Posts filed under ‘New York State’
“Bank Cop Lawsky Turns In His Badge ”
That’s the headline into today’s WSJ announcing the Departure of Ben Lawsky as the first head of the Department of New York’s department of Financial Services. As its first Superintendent he oversaw the unification of the Insurance and Banking Departments in the opening act of what has been a very impressive tenure.
In his first State Of The State address Governor Cuomo criticized the state’s performance cracking down on banker malfeasance in the years leading up to the Mortgage Meltdown. He wanted a Superintendent more analogous to an Attorney General than a traditional regulator. The WSJ headline speaks volumes about how successfully Lawsky carried out this task for the Governor, for whom he had served as an a top assistant when the Governor was Attorney General. Lawsky brought the zeal of a former federal prosecutor to the job and demonstrated that the state has enough jurisdiction to make itself a major player in investigations previously thought of as the exclusive purview of the federal government, such as BSA violations by foreign banks with New York branches.
If you think I’m exaggerating here is a trivia question for you: Who was New York’s last Banking Superintendent? Richard Neiman. No one ever thought of him as a Hell-Hound of Wall Street.
On the more traditional regulatory front, his initiative that I believe will have the most lasting impact-hopefully for the better but maybe for the worse will be in the regulation of virtual currency. New York was the first state to establish a licensing requirement for virtual currency traders. The issue he grappled with: how to increase regulatory oversight without stifling currency innovation-will be one of the key challenges faced by his successors for years to come.
Finally and most importantly, his tenure has also been marked by a refreshing receptiveness to credit union issues. The Department is increasing staff dedicated to credit unions and has expressed a willingness to work with credit unions that may be interested in converting to the state charter. Plus, its acquiescence was crucial to ultimately getting our enhanced field of membership bill approved by the governor.
In my ever so humble opinion this is a pretty good list of accomplishments, He is starting his own consulting firm but my guess is that New York hasn’t seen Lawsky’s last stint on the public stage. Pure speculation on my part but he will run for statewide office someday.
The debate over New York’s broken foreclosure system and what to do about it took a major step forward yesterday with a speech by Superintendent Lawsky in which he proposed several needed reforms. The speech, legislation introduced by the Attorney General, and the announcement that several major lenders, including Bethpage Credit Union on Long Island, have agreed to adopt best practices for abandoned property-including the creation of a vacant property registry means that foreclosure reform will be a high-profile issue for the Legislature as this year’s session enters its final weeks.
First, let’s be honest the system is broken. The average foreclosure takes over 900 days to complete after a notice of foreclosure has been filed and policymakers are growing increasingly concerned about abandoned property for which homeowners no longer take responsibility. Unfortunately the issue has largely been framed by housing advocates who believe that all banks are inhabited by Scrooge’s anxious to steal homes at the first sign of delinquencies and who believe that there is no problem that can’t be solved by requiring lenders to provide just one more disclosure.
In contrast, in his speech, which was accompanied by the release of a report on New York’s foreclosure process, Lawsky was clearly trying to highlight areas of consensus when it comes to foreclosure reform: “we believe there are some sensible and responsible changes we can make to improve our broken foreclosure process that will benefit homeowners, lenders, and our local communities.” He pointed out that “although it may not be immediately obvious; our current system hurts virtually everyone involved in the foreclosure process.”
Since 2007, NY law has mandated that lenders and delinquent borrowers work in “good faith” to negotiate a resolution to delinquencies without foreclosure. Last year there were 115,000 such conferences. The problem is that these settlements can take months to schedule and when they actually do take place the law doesn’t define what good faith is. The Superintendent is proposing defining “good faith” and authorizing specific penalties for noncompliance.
In theory these reforms make sense but I would rather see them limited to stricter penalties for both lenders and borrowers when they don’t show up at these meetings prepared and authorized to negotiate. To me a borrower who chooses not to show up at a court ordered conference, or a lender whose representative is authorized to do nothing but imitate a potted plant should be subject to swift and clear penalties. The good faith part of the discussion will take care of itself.
On Monday the Governor announced that a group of major lenders had agreed to voluntarily deal with abandoned or Zombie property. Under the plan as described in a press release the lenders will conduct an exterior inspection of a property within 60 days of delinquency to determine vacancy and abandonment, and then every 30 days thereafter. If the property is determined to be vacant and abandoned, lenders will secure the home by changing the lock, replacing or boarding up windows, posting the property with contact information, and eliminating other safety hazards. Then, on an ongoing basis they will monitor the property’s condition to ensure it remains secure and that it complies with applicable provisions. This is similar to the AG’s proposal.
Yesterday the superintendent argued that the creation of the registry should be coupled with a push to expedite foreclosures involving abandoned property.
“Lenders who can prove that the property is in fact abandoned will be able to fast-track their foreclosure actions. In return for taking advantage of this expedited process, lenders will be legally responsible for maintaining the property during this faster foreclosure process, rather than waiting until the process concludes. It is a fair trade-off.”
Here are links to the speech and the Governor’s announcement.
Court Hands Creditors An Important Win
A unanimous Supreme Court handed creditors an important victory that will help keep the time it takes to resolve Chapter 13 bankruptcies from getting longer than your typical Red Sox baseball game-which seems to last forever. (Their starting pitchers take five minutes between pitches.) The case is Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *8 (U.S. May 4, 2015).
Louis Bullard filed a petition for Chapter 13 bankruptcy in Federal Bankruptcy Court in Massachusetts. For our purposes, the important thing to remember is that he ultimately proposed splitting the debt into a secured claim in the amount of his house’s then-current value (which he estimated at $245,000), and an unsecured claim for the remainder (roughly $101,000). Bullard would continue making his regular mortgage payments toward the secured claim, which he would eventually repay in full, long after the conclusion of his bankruptcy case. He would treat the unsecured claim, however, the same as any other unsecured debt, paying only as much on it as his income would allow over the course of his five-year plan. At the end of this period the remaining balance on the unsecured portion of the loan would be discharged. In total, Bullard’s plan called for him to pay only about $5,000 of the $101,000 unsecured claim. The bank objected and after a hearing the bankruptcy court refused to accept the plan.
Here is where it gets technical but important. Instead of submitting another plan Mr. Bullard immediately appealed the bankruptcy court’s refusal to confirm his plan. The question that the Supremes decided yesterday was whether debtors have the right to immediately appeal a judge’s decision rejecting a repayment plan or whether they have to wait until a bankruptcy plan is agreed to or the bankruptcy dismissed before bringing an appeal? The Court ruled that debtors had to wait until a bankruptcy is finally resolved. The ruling is consistent with the Second Circuit approach to bankruptcies appeals.
The ruling means that debtors must either resubmit a less favorable payment plan or move to dismiss the bankruptcy and bring an immediate appeal. This would end the automatic stay on collection efforts. As a result, creditors have more leverage over debtors when it comes to repayment plans-a fact acknowledged by the Court. “We do not doubt that in many cases these options may be, as the court below put it, “unappealing.” But our litigation system has long accepted that certain burdensome rulings will be “only imperfectly reparable” by the appellate process.”
Besides, the court’s approach is a heck of a lot better than letting debtors drag out bankruptcies for years by appealing every time they propose an inadequate bankruptcy plan.
Interstate oversight Pact Agreed To
The CU Times informs us that Michigan’s Department of Financial Services announced on Friday that it was joining an interstate compact for the supervision of state chartered credit unions that operate in more than one state. Why do I care? Because one of the key questions facing New York federal credit unions considering converting to the state charter is who will regulate their out-of-state activities? No such concerns exist for federal charters.
At last week’s State GAC conference Ruth Adams, NY’s Deputy Superintendent for Community and Regional Banks who oversees supervision of state chartered credit unions , said that the state is interested in developing similar supervisory agreements as part of its efforts to encourage more state charters. Michigan’s announcement is another indication that such agreements have risen on regulator to-do lists and this is a good thing. To give you a sense of what these agreements do here is a link to the Southeastern cooperative agreement entered into in 2008.
It’s Deja Vu All over Again
In case you missed it, NY’s State Senate Majority Leader Deal Skelos of long Island was arrested on federal corruption charges yesterday. We will have to wait and see what unfolds in the coming days. Since Senate Republicans hold a one seat majority and democrats hold all of the other statewide offices the Senate Majority leader is the most powerful Republican in New York State.
RESPA has always prohibited kickback schemes. Specifically, RESPA explains that ”No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C.A. § 2607 (West). But figuring out where the line is between legitimate salesmanship and illegal kickbacks has always been a gray area and RESPA enforcement has always been a tad lax.
Yesterday provided examples of how RESPA says what it means and means what it says. The Bureau That Never Sleeps and the Maryland AG sued originators over an alleged referral kickback scheme (http://www.consumerfinance.gov/newsroom/cfpb-and-state-of-maryland-take-action-against-pay-to-play-mortgage-kickback-scheme/). Closer to home, Governor Cuomo and New York’s Department of Financial Services proposed tough new regulations that would, among other things, prohibit title insurance companies from providing meals and entertainment expenses to loan originators (http://www.dfs.ny.gov/insurance/r_prop/rp208t.pdf).
First, let’s talk about the RESPA violation. The CFPB and the Maryland AG are suing Genuine Title, a now defunct Maryland company that offered closing services. It’s alleged that the company provided loan officers with marketing services “including purchasing, analyzing, and providing data on consumers, and creating letters with the loan officers’ contact information” and that in return, the loan officers would refer homebuyers to Genuine Title.
RESPA stands for the simple proposition that you can’t get something for nothing. If an originator is getting a fee for doing nothing more than referring business, then something is wrong.
As for New York State, it is moving to clamp down hard on title insurance practices that it believes drive up the cost of title insurance and limit consumer choice. The Governor doesn’t always get quoted in DFS press releases. Here is an indication of how strongly the administration feels about the amount of gift giving going on in the title insurance industry.
“New Yorkers should not have to foot the bill for outrageous or improper expenses made by title companies just to refinance or close on their home,” Governor Cuomo said. “Our administration will not stand for that kind of abuse in the title insurance industry, and these new regulations will help ensure that New Yorkers are protected from unfair charges and get the most bang for their buck.”
The proposed regulations would prohibit title insurers from offering inducements to get business including: meals and beverages; entertainment, including tickets to sporting events, concerts, shows, or artistic performances; gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value; travel and outings, including vacations, holidays, golf, ski, fishing, and other sport outings; gambling trips, shopping trips, or trips to recreational areas, including country clubs; parties, including cocktail parties and holiday parties and open houses. THIS IS NOT THE COMPLETE LIST
Suffice it to say it’s about to get a lot less fun dealing with title insurers in NYS.
Here is a link to the proposal: http://www.dfs.ny.gov/insurance/r_prop/rp208t.pdf
NCUA Board meeting today
Here is a quick reminder that the NCUA is having a board meeting today. Among the issues on the agenda are a vote on a final rule amending common bond requirements for associations and proposed regulations for IOLTA accounts. Remember that federal law now authorizes credit unions to open up Interest on Lawyer Trust Accounts. The regulation will presumably describe what accounts are similar enough to IOLTAs that they can also be offered by credit unions.
It was nice seeing so many of you at the State GAC over the last couple of days. Great job!
I’m feeling lucky today. On the same day that New York credit unions are going to the Legislature to advocate for stronger data protections, among other things, news reports explain why small credit unions and banks are objecting to a proposed settlement between MasterCard and Target in relation to Target’s data breach.
To his credit, the Attorney General has made data breach legislation one of his main priorities. Recently, the Legislature introduced bills at his request (A.6866/S.4887) that would require all businesses in New York State to adhere to certain basic industry standards. For example, businesses that comply with Gramm-Leach-Bliley privacy protections would be in compliance with the AG’s standards. Since banks and credit unions have had to meet basic privacy protections for years, the main effect of the AG’s proposal would be to apply these standards to merchants. This is, of course, a good thing. But what happens when the merchants don’t live up to their end of the bargain?
Which brings us to today’s news. As explained in this article in the Wall Street Journal, small banks and credit unions are objecting to the proposed MasterCard settlement negotiated with larger banks on the grounds that it doesn’t provide adequate redress to smaller institutions. You may be aware that credit unions have joined class action law suits seeking damages against Target and other retailers for costs related to the breach. One of the main reasons why the Target lawsuit has legs is because Target is headquartered in Minnesota. In addition to being the land of 1000 lakes, it is also one of the first states in the nation to have a statute enabling financial institutions to recover for the cost of data breaches caused by merchants. These costs include the expense of reissuing new debit and credit cards.
The AG’s bill includes no similar rights for New York banks and credit unions. If the legislation ultimately includes such a right, it would be a pretty fair deal for financial institutions and consumers. Data would be better protected and the fear of litigation would put some teeth behind this bill. In contrast, unless credit unions and banks get a statutory right to recover for the costs of breaches for which they are not responsible, costs of these data breaches will not be shouldered by the parties most responsible. This is particularly important for credit unions since, as the article points out, data breaches are more costly for smaller institutions.
No one appreciates a good ride more than I do, but I have been gun shy about trying out ride sharing services in cities where they are already available. On the one hand, the more people who are willing to give me a ride the better; on the other hand, I have visions of being picked up by an Uncle Buck in a Jalopy or a well-meaning soccer mom who sticks me in the backseat of her minivan with a screaming, cheerio-throwing two-year-old.
These so-called Transportation Network Companies also raise a host of insurance issues that will impact your credit union if it offers car loans. The networks are in operation in NYC, but the Attorney General and the Department of Financial Services successfully blocked them from expanding outside of the Big Apple. Resolving this impasse has emerged as a headline issue not only in New York State but across the country. DFS Superintendent Lawsky recently said he hoped a bill authorizing the networks would be approved by the end of this Session.
These systems use Apps from a company such as Uber or Lyft to connect passengers and drivers. A request goes out to a network of drivers who have signed up to give people rides. The passenger is informed when someone has agreed to give him a lift and the fare is negotiated between the passenger and driver.
The system seems like a win-win until you start considering the insurance consequences. Let’s say that one of your members took out a car loan recently and decided that to make extra money she would pick-up the occasional ride. One day, while taking one of her passengers home from work, she gets into an accident. No one gets hurt, but the car is totaled. Chances are your collateral is worthless. Your typical insurance policy has a livery cab exception to its coverage. Since your member was acting as a livery driver, insurance isn’t going to cover the accident. You could include a provision in your car loans prohibiting using the car for such purposes without additional coverage but such coverage isn’t easy to get and, if a member ignores this requirement, you won’t know until it’s too late.
To resolve the insurance conundrum, both Senator Seward and Assemblyman Cahill have put in bills to regulate insurance that Ride Sharing Networks would be responsible for making sure their drivers have. In addition, the Legislature is grappling with the issue of determining when a person is acting as driver for hire and when she is just a soccer mom who got into a fender bender.
None of these issues are insurmountable. Sometime soon expect Uber or Lyft to become available near you and to add yet another wrinkle to your increasingly complicated lending procedures. Here are some of the proposed bills.
Are we facing another subprime crisis, this time with auto lending? Are there steps the Legislature should take to clamp down on poor lending practices? Those were the basic questions considered by NYS’s Senate Banking Committee yesterday at a hearing dedicated to analyzing subprime auto lending trends. While legislation may not necessarily be imminent, some key Legislators and regulators are clearly growing concerned with what they are seeing, particularly when it comes to dealer practices.
First, the statistics certainly suggest that we are seeing the nascent signs of car lending abuses. For example, the New York Federal Reserve Bank reported that the dollar value of car loan originations to people with credit scores below 660 has roughly doubled since 2009, while originations for other credit score groups increased by only about half. In addition, a series of articles by the New York Times has highlighted both a growing demand for auto loan securitizations and the questionable practices of some dealers more interested in getting borrowers to agree to the most expensive loan possible with little regard to whether or not the consumer can actually repay the loan.
It was against this backdrop that DFS Superintendent Lawsky suggested that one step the Legislature could take to address these concerns is to allow the DFS to have more direct oversight over auto dealers. As he explained to the gathered Senators, the existing system allows the DFS to scrutinize loans once they are purchased by banks, but this provides little protection to the consumer who walks into the dealership in need of a car.
Another trend highlighted by the Superintendent is the growing securitization of car loans. Echoing sentiments similar to those expressed by the Association in its testimony, the Superintendent pointed out that securitization creates a misalignment of incentives, whereby a lender is more interested in originating a car loan for sale to Wall Street securitizers than it is in ensuring that the borrower can afford to make the car payments.
My sense is that we will not see the Legislature further regulate car lending practices in the near future. But unless, as evidence suggests, some of the abuses are being reigned in, expect legislation dealing with auto lending practices to be a priority next January. In the meantime, it is important for everyone to analyze the extent to which the trends that motivated the Legislature to hold this hearing are anecdotal incidents that reflect pent up demand for automobiles as the economy gradually improves or systemic defects in the auto lending process that legislation could fix.