Posts filed under ‘Legal Watch’

Will Medallion Losses Impact Potential Payout?

This one goes into the ‘don’t shoot the messenger’ category. NCUA’s agenda for this Thursday includes a discussion of its decision to merge the Corporate Stabilization Fund into the traditional Share Insurance Fund. When NCUA announced that it was deciding to do this last year, it was estimated that between $600 and $800 Million dollars could be available for return to individual credit unions.

Now for the part where I don’t want you to get too angry with me: NCUA made this announcement just as the value of medallion loans was sinking lower and lower. Clearly we are reaching a point where this could have a direct impact on the Share Insurance Fund. Most notably, the recently released 4th Quarter performance reports indicated that Melrose Credit Union’s net worth to total assets had tumbled to a   -13.79 in December from -5.10 in September.

In a worst case scenario, medallion losses could wipe out any windfall otherwise recognized from folding the Corporate Stabilization Fund into the Share Insurance Fund. One of the things I’ll be listening for at Thursday’s meeting is the extent to which NCUA has already taken these potential costs into account in debating what the appropriate premium for credit unions should be and what the appropriate size of any rebate should be as well.

More ADA Lawsuits

I don’t want credit unions to think that they are the only ones being subjected to ADA website lawsuits. Here is some information about two of the most recent ones I have spotted. In Gathers et al v. 1-800-FLOWERS.com, Inc. a Federal District Court Judge in Massachusetts recently denied the company’s request to have its ADA lawsuit dismissed. A second case is Kiler v. Rag & Bone Holdings, LLC. I haven’t had a chance to read the complaint yet but according to Law360, the lawsuit is bringing claims not only under the Federal ADA but New York State law as well. This could be an important development…

Speaking of websites, it is being reported that the NCUA is beginning to conduct website audits as part of examinations. If you’ve been subject to one of these, the Association would love to hear about it so that your pain can benefit others. On that note, kumbaya and enjoy your day.

February 13, 2018 at 9:28 am Leave a comment

The CFPB Is Constitutional…For Now

Oh well, it’s on to the Supreme Court hopefully.

Yesterday the Court of Appeals for the District of Columbia put the dreams of constitutional extremists like myself on hold when it ruled that the single director structure of the CFPB was constitutional. The decision means that the Director can still only be removed for cause by the President.

But the decision by an “en banc panel” of the Court was by no means a complete victory for the Bureau. The panel effectively held that former Director Cordray overstepped his powers when he increased from $6 Million to $109 Million, a fine imposed on PHH for violating RESPA. It was this excessive fine which triggered the litigation in the first place.

Let’s take a trip down memory lane. PHH, like many large lenders, owns a captive mortgage insurance company. In 2014, the CFPB brought charges against PHH and its captive reinsurer, Atrium. It claimed that the money transferred to PHH through Atrium violated RESPA because a company was not being paid for services being performed or was being paid in amounts that “grossly exceeded” the value of its services. Ultimately PHH contested this finding in an administrative law proceeding and it was this finding and Director Cordray’s fine which triggered this litigation.

What happens now? We will have to wait and see if either side feels that the remaining issues are worthy of the Supreme Court’s review. PHH has secured an important victory and may not feel that it ultimately has a dog in the fight now that the initial penalty has been addressed.

Personally, this is one issue that I sure do hope ends up before the Supreme Court. At some point the court has to reexamine its precedence. In my ever so humble opinion, the constitution was never intended to permit an explosion of independent quasi law making entities which are neither answerable to Congress or the Presidency.

Incidentally the CFPB also released a request for information yesterday in which it signaled that it is considering scaling back the use of administrative adjudications to resolve enforcement disputes. For example, it wants stake holders to discuss the positive and negative aspects of the Bureau’s administrative adjudication processes, including whether a policy of proceeding in Federal court in all instances would be preferable.

Yellen’s Term Comes To An End

Janet Yellen’s term as the first woman to head the Federal Reserve Board came to an end yesterday. Here is the latest statement of the Fed’s Open Market Committee. Incidentally, Yellen is the first Fed Chairman in forty years not to be reappointed to a second term.

February 1, 2018 at 8:59 am Leave a comment

Wine Connoisseur Taught The Limits Of Credit Reimbursement

Wine snobs everywhere got a much needed smack down from the Court of Appeals for the 10th Circuit on Friday when the Court ruled that Amex and Chase weren’t on the hook for more than a million dollars in credit card payments to purchase wine that was never delivered. I don’t know why, but I find this case extremely amusing.

Malik Hasan had purchased $689,000 using his Chase credit card and $379,000 using his Amex from Premier Cru. Cru delivered some but not most of the wine before it went bankrupt. Hasan demanded that the credit card companies refund his accounts and when they refused he sued them.

Even though you don’t deal with transactions of this size, the dispute is one that any credit card issuing credit union is familiar. Under the Fair Credit Billing Act, card holders can have disputed credit card transactions re-credited to their accounts. However, the law also limits the size of a card holder’s claim “to the amount of credit outstanding with respect to the disputed transaction at the time the card holder first notified the card issuer.”

In this case, our stiffed wine connoisseur was quite conscientious and at the time he disputed the transactions there was no outstanding credit balance on either of his cards. As a result, the court ruled that “because recovery under §1666i is limited to the amount of credit outstanding Hasen could recover nothing under the statute.”

Does this mean that the statute actually puts conscientious bill payers at a disadvantage? Arguably yes. But remember the real wrong-doer here is not the card issuer but the bankrupt wine company.

These Goodbye Tours Are Getting Out of Control

This has absolutely nothing to do with credit union land but I have to get it off my chest. I thought it was bad enough when Mariano Rivera took a year to retire from the Yankees. Now I hear that Elton John is taking three years for what he promises will be his last live tour. Now I like both Elton John and Mariano Rivera but at some point we have to put an end to these ridiculously long goodbyes. They are bordering on egomaniacal. By the way, speaking of egomaniacal, is anyone as disturbed by that bizarre Tom Brady Facebook documentary as I am? I really don’t need to know how he spends his personal time or what he has for breakfast. On that note, enjoy your day.

 

 

January 31, 2018 at 9:11 am Leave a comment

Why Standing Matters To Your Credit Union

Image result for child learning to walkAs a general rule, if I find a legal concept interesting, my readers find it slightly more interesting than the American version of Antiques Road Show. But this morning I get to talk about an extremely important legal principle that is directly impacting your credit union.

If you’re trying to ensure that your website is ADA compliant then you should know about standing. Let’s say you’re more confident than Donald Trump sending out a Saturday morning tweet when it comes to your website; you’re concerned about how much all those data thefts are costing your credit union then you still need to know about standing. So here it goes:

Standing refers to a person’s ability to show that they have been harmed by someone’s legally actionable mistake. You might have the best lawsuit in the world but unless you can show that you have been harmed by someone’s actions then you lack standing. Let’s say Bill Gates was driving 100mph last Saturday. His recklessness didn’t harm you. Similarly, not all statutes are intended to protect all people. For instance, Michael Phelps couldn’t successfully sue under the ADA claiming that a pool he was in wasn’t handicapped accessible.

Standing is one of the key issues for credit unions deciding to fight ADA website violation claims. Typically, the demand letters I have seen are brought in the name of a blind state resident regardless of whether or not the plaintiff is a member or could even qualify for membership. This clearly raises standing as a potential defense, so I was happy to see that NAFCU has submitted a brief in which a court will deal directly with the issue of whether someone who couldn’t qualify for membership in a credit union nevertheless has standing to sue that credit union. Don’t get me wrong. The argument is not a slam dunk winner but it is certainly one that credit unions should raise.

Standing is also a key issue for credit unions claiming that they have been harmed as a result of data breaches. In Spokeo, Inc. v. Robins, the Court held that in order to establish Article III standing, a plaintiff must show that he or she has suffered “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” How does this work in the context of data breaches? Is the fact that a large number of member’s personally identifiable information stolen by hackers enough to establish standing or do plaintiffs also have to show that the data was actually used to rip someone off (that’s a legal term)? This is not an extraction. Yahoo! is making pretty much the same argument in seeking to dismiss consumer claims related to its massive data breach. I also would anticipate Spokeo standing to be an issue in the Equifax litigation.

Unfortunately, Law360 is reporting this morning that the Supreme Court has decided not to hear a case in which it would have had the opportunity to further clarify Spokeo standing, albeit in the context of the Fair Credit Reporting Act.

The issue of standing is further complicated by the distinction between banks and credit unions which can show they have been harmed by a data breach by, for example, having to reissue plastic, and consumers who can prove that their information was exposed but cannot prove that someone has actually used their information yet.

I will keep you posted. I hope you’re still awake. Enjoy your day.

January 23, 2018 at 9:16 am 3 comments

CFPB Appointment Upheld

Yours truly is in a good mood this morning. There are rumors that it might get as high as 50° tomorrow. Why I might even break out the Speedo and sun tan lotion for work; don’t worry, I’m just joking about the lotion.

Another reason I am in a good mood this morning is because the right of the President to appoint the head of one of the most powerful agencies in the US government has been upheld: commonsense and the constitution have prevailed.

In his decision released late yesterday Judge Kelly of United States District Court in D.C. ruled that Deputy Director Leandra English, who was seeking to block Mick Mulvaney from being recognized as the acting director of the CFPB even though he was appointed by the President “is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought. Moreover, the balance of the equities and the public interest also weigh against granting the relief. Therefore, English has not met the exacting standard to obtain a preliminary injunction.”

Now I hope that those of you who think that Mulvaney is staring in a remake of Paradise Lost at the CFPB are still with me.  Before you go apoplectic over this decision ask yourself if you would still support this lawsuit if Barack Obama was president and he was going to appoint Elizabeth Warren? Critics of the agency argue that it is unconstitutional and out-of-control. I think some of this is his overblown but the agency and its supporters aren’t helping themselves when they argue that the agency is so insulated from political accountability that the president of United States doesn’t get to choose an acting director when a vacancy occurs.

January 11, 2018 at 9:00 am Leave a comment

ADA Gone Wild

Judging by the number of phone calls I’ve gotten on this subject in the last few days, I thought now would be a good time to answer some basic questions about the latest developments when it comes to ADA compliance and websites.

    1. Are other New York State credit unions getting threatened with lawsuits claiming that their websites violate the ADA? Yes they are. I don’t want anyone to think that something they tell me privately will end up in a blog. The reason I am writing this is because the issue has become generic enough that it’s impacting many credit unions.
    2. Are these lawsuits all being brought by the same people? No. We started hearing about ADA lawsuits about a year ago at the time the initial lawsuits were being brought at the urging of an organization representing blind and disabled individuals. But lawsuits are like viruses, left unchecked they mutate and it now appears that other lawyers and plaintiffs are jumping on the bandwagon.
    3. What are my legal responsibilities? That’s still an open question. Unlike so many other issues with which credit unions deal on a daily basis, regulations have never been promulgated addressing the question of whether the ADA applies to websites. At least one set of litigants who bring these lawsuits point to the Website Content Accessibility Guidelines as providing an ADA compliant standard. As I mentioned in this recent blog, one of the first cases in New York to address this issue and now at least one court has held that the ADA does apply to websites. But this is an issue that is still very much up for debate. Incidentally, this whole issue could be resolved if the Justice Department were to issue regulations answering this question once and for all or if Congress would amend the ADA to specifically exempt out websites.
    4. What are the legal issues? 42 U.S.C §12182 provides that no person shall be discriminated against on the basis of disability “in the full and equal employment of the goods, services, facilities…of any place of public accommodation by any person who…operates a place of public accommodation.” The question is, are websites places of public accommodation or was the statute designed specifically to ensure access to physical locations such as branches?
    5. What are the risks of non-compliance? The ADA is somewhat unique among Federal statutes in that there are no specific statutory damages for violations. Instead, plaintiffs can get an injunction forcing a violating party to get up to speed. But here’s a caveat: Successful plaintiffs are entitled to attorney fees.
    6. Why does that make a difference? Critics argue that this creates a somewhat perverse incentive. If parties negotiate in good faith to settle their disputes without officially starting a lawsuit, there isn’t much money to be made. In contrast, a winning party can move for attorney’s fees. In other words, a statute that was designed to facilitate discussions can instead be a means for law firms to make a quick buck. See Rodriguez v. Investco, L.L.C., 305 F. Supp. 2d 1278, 1281–82 (M.D. Fla. 2004)
    7. What should I do now? Each individual credit union should make its own decision of course, based on its own set of facts. One thing I would do is find out how close your website is to being ADA compliant. You may find that your website can rather cheaply and quickly comply with the ADA. I also would suggest however, that this is an issue you ultimately should seek legal advice on. Don’t assume that settling is automatically the best thing to do. Especially if you’re being threatened with damages to which the plaintiffs are not entitled.
    8. What does the future hold? The industry is aggressively pursuing a statutory fix that would address this issue once and for all. There is also increasing involvement with some of these lawsuits. The Association recently sent out an email communication on the issue and more will be forthcoming.    

 

January 8, 2018 at 9:06 am Leave a comment

Pot Banking Up In Smoke

Image result for pot bankingYesterday, Attorney General Jeff Sessions put an end to any straight-faced argument a credit union or bank had for extending banking services to marijuana businesses in states that have legalized marijuana possession and distribution. With a short statement, he retracted the Justice Department’s policy since 2013 that it would not prosecute marijuana crimes in states that legalized marijuana for recreational and medical purposes provided these businesses followed strict protocols. If credit unions and banks are going to be able to provide banking services to pot businesses then they must get Congress to act. It’s that simple.

Regardless of what you think of the policy implications arising from  Sessions’ announcement, his decision clears the legal haze surrounding this strange legal issue. By 2013, 20 states had legalized marijuana use in some form even as it remained illegal as a matter of Federal law. The Obama Administration’s Justice Department, responding to pleas from among others, the Colorado Banker’s Association, issued the so-called Cole Memorandum. This memo stipulated that while the possession and distribution of cannabis remained illegal the Justice Department would effectively adopt a willful ignorance policy. Federal prosecutors were instructed not to prosecute properly run marijuana businesses in legal states.

FinCEN followed suit with a memorandum outlining the conditions under which credit unions and banks could both provide banking services to cannabis businesses and comply with the Bank Secrecy Act. Many financial institutions remained hesitant to provide services and the state of Colorado ultimately chartered a state chartered credit union specifically to provide banking services for these businesses. But the Federal Reserve refused to provide this bank access to the system and the NCUA refused to provide share insurance. A resulting lawsuit has done nothing to clarify the confusion. An Appellate Court ruled that the Federal Reserve acted within its authority but that Colorado could try again to show how it could legally provide banking services.

Yesterday’s announcement makes all this history obsolete. The Cole Memorandum has no legal effect and without the Cole Memorandum, FinCEN’s memo can’t survive. In fact, I would shortly expect an announcement that the memo has been withdrawn.

If you are one of the estimated 400 banks and credit unions across the country that decided to provide services, then you have some awfully tough decisions to make. Simply put, you’re providing services to a business that could be prosecuted for violating Federal drug laws. This is a clear violation of your BSA obligations. Individual US attorneys could decide not to prosecute but this is no basis for maintaining a stable cost intensive lending program.

By the way, I’m not saying any of this because I’m against legalized marijuana. I actually have come to accept that there is a place for the industry at least in states like New York that are willing to permit it for legitimate medical reasons. But I’ve always felt that legalizing cannabis on a state-by-state basis ignores bedrock legal principles: states can’t pick and choose what Federal laws they have to follow. And the Justice Department shouldn’t be in the business of ignoring laws passed by Congress that it doesn’t agree with. Whether you feel that smoking pot is your right or a clearly illegal activity, the banking industry now has clear guidance. The next step has to be to get Congress to change Federal law and allow marijuana to be legal in states that choose to make it legal.

 

 

 

January 5, 2018 at 9:00 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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