Posts filed under ‘Legal Watch’

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

How Safe Are You From Overdraft Lawsuits?

Image result for safe harbor

Just because you use a model form when asking members if they want to opt-in to overdraft protections, don’t assume that your credit union is safe from being sued over the adequacy of these disclosures. That is my takeaway from the latest case I have seen. It joins a growing body of litigation in which members are being allowed to sue credit unions for providing inadequate account balance disclosures which lead to unnecessary overdraft fees.

First some background, with apologies to those of you who already know most of this. There are two basic methods for calculating account balances: the actual or ledger balance method refers to all money currently in a member’s account. In contrast, the available balance method refers only to those funds actually available for use by the member. A second key point to keep in mind is that 12 CFR 1005.17 stipulates that opt-in disclosures for overdraft protections shall be “substantially similar” to model form A9. My guess is, this is the form your credit union uses. The Electronic Funds Transfer Act shields credit unions from liability for any failure to make disclosures improper form provided that the model form is used.

The most recent example I have seen involving this type of litigation is Gunter v. United Federal Credit Union (Dist. Ct. Nevada 2017). In this case, a member wanted to bring a class action lawsuit against the credit union on behalf of persons who were charged an overdraft fee even though the member’s actual balance was equal to or greater than the transaction causing the overdraft. Gunter also wanted to sue on behalf of members who opted into the credit union’s program and were charged an overdraft fee, contending that the overdraft disclosure provided did not describe the credit union’s balance procedures properly.

The credit union argued that since it used the appropriate model form, it was shielded from the member’s lawsuit. It argued that if it included language different from that provided in the model form, it ran the risk of losing its safe harbor against precisely these types of lawsuits. The language, the member argued, should have been included in the disclosure, would have meant that the form used by the credit union would no longer be substantially similar to the form mandated by the regulators.

But the court disagreed. Its logic should send a shiver down the spine of any compliance officer relaxing in their safe harbor. “United could have explained that it authorizes overdrafts based on available balance rather than actual balance without violating Regulation E because Regulation E expressly requires financial institutions to describe their overdraft services. Presumably that description must be accurate and not misleading. United implicitly contends that it would have faced liability for including such a description because its opt-in agreement must be “substantially similar” to Model Form A-9, id. § 1005.17(d), but such a description would not destroy substantial similarity. In fact, such a description would further the purpose of the regulation to help consumers understand the overdraft services their financial institutions offer.”

This decision is not binding in New York but if the court’s logic catches hold, model form language could become a breeding ground for future litigation. Personally, I would discuss this case and other similar litigation next time you catch up with the vendor who provides your account disclosures. In the meantime, make sure that you understand what account method your credit union uses and that your disclosures give your members adequate notice of this method.

October 3, 2017 at 10:10 am Leave a comment

First Monday In October Starts Quietly For Legal Geeks

With the Supreme Court back to nine members, this promises to be one of its most prolific terms in several years as the high court takes on hot button issues ranging from refugee policy to the right of businesses to deny services to same-sex couples. But, as it stands right now, I don’t see any cases on the docket that would have much of a direct impact on credit unions. This may change.

Typically there are at least some issues that impact the way credit unions go about their business. For example, last year the Supreme Court decided cases ruling that merchants challenging the legality of credit card surcharge bans were entitled to first amendment protections and it also ruled that banks could be sued by municipalities for violations of the Fair Housing Act, albeit under very narrow circumstances. No such issues are up for review so far.

This is not to say that there aren’t some key issues out there that will most likely be reviewed by the court if not this term, then the next. For example, PHH’s case challenging the constitutionality of the CFPB’s one director structure is still at the appellate level. Once this case is decided, the losing party will undoubtedly appeal.

Then there is the issue of how much harm consumers have to prove in order to sue companies responsible for data breaches. Circuit courts have already split on this issue and it’s only a matter of time before the Supreme Court feels the need to explain how its Spokeo decision is to be applied in the context of data breaches. Specifically, does a consumer have to prove that their personally identifiable information was compromised in a data breach or do they also have to prove that their data was used to facilitate identity theft?

Finally, there’s the issue of the TCPA and how it is to be interpreted in the age of the cell phone and texting. One case that I believe cries out to be reviewed is the recent 11th Circuit ruling holding that members could partially revoke the authorization of third-parties to contact them.

Speaking of the TCPA, CUNA on Friday filed a petition with the FCC requesting that informational calls to the cell phones of members with whom they have an existing relationship be exempt from the TCPA.

Key Changes In NY Committee Leadership

New York Assembly Speaker, Carl Heastie announced appointments to several key committees last week. The changes were triggered by the retirement of long time Manhattan Assemblyman, Denny Farrell, who retired after 42 years, during which time he rose to lead the Assembly’s Ways and Means Committee.

Most importantly for our purposes, Assemblyman Jeffrey Dinowitz moves to the Assembly’s Judiciary Committee, which has jurisdiction over many issues of operational concern to credit unions such as foreclosures and levy and restraints. He replaces Assemblywoman Helene Weinstein who was recently named the first woman chairman of the Ways and Means Committee. Generally speaking, any bill with spending implications must go through this committee.

October 2, 2017 at 9:20 am Leave a comment

When Employees and Employers Clash

Former Supreme Court Justice Byron White, who was also an all American football player, once famously noted that he turns to the sports pages to learn about man’s successes and the front page to learn about his failures.

Maybe it’s because I couldn’t escape the deluge of negative news enveloping the country even after I turned on yesterday’s football games; Or maybe it’s because after watching Ken Burns’ documentary on the Vietnam war last night that got me thinking that the country has never been so divided since 1968, but I decided to throw away my intended subject for today’s blog and remind all you employees and employers out there to take a deep breath when it comes to discussing issues in the work place.

Let’s be honest, with Facebook now that everyone has a soapbox and wants everyone to be their friend, there’s a good chance that supervisors will know where exactly their employees stand on the hot buttoned issues of the day.

For example, let’s say your employer has deeply held beliefs about whether or not it was appropriate for athletes to boycott the national anthem. Before you decide to say something to him or her, keep in mind that New York law makes it “unlawful for any employer or employment agency to refuse to hire, employ or license, or to discharge from employment or otherwise discriminate against an individual in compensation, promotion or terms, conditions or privileges of employment because of: a. an individual’s political activities outside of working hours, off of the employer’s premises and without use of the employer’s equipment or other property, if such activities are legal” (N.Y. Lab. Law § 201-d (McKinney). Keep in mind also, that the National Relations Labor Board has banned employers from taking action against their employees who speak out against issues of work place concern such as wages or working conditions. As a result, if an employee takes to Facebook to criticize workplace conditions, that criticism might actually be protected if other employees express similar concerns.

Now there are exceptions to everything I have just said and I’m certainly not saying that your employee gets to shoot off on issues with impunity. But what I am saying is, is that your employee has more protections than you might think when it comes to holding him or her accountable for viewpoints with which you might disagree. Before you go off half-cocked, take a deep breath and talk to your counsel before punishing an employee for taking part in political activities or expressing views with which you disagree.

 

 

September 25, 2017 at 8:54 am Leave a comment

Do You Know The Answer To This Data Breach Question?

Here is today’s Final Jeopardy question: Are the number of lawsuits related to data breaches going up, going down or remaining about the same?

We’re back from the commercial break. And the answer is that in 2016 there was actually a decrease in data litigation lawsuits as a percentage of reported data breaches. This is the astounding finding of Bryan Cave’s 2017 Data Breach Litigation report which analyzes federal court litigation. The report underscores several important and troubling trends.

Here are some of the highlights:

  • Approximately 3.3% of publicly reported data breaches led to class action litigation. Unlike in prior years, in which the percentage of class action lawsuits has remained relatively steady at 4 or 5% of publicly reported breaches, 2016 saw a slight decrease in litigation relative to the number of breaches.
  • The percentage of class action lawsuits involving credit card breaches remain relatively constant accounting for roughly 21% of the data breach litigation. This represented a 2% decrease in such litigation. Interestingly, the report’s author speculates that this relatively flat year for credit card litigation may reflect not only a decrease in high-profile retail data breaches but “difficulties by plaintiffs’ attorneys proving economic harm following such breaches, and relatively small awards and settlements in previous credit card related litigation.”
  • The author concludes “despite the fact that data breaches do not appear to be going away anytime soon, the risk that a company will face litigation following a data breach remains relatively low year-after-year. The reason is likely tied to the difficulty plaintiffs continue to face establishing that they were injured by a breach and, therefore, have standing as a matter of law to bring suit.”
  • Finally, beware of the lighting rod effect. There are normally several lawsuits to high-profile data breaches. While this is understandable, it creates the impression that there is more data breach litigation than there actually is.

Why does this matter? Most importantly, it provides confirmation that too many companies responsible for guarding private information do not have adequate legal incentives to commit the type of resources necessary to keep information safe. In the meantime, credit unions and banks are left holding the bag when it comes to providing new debit and credit cards. In addition, there is also the very real risk that lenders are guilty by association in the public’s mind…it was nice seeing those of you who attended the annual Compliance and Legal Conference. Let’s keep in touch!

 

 

September 13, 2017 at 9:10 am Leave a comment

Another Day, Another Massive Data Breach

Equifax, one of the big three credit reporting agencies, yesterday disclosed a “massive data breach” that may impact half the U.S. population. The breach includes the compromise of social security numbers, birth dates and up to 290,000 credit card numbers.

Let’s face it. It’s the same old song with a different tune. This is yet another example of why we need national standards and a national framework for dealing with data breaches and their consequences. In fairness to Equifax, it’s too early to know if the breach was a result of mistakes on its part or simply the end result of some talented hacking carried out in spite of adherence to prudent safeguards. But when I hear Equifax’s CEO explain that he is “deeply disappointed” by the break in, my guess is a lawsuit isn’t too far away.

Unfortunately, it’s far from clear precisely how much liability Equifax will face even if it was negligent in safeguarding this sensitive information. In 2016, the Supreme Court held in Spokeo, Inc. v. Robbins 136 S.CT. 1540 (2016) that in order for a plaintiff to have standing to sue in Federal court, the harm caused must be “concrete and particularized and actual or imminent, not conjectural or hypothetical.”

The standard has been a particularly tricky one for the courts to deal with in the context of data breaches. In a decision in August, Attias v. Carefirst, Inc., 865 F.3d 620 (D.C. Cir. 2017), the U.S. Court of Appeals for the D.C. Circuit held that the lawsuit against health insurer, Care First, Inc. could go forward. It ruled that so long as customers could prove that their names, birth dates and email addresses were compromised, they were being harmed by the imminent risk of a data breach. Similar logic was adopted by the 3rd Circuit In re Horizon Healthcare Servs. Inc. Data Breach Litig., 846 F.3d 625 (3d Cir. 2017)

However, not all circuits agree. In re SuperValu, Inc., No. 16-2378, 2017 WL 3722455, at *1 (8th Cir. Aug. 30, 2017), the 3rd Circuit Court ruled that consumers whose information may have been compromised by a data breach, lacked standing to sue the company. A reason that a mere possibility that an individual’s data may be used against them does not constitute enough harm to bring a lawsuit.

My guess is, the Supreme Court will take up this issue, maybe as early as this upcoming term. In the meantime, at some point Congress will come to its senses and pass meaningful comprehensive data breach protection legislation…and people say I’m cynical.

NCUA Releases Second Quarter Performance Data

The industry received its second quarter report card. It continues to show strong performance by the credit unions in the aggregate but it also continues to show that if you’re not big, there’s a good chance that your credit union is struggling. On that cynical note, I expect you all to enjoy your weekend and do nothing on Sunday but watch football. I hope to see some of you Monday at our annual Legal and Compliance Conference.

 

September 8, 2017 at 8:48 am 1 comment

DACA Debate Likely to Impact Lenders

President Trump’s announcement that he was ending the Delayed Action for Childhood Arrivals (DACA) in six months unless Congress passes legislation addressing the issue has important implications for lenders as individuals affected by the President’s announcement turn to the courts for protection.

The DACA program was instituted by President Obama in 2012. It allows qualified individuals who are illegal aliens who entered the country as minors to receive renewable two-year periods of deferred deportation. They are also eligible to receive work permits.

When I heard about the President’s announcement, I figured that now would be a good time to update you on the status of a case which has important potential implications for lenders. In Perez v. Wells Fargo & Co., Case No.: 17-cv-00454-MMC, DACA recipients are suing Wells Fargo claiming that the bank’s lending policies violate federal civil rights law. Each of the highlighted plaintiffs applied to the bank for a loan. Nonetheless, they argue that they were denied loans ranging from student loan applications to a loan for commercial equipment. Each claims that they have a U.S. citizen as a willing co-signer but that the bank categorically refused their applications.

Here’s why I think the case is potentially so significant: In its motion to dismiss, Wells Fargo argued correctly that under the Equal Credit Opportunity Act (ECOA), it is not prohibited from discriminating against the person on the basis of alienage. In other words, the ECOA prohibits discrimination against someone because they are Hispanic but does not prohibit basing a lending decision on a Hispanic person’s immigration status. Conversely, the plaintiffs in this case argued that the ECOA should be interpreted in conjunction with 42 U.S.C. § 1981. “42 U.S.C. § 1981, which provides, in relevant part, that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens.” This federal law has been interpreted to not only prohibit racial discrimination but discrimination on the basis of immigration status.

On August 3rd, the court sided with the plaintiffs. It ruled that § 1981 could be read as complementing the ECOA rather than conflicting with it. Specifically, the court concluded that it is appropriate to interpret federal law as barring not only discrimination in lending decisions under the ECOA but also discrimination against persons on the basis of their immigration status under § 1981. This expansive ruling, if upheld on appeal – and I’m assuming there will be an appeal – represents an extremely significant expansion of lending anti-discrimination law.

Cordray For Governor?

Strike up the Pretender’s music: It looks like CFPB Director, Richard Cordray is going back to Ohio.

On Monday, he did nothing to quiet down speculation that he is going to run for Governor of Ohio when he quits his job as the head of the CFPB. He gave a speech in Cincinnati to a gathering of the AFLCIO in which sounded an awful lot like a populist campaign speech. For example, in his speech he stated that “We need to be able to see that wherever we start in life, we can advance through our own merit and hard work. We need a marketplace, and a justice system, and other key pieces of our society to operate more effectively and truly reflect the principle that every one of us counts” This sounds a lot more exciting than talk about overdraft fees.

September 6, 2017 at 8:53 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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