Posts filed under ‘Legal Watch’
NYC’s medallion credit unions recently suffered another legal setback in their effort to level the regulatory playing field between the heavily regulated yellow cab industry and ride sharing companies such as Lyft and Uber.( Melrose Credit Union v. City of New York, 15-cv-9042)
This morning’s New York Law Journal is reporting that on January 26th federal judge Southern District Judge Analisa Torres rejected claims that NYC’s Taxi and Limousine Commission was violating the equal protection rights of medallion owners. In its complaint the plaintiff’s contended that, by imposing onerous requirements on medallion cabs without imposing similar requirements on ride sharing networks they were being subjected to unequal treatment under the law, which has already diminished the value of their medallions by 40%.
According to the NYLJ, “Torres said the different rules for taxis and for-hire vehicles were “rationally related” and “allow the TLC to achieve the legitimate government objectives of increasing the accessibility, availability, and diversity of cost-effective transportation.”
That same day a separate court refused to block from taking effect regulations requiring half of the city’s medallion cabs to be wheelchair accessible by 2020.
So it begins
Your blear-eyed blogger had the first of several late nights last evening watching the results of the Iowa caucuses. Bernie Sanders and Hillary Clinton essentially tied-49.6 to 49.9- for Hillary and Ted Cruz soundly defeated “The Donald” who eked out a second place finish against Marco Rubio.
The line of the night was from Republican Mike Huckabee, the former Arkansas governor and past caucus winner. He announced he was quitting the race explaining that he was not withdrawing because of the vote-he finished tied for ninth-but “because of illness…obviously the voters are sick of me. ”
My take away: both parties are in for one of the most drawn out and competitive primary seasons in modern history. The electorate doesn’t know what it’s in favor of but it sure does know what it’s against, which is just about everything. We are a nation of rebels in search of a cause.
Concluding that existing federal guidance does nothing more than encourage financial institutions to “look the other way” when it comes to complying with federal laws that make the possession and sale of marijuana illegal. a federal judge on Tuesday dismissed a credit union’s attempt to force the federal Reserve Bank of Kansas to allow it to open up a Master Account.(THE FOURTH CORNER CREDIT UNION, a Colorado state-chartered credit union, Plaintiff, v. FEDERAL RESERVE BANK OF KANSAS CITY, Defendant., No. 15-CV-01633-RBJ, 2016 WL 54129, at *1 (D. Colo. Jan. 5, 2016)
The ruling, if upheld on appeal, raises serious questions about the legality of federal guidance allowing credit unions and banks to provide banking services in states such as New York where marijuana possession is legal in at least some circumstances. Any credit union or bank that provides services for Marijuana Related Businesses should be analyzing this decision today and discussing if it impacts their business practices.
In 2012 the Mile High state lived up to its moniker when it voted to amend its Constitution and enact legislation legalizing the sale and possession of marijuana. Marijuana was then, and remains today, a controlled substance which is illegal to possess and sell as a matter of federal law. Consequently financial institutions were reluctant to provide banking services for marijuana businesses even after the state legalized it.
Frustrated by this lack of financial access, representatives from legal pot states reached out to the federal authorities. As I explained in more detail in previous blogs (see below), the Justice Department’s Cole memorandum outlined the conditions under which businesses would not be prosecuted for aiding marijuana businesses and a guidance issued by FinCEN outlined how financial institutions could both comply with BSA requirements, and service pot businesses. Nevertheless financial institutions still remained reluctant to service pot businesses. Out of frustration, Colorado authorized the creation of the Fourth Corner Credit Union to provide banking services for these businesses.
Remember that even state chartered credit unions need NCUA’s permission before they can provide federal share insurance to their members. In addition all credit unions and banks need access to a federal reserve bank Master Account to facilitate electronic fund transfers. Things got really hazy when NCUA refused to authorize share insurance for the credit union and the Federal Reserve Bank of Kansas refused to grant it a Master Account . Without this access the credit union cannot operate in any meaningful way.
It sued in federal court. It argued the Federal Reserve Bank was abusing its discretion by rejecting the credit union’s access to the Federal Reserve System. It stressed that it was ready, willing and able to comply with the Cole memorandum, FinCEN’s mandates and state law. It wanted the court to issue an order that it be given a Master Account. The Federal Reserve Bank moved to dismiss the lawsuit and on Tuesday Judge R. Brooke Jackson firmly sided with the Federal Reserve.
He ruled in blunt and concise language that by ruling for the credit union he would be forcing the Federal Reserve to “facilitate criminal activity” As for the argument that the Cole Memorandum and FinCEN Guidance authorized pot businesses he concluded that they did no such thing.
“[T}the Cole memorandum emphatically reiterates that the manufacture and distribution of marijuana violates the Controlled Substances Act, and that the Department of Justice is committed to enforcement of that Act. It directs federal prosecutors to apply certain priorities in making enforcement decisions, but it does not change the law. The FinCEN guidance acknowledges that financial transactions involving MRBs generally involve funds derived from illegal activity, and that banks must report such transactions as ‘suspicious activity.’ It then, hypocritically in my view, simplifies the reporting requirements.”
Whether you agree or disagree with this decision it underscores that this issue has festered long enough. Either Congress must act to legalize state drug laws or the next president should withdraw the Cole Memorandum and FinCen Guidance . We are a Nation of Laws not a Nation of Laws that prosecutors and regulators choose to enforce
Here are some previous blogs on this increasingly important subject.
A decision issued Monday by the Court of Appeals for the Second Circuit serves as yet another reminder of why collecting debt isn’t as easy as it used to be. As a matter of fact, if you are not careful, it can be downright treacherous.
First, some background. As I am sure most readers of this blog know, once a debtor files for bankruptcy an automatic stay goes into effect and creditors must cease debt collection activities. In Garfield v. Ocwen Loan Servicing, Miss Garfield obtained a mortgage that was subsequently taken over by Ocwen. She fell behind on her payments and filed for a Chapter XIII bankruptcy in the Western District of New York. As part of the bankruptcy settlement, she paid the arrears on her monthly loan payment and was discharged from her personal obligation on the mortgage loan. But she also agreed to pay $938 per month to prevent foreclosure on the mortgaged property. She subsequently made only one of those payments after her bankruptcy was discharged. Ocwen contacted Garfield and demanded that she not only pay what she owed in her post bankruptcy arrears, but also the amount that had been discharged in the bankruptcy.
I hope that last part of the sentence got your attention. Where a debt collector demands payment for a debt discharged in bankruptcy, it has violated the Fair Debt Collection Practices Act (FDCPA). This brings us to yesterday’s decision. The aggrieved debtor filed a lawsuit seeking damages under the FDCPA. Ocwen argued that, if anything, it had violated the bankruptcy code. It argued that Miss. Garfield’s only remedy was to seek a fine for Ocwem’s violation of the automatic stay. This may seem like a minor distinction, but our debt collector correctly assumed that a violation under the FDCPA cost a lot more than a contempt citation under the bankruptcy code. A lower court agreed that the bankruptcy code provided Garfield’s only remedy and dismissed the case.
But, yesterday the Second Circuit revived the lawsuit. It concluded that the two provisions could coexist in legal harmony. This case is certainly one to be mindful of, but keep in mind that the federal FDCPA does not apply to creditors such as credit unions seeking to collect on their own debt. From a practical standpoint, keep in mind that this entire situation would have been avoided had the debt collector not sought to collect on the debt that was discharged in bankruptcy.
Further regulation of overdraft fees is one of the top regulatory issues to be addressed by the CFPB in the coming months. In fact, I bet that these regulations will be as important to credit unions as NCUA’s pending Field of Membership (FOM) proposal. For example, I wouldn’t be surprised to see a requirement that members affirmatively opt in to all overdraft protection plans, not just debit transactions. It’s even possible that we will see restrictions placed on the size of overdraft fees.
But even without these changes, plaintiff’s lawyers are already zeroing in on overdraft practices. I’ve been paying attention to a couple of cases and my most practical takeaway is that your account agreements should clearly explain your overdraft practices and your overdraft procedures should be consistently implemented. This might sound obvious, but humor me for a second.
On December 9, a New York State Court approved a settlement between HSBC Bank and a class action group of bank customers who alleged that the bank’s overdraft policies violated New York Law against deceptive practices as well as the terms of its account agreement. The core of the complaint is language in the bank’s account agreement in which it explains to members that it “generally pays the largest debit item drawn on a depositer’s account first.” In fact, the plaintiffs allege that HSBC used software which made sure that debits were always paid from highest to lowest. HSBC is going to pay $30 million to settle the claim while admitting no wrongdoing.
The lawsuit is not unique to HSBC. Similar claims have been brought across the country. What intrigues me so much about these lawsuits is that there is nothing in regulation dictating the order in which debit transactions must be drawn from accounts. I’ve heard some awfully good arguments for policy withdrawing the highest debits from an account first, as well as arguments for simply debiting accounts in the order in which they come in. The key point is that regardless of what procedure you end up using, your member has a right to have those procedures accurately explained. These suits are becoming quite popular and it’s possible that a lawyer could be reading your account agreements to see if your practices are aligned with them.
On that note, have a nice weekend.
Some things make no sense on first impression only to become more and more plausible the more you think about them. For example, it makes no sense that the New York Giants, a football Team, loses more games in the last two minutes than the New York Knicks, a basketball team. But this aberration makes perfect sense once you realize that the Giants defense hasn’t quite figured out how to defend against this radical innovation called the “Forward Pass.” The joke is on those of us who bother watching all three hours of their games just to maximize our frustration as the clock counts down to the inevitable defeat.
Similarly, I was surprised when I recently read a case from the Court of Appeals for the 11th Circuit which covers Florida Alabama and Georgia. In in Villarreal v. R.J. Reynolds Tobacco Co., No. 15-10602, 2015 WL 7694939 (11th Cir. Nov. 30, 2015) it concluded that an employer violates federal law against age discrimination by favoring job applicants with three or fewer years of experience for a sales position. The court’s conclusion tis contrary to that of two other federal circuit courts that have examined similar issues. For those of us outside of the 11th Circuit the case is one to keep an eye on but requires no immediate changes to existing practices. For those of you in the 11th Circuit I would call up your HR attorney if you haven’t done so already and see how the court’s decision impacts your existing practices.
The Age Discrimination in Employment Act (ADEA) bans intentional discrimination against an employee or job applicant because of their age. The Supreme Court has told us that this law also bans practices that have a disparate impact on existing employees because of their age (Smith v. City of Jackson, Miss., 544 U.S. 228, 228, 125 S. Ct. 1536, 1537, 161 L. Ed. 2d 410 (2005). What the Supreme Court hasn’t ruled on is whether the statute’s protections against disparate impact discrimination extend to job applicants and not just employees. As you know from your lending policies a disparate impact exists when a policy has the effect of discriminating against a protected class of individuals even if the policy is based on nondiscriminatory criteria.
This is why the 11th Circuit’s November 30th decision in Villarreal is worth taking a look at. As surely as Donald Trump will insult someone this week, similar claims around the country will rely on this case to challenge what would otherwise seem like logical employment practices.
When RJR looks for certain sales representative positions it gives its recruiters guidelines. For the sales job at issue in this case it tells hiring managers to target candidates who are “2–3 years out of college” but to “stay away from” candidates with “8–10 years” of prior sales experience. Not surprisingly, of the 1,024 people hired as Territory Managers from September 2007 to July 2010, only 19 were over the age of 40.
When a 49-year-old applicant wasn’t even interviewed for the job despite repeatedly applying for the position he sued claiming, among other things that RJR’s guidelines had the effect of discriminating against older applicants. Two other federal appeals courts have already rejected similar arguments but the 11th Circuit ruled that this lawsuit could go forward. It concluded that wasn’t clear whether or not Congress intended the ADEA’s ban on disparate impacts to extend to job applicants. As a result, the court felt that it had to defer to federal regulations which interpret the ADEA as extending disparate impact protections to job applicants.
This ruling has the markings of a case headed to the Supreme Court. First the federal courts disagree on an issue of tremendous practical significance.
Second, a review of the decision will allow the court to address an issue that has been repeatedly raised in discrimination lawsuits: The extent to which federal laws ban practices that have a discriminatory impact even if there was no intent to discriminate.
Finally this decision once again raises the question of how much deference federal courts should give to federal regulators when it comes to interpreting statutes.
Quick cultural point. I like Adele but I think she could sing this blog and turn it into a hit. But alas, I digress.
What’s gotten my attention this morning is the brewing battle between New York’s AG, Eric Schneiderman and fantasy sports Internet providers FanDuel and DraftKings. While it may not directly impact your credit unions, I wouldn’t be surprised if you find out precisely how many gambling members you have if all the sudden their ability to access these fantasy providers with their credit cards is blocked.
You might remember that the issue of gambling over the Internet was dealt with on the federal level when Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (31 USCA Sec. 5301). The statute banned using the Internet to make a bet or wager, but it stipulated that betting does not include participation in any fantasy or simulated sports games. (31 USCA Sec. 5362).
I am sure it’s just a coincidence that two of the highest profile owners in the NFL, Jerry Jones of the Cowboys and Robert Kraft of the New England Patriots, reportedly have invested in fantasy sports companies.
So why do the Attorney Generals of Nevada and New York feel they have the right to block these companies from operating? Because the statute also stipulated that its purpose was not to preempt “any state law prohibiting gambling.” As a result, the Attorney General’s argument centers on his interpretation that fantasy sports are games of chance prohibited under both the state constitution and state law.
Here’s where it gets a little closer to home for your credit union. Actually coming up with a system for enforcing the Internet better bans was left to the regulators. When the pertinent regulations were eventually finalized, they largely left credit unions and banks off the hook provided they have policies and procedures in place for determining if any if their business accounts are involved with gambling. The entities that really have to make a tough call this morning are the credit card networks and third party processors. They are responsible for coding illegal gambling transactions. If they agree with the AG then a member using a credit card to access a fantasy site should be blocked, if they don’t then they should continue processing the transactions as if nothing has changed. FanDuel has suspended New York Business but I don’t believe DraftKings has followed suit
Put this in context. DraftKings and FanDuel are each valued at more than $1 billion. According to Bloomberg business, New York accounts for over 5% of FanDuel’s customers and over 7% of DraftKings. Losing New York would cost then at least $35 million and more importantly put their entire business model at risk.
Life used to be a lot simpler for mortgage lenders.
Now, things are even more complicated than they appear to be. Exhibit 1 is Sec. 1304 of NY’s Real Property Actions and Proceedings Law. On the face of it Sec. 1304 is straight forward. It provides that a pre-foreclosure notice must be provided to “the borrower” at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the delinquent borrower. Judging by the number of cases in which lenders have had foreclosures dismissed for violating this requirement, it is not as simple as it looks.
For example, just who is the “borrower” for purposes of this notice and are there steps your credit union can take to avoid any confusion over this issue? A clearly exasperated Richmond County judge provided some useful answers to both of these questions in OneWest Bank FSB v. Prestano, 49 Misc. 3d 1209(A) (N.Y. Sup. Ct. 2015), a case that was decided last week.
When Giuseppe and Caterina Prestano originally brought their home they both signed the note and the mortgage. Things get interesting because, when the house was subsequently refinanced, only Giuseppe Prestano signed the note. The mortgage, with its two riders (1-4 Family and Adjustable Rate), was signed by both Prestanos.
Mr. Prestano committed suicide; but, before he died he received a Sec. 1304 notice. Caterina did not. In the subsequent foreclosure action she argued that this invalidated the whole foreclosure. The bank argued that she was not a borrower because her name was not on the note. Here is the problem with that argument as the court saw it: if she was not a “borrower” then her signature on the Mortgage and Riders is there merely to consent to Giuseppe Prestano mortgaging his interests in the property and her ownership interest in the real property cannot be foreclosed upon. In other words the bank put itself in the corner in which it could either argue that it had complied with Sec. 1304 and lose the right to foreclose on the entire property or concede that it had violated Sec. 1304 and have to start the foreclosure from scratch.
Here is the real helpful part of the case: The judge pointed out that this dilemma could have been avoided had Giuseppe left her off the mortgage document entirely and been instead asked to execute a “consent to mortgage.” By such a document she would declare she was not obligating herself either on the Note or Mortgage, but would acknowledge that should her spouse default on his obligations, the lender could institute a foreclosure proceeding against the entire premises.
Consent to mortgage documents are a great device that have historically been used more frequently in commercial real estate transactions rather than residential ones. With so many different disclosures and notices being required now at so many different stages of the lending process, the more clearly you delineate who the borrower is, the better off you are. Now, don’t get me wrong, obviously the ideal situation is to have all borrowers sign both the mortgage and the underlying note. But increasingly, couples are doing their own thing. For example, one spouse might be starting their own business while the other continues to work at a 9-5 job. As a result, clearly delineating the right to foreclose on property is becoming that much more important.