. Combine this with a precipitous drop in oil price and the spreading coronavirus pandemic and today isn’t a good day to check out how your 401k is doing.

March 9, 2020 at 9:19 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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