Posts filed under ‘Legal Watch’

Early Lessons You Need to Learn When Dealing With Vacant Property

In 2016, the legislature decided that it would be smart to make larger banks and credit unions responsible for maintaining abandoned property before the property was even foreclosed on. In return, for this absurd requirement, the legislature agreed to expedite the foreclosure process for institutions holding mortgages on abandoned property.

Yours truly has always been somewhat skeptical that the fast track reforms would work but, as the first cases under this new statute begin to hit the dockets the early returns are encouraging. In fact, I’m going to highlight a recent case that I would suggest those of you responsible for managing foreclosure activity use as a template as you manage the ridiculous number of obstacles that New York continues to put in the way when it comes to foreclosing on property that borrowers can’t afford. And remember, even if you’re a credit union that doesn’t have to comply with the property maintenance requirements, these cases demonstrate how important it is for your credit union to still follow the appropriate procedures for demonstrating that a mortgage property has been abandoned in order for your credit union to be able to take advantage of this new expedited procedure.

The most recent example I’ve seen is TEACHERS FED. CREDIT UNION v. GERGEL, 2017 NY Slip Op 51642. It’s impossible to summarize the case in less than five blogs not because the issues are so complicated, after all we are dealing with someone who decided not to pay a mortgage they owed and vacate their house, but because of the myriad of regulatory requirements with which the credit union and similarly situated lenders must comply. For example, the credit union had to document that a foreclosure settlement conference was held in which the defendant did not appear; the plaintiff could then move for an expedited foreclosure, but only after the defendant’s time to respond to the foreclosure lawsuit had expired; the credit union and court both properly served the appropriate notices and the credit union had to prove that it complied with the detailed procedures for determining that the property was in fact abandoned.

It’s hard to believe that this is an improvement over New York’s existing system but in a state where it is not uncommon for foreclosures to take an excess of four years, the fact that the credit union was able to file this lawsuit on October 3, 2016 and receive the go ahead to sell the property is a marked improvement.

Does this mean that New York doesn’t have to reform its foreclosure process? Absolutely not. For one thing, the improvements made by the legislature just apply to vacant and abandoned property. For another, even this properly applied application of the statute demonstrates how many moving pieces have to align before even a simple foreclosure can go forward. Judges have to be available to hear the cases, similar if not downright duplicative notices have to be sent and when we see the next upsurge in foreclosures, the system will once again be overwhelmed.

The simple truth is that the existing foreclosure system has provided delinquent homeowners with so many procedural protections that there is no longer an appropriate balance between the understandable desire to make sure that someone truly should lose their house and the need to keep property values stable by making foreclosures a feasible option.

Here are some additional recent cases you may want to take a look at:U.S. Bank Tr., N.A. v. Rodriguez, No. 605405/2017, 2017 BL 432109 (N.Y. County Ct. Dec. 01, 2017); JPMorgan Chase Bank, N.A. v. Martin, No. 14017/2011, 2017 BL 406184 (Sup. Ct. Oct. 26, 2017)

December 12, 2017 at 9:23 am Leave a comment

Are Supervisory Committees Outdated?

Keeping in mind that the opinions I express are mine and mine alone, I believe that the single biggest defect of the current credit union structure is the continued reliance on supervisory committees to ensure that member funds are adequately protected. The reality is that even the smallest credit unions are much more sophisticated than was envisioned a century ago. Without addressing this defect, credit unions are going to be more susceptible to fraud and financial mismanagement than they have to be or should be.

What brings about this diatribe? Over the weekend I was catching up on some reading and one of the reports I came across was this recently released working paper from the FDIC in which the authors analyzed potential methods for helping detect fraud based on an analysis of a bank’s balance sheet. They pointed out that such analysis is particularly important since according to their research, approximately 45% of the commercial and mutual banks that failed between 1989 and 2015 were victimized by fraud. I haven’t seen similar research for credit unions but all you have to do is examine the reports of failed credit unions conducted by NCUA’s Office of Inspector General to realize that fraud is undoubtedly a comparable if not larger problem for credit unions.

For example, one of the recent post-mortems performed by the OIG was of six Pennsylvania credit unions for which fraud was one of the main factors in their demise. The NCUA had actually spotted problems but the supervisory committee didn’t take basic steps such as demanding a paper trail for investments.

Now, I’m not saying that supervisory committee members have to understand complex statistical analysis but what I am saying is that the existing framework doesn’t do enough to ensure that truly qualified people oversee how the Board is allocating resources.

Is there a way to address this problem? For decades NCUA has mandated that credit unions have an individual on staff with the expertise to oversee the type of business loans made by an institution. I would suggest giving NCUA authority to promulgate similar requirements for a majority of supervisory committee members but with detailed base line requirements based on the size and complexity of an institution. If an examiner determines that the supervisory committee doesn’t meet these qualifications or isn’t properly performing its responsibilities, NCUA should have the authority to remove the committee and appoint a person or persons in its place.

Furthermore, to attract truly qualified supervisory committee members, it’s time to permit that a majority of a supervisory committee’s members can be compensated.

Let’s be honest about this: if you combine money with financial stress, there will always be good people who do bad things. Given the growth of credit unions, an erstwhile model predicated on easy to read balance sheets and the assumption that we know what our employees are up to is no longer the best way of preventing fraud or minimizing it when it occurs.

 

December 11, 2017 at 9:07 am Leave a comment

New Director Reconsiders Pending Legal Actions

Image result for mick mulvaney

Although much of the early talk about a Trump appointed Director of the CFPB has centered on the potential for regulatory relief, the place where we will see the quickest and most dramatic shift is in the use of enforcement actions. Let’s not forget that the CFPB has aggressively used its UDAP powers and enforcement authority to take legal actions against alleged wrong-doers. Acting Director Mulvaney is already decisively changing the Bureau’s use of these powers.

Exhibit 1 is Nationwide Biweekly Administration, an Ohio-based company that transmits funds from consumers to their mortgage servicers. They have been sued by the Bureau over claims that it misrepresented the terms of its product, which enables consumers to make biweekly mortgage payments. The Bureau has now announced that it was no longer opposing a company’s request that the CFPB not be allowed to collect a $9 million judgment against it. The Bureau’s decision comes just days after it had filed a motion in opposition to the company’s request for a stay.

Then there is the granddaddy of them all. As readers of this blog know, in PHH Corporation, et. al. v. CFPB, the issue being litigated is the very constitutionality of the Bureau. Specifically, the Court of Appeals for the D.C. Circuit has already ruled that the Bureau’s single director structure is unconstitutional and that the President must be able to fire the Director at will. This case is being appealed but if the CFPB decides not to contest this ruling, it would effectively concede that it is, as structured by Congress, unconstitutional.

While there are many of us who feel that this is precisely the conclusion that the Court should come to, any decision along these lines will create an uproar bigger than the Giants’ decision to bench Eli Manning. Trust me, it was a big deal.

The bottom line is this: the CFPB has not only been an incredibly aggressive regulator but is also an aggressive enforcer of consumer protection laws as it feels they should be interpreted. Again, for those of us who can’t stand regulation through litigation, pulling back on the CFPB’s reigns is a welcomed development. But the number of important enforcement actions and cases in which the CFPB is currently involved underscores why the battle for the temporary leadership of the CFPB is so important.

 

December 7, 2017 at 9:43 am Leave a comment

4 Things You Need To Know On Wednesday Morning

Image result for things you need to knowA surprisingly busy Wednesday morning, just a few weeks from Christmas. So here are four things you should know:

Reg Relief Bill Advances

More good news on the legislative front. The Senate Banking Committee voted out a bipartisan reg relief bill, which I talked about in this blog. If the bill goes forward, it could really provide some much needed relief from some of the more onerous mortgage lending requirements imposed by the CFPB as well as give credit unions greater flexibility to finance second homes. This is really a bill that is worth pushing for, so follow-up on those calls to action.

WSJ Highlights CU Lobbying Success

I don’t want to say too much about this yet because we’re not quite past the finish line, but yesterday the Wall Street Journal ran this article, highly complementary of the credit union industry’s lobbying efforts to remain tax exempt. It pointed out that in contrast to the last major tax overhaul, this time the industry was so effective that no serious proposal to tax CU’s was put on the table. If you have a Board that wonders if paying for the trades is worth it, you should have them read this article.

NY Credit Union Sues Trump Administration

Lower East Side People’s Federal Credit Union has filed a lawsuit in Federal court in Manhattan seeking to block President Trump from naming Mick Mulvaney as the interim head of the Bureau. In a press release announcing the lawsuit, Linda Levy, CEO of the credit union explained that in contrast to Mulvaney, who has described the CFPB as a “sick joke,” the credit union supports the CFPB as a protector of its members.

FinCEN: Let’s Chat

Sigal P. Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence laid out a plan on Monday for more briefings between FinCEN and financial institutions to help enhance efforts to further restrict money laundering and terrorist financing. Under this enhanced framework, FinCEN will be holding live briefings throughout the country with law enforcement and financial institutions to give more direct and up-to-date information on emerging threats. The program is the outgrowth of a series of more than a dozen such meetings FinCEN has held over the last couple of years. These are not brown bag lunch invitations open to everyone. Instead, FinCEN will be reaching out to financial institutions to participate based on a variety of factors, including whether they may possess information relevant to a particular topic.

December 6, 2017 at 9:15 am Leave a comment

New York On Verge of Historic Power Shift…Again

Image result for senator jeff kleinThis headline might be a tad premature but it appears that the State Senate Democratic Caucus headed by Andrea Stewart-Cousins and the 8 member Independent Democratic Caucus by Senator Jeff Klein have reached a preliminary agreement to unify, potentially paving the way for cutting Republicans out of holding any power in the state legislature.

How big of a deal is this? Since the end of WWII, Democrats have held power without Republican help only briefly in 1964, 2008, and 2010. In the latter two cases, Republicans maintained control by entering into power sharing agreements with a group of breakaway Democrats.

Yesterday, Senator Jeff Klein issued a statement in which he indicated that the Democratic factions had come to an agreement about how to work together. In a statement released yesterday evening, “The State Party’s assurance that our progressive legislative agenda will be advanced is a victory for the people of New York,” Klein said. “I look forward to implementing the terms that have been outlined in yesterday’s letter.”

Still this appears to be an agreement to agree. The new power sharing arrangement is reportedly scheduled to take effect only after the state budget is negotiated. Currently there are 23 Democrats in the traditional Senate Democratic Caucus and 8 Democrats in the breakaway IDC. Simcha Felder is a Democrat who currently caucuses with the Republicans but has indicated in the past that he is willing to work with whatever party can most help his constituents. With special elections taking place next year, a unified Democratic conference should be able to take control without needing Republican help, but then again we have been here before.

NY Credit Union Fined By DFS

New York’s Department of Financial Services announced that The United Nations Federal Credit Union and Lloyds of London were fined $1.47 million for marketing and offering life insurance tied to the credit union’s credit and debit card program without being appropriately licensed. Here is some additional information.

Round One Goes To Mulvaney

Also yesterday evening, a Federal District Court Judge refused to block Mick Mulvaney from taking over as the interim head of the CFPB while continuing to serve as the Director of the Office of Management and Budget. I haven’t seen a transcript of the proceedings yet but according to this article, the Judge explained “Nothing in the statutes prevents Mr. Mulvaney from holding both of these positions.” Hopefully this silliness can end soon and we can start concentrating on working with Mr. Mulvaney to bring much needed mandate relief to credit unions.

November 29, 2017 at 9:11 am Leave a comment

Are You Complying With These Two Acronyms?

The CU Times is reporting this morning that the number of ADA website compliance lawsuits filed against credit unions has more than doubled in the last month to at least 23 and is likely to grow even more in the coming weeks. It’s good that credit unions are paying attention to these lawsuits but I’m afraid that the industry is in danger of shifting from neglectful indifference to an unproductive frenzy when it comes to reacting to this litigation.

In contrast, today is the final day to submit initial comments in support of CUNA’s petition to the Federal Communications Commission, requesting that credit unions be given greater flexibility to contact their members on their cell phones without fear of violating the increasingly confusing requirements of the Telephone Consumer Protection Act (TCPA).

The ADA has gotten the lion’s share of attention in this battle of the acronyms. This makes sense in the short-term since, unlike the TCPA, every credit union with a website could potentially be sued. But in the medium to long-term it’s actually the TCPA proposal from which credit unions have the most at stake. Here’s why:

First, the crux of the ADA lawsuits is that websites are public accommodations which must be accessible to disabled persons such as the visually impaired. The lawsuits claim credit unions can comply with these reasonable accommodation requirements by ensuring that their websites satisfy the requirements of the World Wide Web Consortium. This sounds like a big deal but it’s time for everyone to take a deep breath. First, there is a good chance that, depending on the age of your software, you may find that your ability to comply with these requirements is already embedded in your system.

Second, in a worst case scenario, if a credit union finds itself facing an exorbitant cost to satisfy these lawsuits, it could always argue that compliance measures would cause it an undue burden.

Third, we are still dealing with an evolving area of the law. It’s possible that clear-cut guidance will ultimately preempt many of these lawsuits. In short, I firmly believe that we will look back in a year or two from now and realize that complying with the ADA was not a big deal.

In contrast, the TCPA is an absolute mess and getting worse by the day. It is a fast growing area of consumer law litigation that threatens to make it difficult to communicate with our members using this cutting edge piece of technology called a cell phone.

CUNA’s petition would exempt from TCPA liability informational calls made by credit unions to their members’ wireless numbers, so long as such communications are either made to a wireless subscriber with whom the credit union has an established business relationship or, alternatively, the subscriber is not charged for the call under the subscriber’s wireless plan.

Trust me, even if your credit union doesn’t come within the jurisdiction of the TCPA today, it will in the near future. Mass marketing and auto dialing used to be limited to huge companies and banks. Today, even the smallest credit unions can afford technology which makes them subject to the TCPA and its trip wires. The problem is that whereas the ADA has no statutory damage provisions, the TCPA does. This means that whereas two firms are bringing most of the ADA lawsuits according to the CU Times, I would bet you that there are dozens of firms seeking to start TCPA class actions.

 

 

November 6, 2017 at 9:09 am Leave a comment

Five Things I Have To Tell You Before The Yankee Game

Don’t tell anyone but If all goes according to plan, I’ll be sneaking out of the office a little early today so I can be comfortably ensconced in my leather recliner with my opened IPA and my perfectly positioned remote control by 5:08 p.m. so I don’t miss a pitch in Game 5 of what’s turning into an epic battle between the Yankees and the Astros.

But in the meantime, just in case you don’t care about baseball or actually need to get some work done before the game starts, here are five things I should tell you about before I sneak out.

1. New York Finalizes Tough New Title Insurance Regulations

New York State’s Department of Financial Services continued its crackdown on what it perceives as abuses by the Title Insurance industry. Yesterday, it finalized a set of regulations which generally further restrict the fees that title insurance companies can charge and further narrow the flexibility that title insurance companies have to enter into affiliation relationships. Some of the specific prohibitions include limits on “ancillary fees.” For example, it caps so-called ancillary fees or other discretionary fees such as fees for bankruptcy and municipal searches. New York State is concerned that title insurers get around existing limits on premium charges by charging additional costs for such services. The regulation also places new limits on the activities of title insurance agents or corporations from affiliated persons or corporations. This means, for example, that if your credit union has a title insurance CUSO it should reexamine how this relationship is structured.

2. Trades Call On Congress And Justice Department To Provide Clarity On Website ADA Compliance

CUNA urged Congress and the Justice Department to clarify once and for all the obligations of companies to provide accessible websites under the Americans With Disabilities Act. The call comes amid a wave of lawsuits against credit unions and other financial institutions for failing to comply with the ADA. In 2010, the Department of Justice issued an Advance Notice of Proposed Rule Making which provided guidance on websites in the ADA but the regulations have gone nowhere. On the legislative front, CUNA voiced its support for HR 620, the ADA Education and Reform Act of 2017.

3. Temporary Exceptions To Appraisal Requirements In Storm Impacted Areas 

If you provide mortgages in an area impacted by Hurricane Harvey, Irma, and Maria then you should know that Federal regulators including the NCUA issued an order specifying that financial institutions will not be required to obtain appraisals for affected transactions. The agencies will not require financial institutions to obtain appraisals for affected transactions (1) if the properties involved are located in areas declared major disasters; (2) if there are binding commitments to fund the transactions within 36 months of the date the areas were declared major disasters, and (3) if the value of the real properties support the institutions’ decisions to enter into the transactions.

4. NCUA Budget Briefing Today

Don’t forget that NCUA is holding a briefing on its proposed 2018 budget from 2-4pm. The briefing is more important than usual for those of us in Region I as it may provide us with additional information about the cost savings to be generated from shutting down operations in the Albany area. By the way, if NCUA doesn’t want to remain my neighbor then they shouldn’t expect a Christmas card from me this year.

5. Rally Chants That Didn’t Make The Cut

Yours truly ran out of time to get a blog out yesterday. I had to get downtown to participate in the credit union rally hosted by the Association. Thanks to all of you credit union people who showed up. While the rally was a success, I remain a little upset that some of my proposed chants and slogans were not incorporated into the rally. So here they are:

  • All’s Well That Ends Wells!
  • Credit Unions Rule, Bankers Drool! (Courtesy of my 8-year-old.)
  • 100 Years Of Opening Accounts that People Actually Know They’ve Opened

October 18, 2017 at 9:23 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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