Posts filed under ‘Legal Watch’

Operation Chokepoint Strangled by Justice Department

Operation Chokepoint, the initiative of the Obama Justice Department to clamp down on payday lenders and firearm distributors by discouraging banks and credit unions from providing financial services to them, was officially declared dead by the Trump administration on Friday.

To its critics, Operation Chokepoint was an overly aggressive use of regulatory and legal power by the Obama administration to harass legitimate businesses with which they disagreed. Although supporters of the initiative claimed that the Justice Department’s efforts were exaggerated, the FDIC felt the need in 2015 to encourage banks to continue to take a “risk based approach based on the attributes of individual customers rather than declining to provide banking services to entire categories of customers.”

In a strongly worded letter released on Friday, the Department stressed that it would “not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities.”

Regardless of which side of the ideological spectrum you find yourself on, the push back against Operation Chokepoint was both appropriate and necessary. No bank or credit union should be used as a means for pressuring legitimate businesses to stop dealing with customers that governments don’t like.

On that note, go get your eclipse-watching protective gear ready to go. Unless I’m blinded by the light, I’ll be back tomorrow.

 

August 21, 2017 at 8:31 am Leave a comment

TCPA Gets Even More Complicated

TCPA Gets Even More Complicated

The Court of Appeals for the 11th Circuit yesterday, revived a lawsuit by a consumer who claimed a bank violated the Telephone Consumer Protection Act by refusing her request that she not be called on her cell phone during work hours. This could be an operational nightmare.

First a quick refresher: The TCPA generally makes it unlawful for any business to make non-emergency calls using an automatic telephone dialing system without the receiving party’s prior consent. In recent years, Courts have ruled that consumers can orally revoke this consent. Schweitzer v. Comenity Bank addressed the issue of whether a consumer could partially revoke a bank’s authority to make automated phone calls.

The case involved a consumer who was delinquent on her credit card payments. When she got the card, she consented to allow Comenity Bank to call her cell phone. Normally I try to summarize these cases as briefly as possible but I can’t resist transcribing a chunk of the dialogue between the bank’s employee and our delinquent card holder. He couldn’t have teed this up any better for litigation if he was a law school professor. When she fell behind on her credit card payment, the bank called her on her cell phone and asked her to make a $35.00 payment. The following exchange took place:

Schweitzer said the following:

Unfortunately I can’t afford to pay [my past due payment] right now. And if you guys cannot call me, like, in the morning and during the work day, because I’m working, and I can’t really be talking about these things while I’m at work. My phone’s ringing off the hook with you guys calling me.

The employee replied that “[i]t’s a phone system. When it’s reporting two payments past due, it’s a computer that dials. We can’t stop the phone calls like that.”

The trial level court that reviewed the case dismissed the consumer’s lawsuit because she had clearly consented to the bank’s use of her cell phone. Furthermore, while the TCPA permits consumers to withdraw their consent, the rule of thumb has been that such withdrawals have to be complete. In this case, our consumer did not request that she no longer receive any phone calls, just that she not receive phone calls at specified times.

However, the 11th Circuit ruled that banks and other creditors should have the operational ability to know when a consumer has partially restricted their phone calls. I hope you can see now why this ruling is so potentially troubling. Currently, it is only directly binding on those of you who do work in states under the jurisdiction of the 11th Circuit but this decision is persuasive authority that could be adopted by other courts and is certainly something of which your collections people should be aware.

More Bad News on Taxi Medallions

This goes into the “don’t shoot the messenger” category but if your credit union is involved with taxi medallions, you should all take a look at the credit union watch blog’s latest analysis of the medallion industry available at: http://creditunionwatch.blogspot.com/2017/08/taxi-medallion-lender-progressive-cu.html. The news is not good and Keith’s analysis of industry trends has been spot-on.

August 11, 2017 at 9:06 am Leave a comment

When it Comes to Merchant Liability, Bogart Is Spot On

Don’t let a string of high-profile settlements fool you: Like Rick in Casablanca,  your credit union is contractually bound with all the gin joints in all the towns in all the world that your member comes into this Summer; at least if she uses  a credit card  you issued her.

This means that your credit union’s ability to recover for losses suffered as  a result of a data breach caused by merchant malfeasance remains fundamentally limited:  It is  dependent on a patchwork of state laws and legal nuances. This is not a new development. But every so often a case pops up that demonstrates yet again why Congress needs to impose national data protection standards on merchants.

The latest example is SELCO COMMUNITY CREDIT UNION, v. NOODLES & COMPANY, Defendant., No. 16-CV-02247-RBJ, 2017 WL 3116335, (D. Colo. July 21, 2017).   The case involves  a group of credit unions that sued Noodles & Company for negligence after  members were allegedly  victimized by a data breach. The credit unions contended that the restaurant failed to upgrade so that it could accept chip card technology and failed to comply with standard industry data protection baselines such as the PCI Standards.

Nevertheless their lawsuit was dismissed last week. By accepting and issuing Visa and MasterCard the  restaurant chain and credit unions agreed to  abide by Visa and MasterCard  network rules, including those spelling out the  remedies available  to card issuers when a merchant is accused of negligence.  No lawsuit for negligence allowed.

There are exceptions to this rule.  For example, Minnesota has a law giving banks and credit unions the right to sue merchants for their negligent card practices and some states give businesses greater flexibility than others to sue each other for negligence resulting in economic harm.  But that still leaves issuers with too much uncertainty when it comes to figuring out  their plastic costs and provides too few incentives for merchants to adequately protect debit and credit cards from cyber criminals.

August 1, 2017 at 9:36 am Leave a comment

Oh Canada!

With its impeccably mild-mannered citizenry, a  national anthem that normal people can actually  sing with gusto, and  a rational  political environment,   I typically have nothing but praise for my fellow  hockey-loving brethren to the North, Justin Bieber notwithstanding

But recently they have clamped down on their credit unions in a way that has gotten attention from U.S. credit unions and for good reason. In late June, Canada’s Financial regulator banned non- banks from using the word bank.  The prohibition not only prohibits non-banks from using the word bank as part of their name-fair enough-but also outlaws usages of the word which suggest that credit unions engage in  banking activity. For example Canadian CUs are prohibited from telling members about their Mobile Banking, Telephone Banking or Branch Banking services; nor can they tell members that they can “Bank” at their convenience.

Of course, this is downright foolish not to mention downright Orwellian.  Credit unions offer banking services. Word meanings change.  A  Bank originally referred to a dirt embankment not a place where people put their money for safekeeping .  Today bank is often used  as a verb or adjective as in “I prefer to do my banking at night” or “that credit union provides great banking services.”  The real confusion will come from credit unions having to explain to their members that they provide “on-line credit unioning services that are better than the online banking services offered down the street.”

There seems to be spasms of these linguistic battles every so often. I checked in with my good friends at CUNA yesterday and they pointed out that there are about a dozen states where this could be an issue. Similar attacks were previously brought not just in Vermont, which I blogged about five years ago, (Time fly’s when you are having fun) but in Washington State.

In reality, there is only so much banks can tweak us over this ridiculous issue. Commonsense and the First Amendment are on our side and I think the banks know this.

Don’t get me wrong, only banks should be allowed to call themselves banks and only credit unions should be allowed to call themselves credit unions. Government has a responsibility to make it clear to people what type of institution they are dealing with but actions such as Canada’s  are a pernicious attempt to monopolize the language for one industry’s benefit  What’s next? Is the   Toronto Raptors basketball team going to be banned from taking “bank shots?”

Oh Canada!

 

July 20, 2017 at 9:59 am 4 comments

I’ve had an affair!…with Uber

This morning I’m telling the world I’ve cheated and I may do it again.

I have just taken my first Uber ride to work. I honestly felt like I was cheating on all of you medallion holders out there but the temptation of quick, simple and courteous service was too tempting.  If my experience is any indication you better make sure your loan loss reserves are in good shape.

Don’t get me wrong. This is not some starry-eyed infatuation. I know, for example, that as innovative as the Transportation network model is, credit union compliance people continue to be mindful of some of the unique issues raised by the service.  Just yesterday, our compliance Department fielded an interesting question: If insurance companies aren’t obligated to provide additional insurance for members who join Uber or Lyft how can a credit union protect its car loan collateral?

Here are some key points to keep in mind. The law authorizing TNC networks makes Crystal clear that insurance companies don’t have to provide insurance for persons acting as TNC drivers (N.Y. Veh. & Traf. Law § 1695 (McKinney).Does this mean that your collateral is at risk? No. The Association successfully argued that lenders need protection. Remember, car loans are getting to be longer and longer.

The law authorized insurers to offer additional coverage and allowed TNCs to have group plans. The insurance is available. Both the TNC’s and the drivers must ensure that it  is in place before logging onto the App. The driver I talked to this morning said that he was covered under a plan provided by the company. As an added protection TNCs are obligated to put potential drivers on notice that they need additional insurance (N.Y. Veh. & Traf. Law § 1694 (McKinney).

Keeping in mind that this blog is not a substitute for consulting with your legal counsel or your insurance provider, even with the legal protections NY has put in place I have suggested that you should put additional language into your car loan agreements stipulating that providing TNC services without adequate insurance constitutes a loan default.

If the system works as intended this language won’t be necessary but there are always glitches. At the very least it will put your member on notice that they can’t buy a car today and start offering rides tomorrow.

On that note enjoy your weekend. And remember, if you enjoy yourself a bit too much a ride home is just a couple of taps away.

 

July 14, 2017 at 9:49 am Leave a comment

Why You Should Read NCUA’s Latest Opinion

Even though most credit unions do not plan on securitizing loans anytime soon, you should read  NCUA’s recently published opinion  permitting federally chartered credit unions to issue and sell  securities.  NCUA took the opportunity to write a thoughtful analysis explaining  the scope of the agency’s incidental powers.  It provides a primer for those of you looking to request authority to engage in activities not explicitly authorized by the Federal Credit Union Act. While the opinion letter only applies to federal charters, NY state charters have a mechanism to request that they be given the same authority from DFS.

What are incidental powers? Incidental powers are powers that are: convenient or useful in carrying out the mission or business of credit unions consistent with the Act; that are the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions and that involve risks similar in nature to those already assumed as part of the business of credit unions. Unless they are on a list of pre approved powers, NCUA typically grants incidental powers at the request of credit unions seeking a legal opinion.

An FCU wanted to know whether or not it has the authority to issue and sell securities issued by Government National Mortgage Association.  Not only do federal credit unions have the  explicit authority to issue and sell these bonds, the NCUA explained that they also had the incidental authority to issue and sell other securities. The exercise of this power is still subject to the case-by-case approval of the NCUA.

With the caveat that I may not be the most exciting guy in the world, here is what I find so interesting. NCUA used the seven page  letter to explain  just how expansive its incidental powers are.   For example, it explained that:

“In the course of expanding the powers of FCUs, Congress has repeatedly taken the opportunity to encourage NCUA to be flexible, innovative, and responsive in meeting the needs of FCUs and their members. When Congress created NCUA in 1970, the same year that share insurance was introduced, it recognized that ‘credit unions have become such a significant component of our society that they need and deserve a more responsive and independent regulatory agency.’21 Further, Congress envisioned that NCUA would have ‘a great responsibility and an opportunity to make real and substantial contributions to our society,’ and ‘would be able to be more responsive to the needs of credit unions and to provide more flexible and innovative regulation.’”

A hallmark of J. Mark McWatters tenure on the NCUA board has been a willingness to take a fresh look at some old statutes and outdated regulations. More often than not,  the result has been that credit unions have more power than previously recognized to offer products and services to members.  This approach also ensures that the will of Congress, and not regulators, determines what credit unions can and can’t do. How refreshing.

 

 

 

 

 

July 13, 2017 at 10:03 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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