Posts filed under ‘New York State’

More Good News On ADA Litigation

Carroll v. ROANOKE VALLEY COMMUNITY CREDIT UNION is the latest victory for credit unions arguing that the individuals seeking to bring claims against credit unions because their websites violate the ADA lack standing to bring these suits.

This case involved a blind individual who argued that the credit union’s website. Among other things lacked alternative text which prevented visitors from obtaining vocal descriptions of the credit union’s graphics. However, the court refused to address the merits of the claim, concluding that “Carroll does not allege that he actually uses or plans to use RVCCU’s services. And it is implausible that he would travel more than 200 miles to visit a RVCCU physical location when he has never done so before, has no immediate plans to do so, and falls outside RVCCU’s limited membership field.”

This case is noteworthy because the court rejected the plaintiff’s argument that even though he was not within the credit union’s field of membership, he nonetheless had standing as a “tester.” Under this argument, standing is available to test compliance with the ADA on behalf of others who might be eligible to join the credit union. The court quickly rejected this argument concluding that one status as a “tester” does not by itself establish standing.

Keep in mind that this is the latest example of a very good decision for credit unions that is only binding on credit unions located in the Fourth Circuit, which includes Virginia, Maryland and parts of North Carolina. We haven’t seen much litigation in other areas yet such as the Second Circuit in New York. However, the Fourth Circuit’s ruling constitutes persuasive authority which complicates the ability of plaintiffs to bring successful class action lawsuits in other jurisdictions.

OMB Insider To Be Nominated As CFPB Head

One of the first rules of understanding the Trump Administration is to expect the unexpected. So no one should have been surprised when word came out over the weekend that the Administration would be nominating Kathy Kraninger to head the CFPB. So much for retiring Congressman Darrell Issa and current NCUA Board Chairman J. Mark McWatters.

Now anyone who tells you they know what kind of Director Kraninger would make is either lying or needs a life. All we know from press reports is that she currently is an official at the OMB which is currently overseen by acting CFPB Director Mick Mulvaney. Still that hasn’t stopped the opposing sides in what promises to be a lengthy nomination process from running to the ramparts.

The White House informs us that she will bring a “fresh perspective and much needed management experience” to the Bureau which it contends has been “plagued by excessive spending, dysfunctional operations and politicized agendas.”

In contrast, Carl Fish, Executive Director of Allied Progress informs us that her nomination is “nothing more than a desperate attempt by Mick Mulvaney to maintain his grip on the CFPB.”

If she is ultimately approved, Kraninger will serve a five-year term. Stay tuned. 

Medallion Update

Lately I have unabashedly made this blog The New York State of Medallions blog. According to Craines New York, Nordo Acquisitions, Incorporated bought 131 of the medallions for $170,000 apiece. To put this into perspective, the same group bought 46 of the King’s medallions last September for $186,000. The company is hoping to lease the medallions, between $1,000 -$1,200 a month, for a return of approximately 7% annually. They are effectively betting that the medallions have hit their floor.

The medallions that sold for $250,000 were purchased by buyers who already own the loans and offered them at a price they knew no one would meet in order to maintain control of their assets.

It’s Only Money

Last but not least, New York State’s Attorney General Barbara D. Underwood announced a $100 million settlement to settle claims brought against it by 42 states resulting from its manipulation of LIBOR. “Our office has zero tolerance for fraudulent or manipulative conduct that undermines our financial markets,” said Attorney General Underwood. “Financial institutions have a basic responsibility to play by the rules – and we will continue to hold those accountable who don’t.”

June 18, 2018 at 9:06 am Leave a comment

MBL Regulation Finalized

In the first tangible sign of the impact that the passage of S. 2155 is having for both state and federal credit unions, the NCUA on Thursday finalized regulations clarifying that mortgage loans non-owner occupied 1-4 family homes are no longer considered Member Business Loans. This is good news for credit unions concerned about going up against the MBL lending cap and also good news for smaller credit unions that can now lend money for second homes without triggering MBL obligations.

As the explained in the preamble to the regulation: the MBL definition “now excludes all extensions of credit that are fully secured by a lien on a 1- to 4- family dwelling regardless of the borrower’s occupancy status. Because these kinds of loans are no longer considered MBLs, they do not count towards the aggregate MBL cap imposed on each federally insured credit union by the FCU Act.”

The regulation is also noteworthy because the NCUA used an exception to the traditional notice and comment period requirements to make the changes. I had no idea before I read this regulation that the Administrative Procedure Act permits agencies to skip notice and comment periods when proposing a regulation is “impracticable, unnecessary, or contrary to the public interest pursuant to the Administrative Procedure Act (APA). Who knew? Perhaps other agencies will use this power to quickly amend regulations which are now inconsistent with the law.

More Municipal Fallout

Also last week the NCUA issued a public notice prohibiting Municipal Credit Union CEO Kam Wong from working in the credit union industry following federal charges that he embezzled millions of dollars from the credit union.

June 4, 2018 at 7:59 am Leave a comment

Handle With Care: New Protections For Financial Institutions that Report Suspected Elder Abuse

One of the many provisions tucked away in S.2155, which was signed into law on May 24, was one providing protections to credit unions and other financial institutions when certain employees act in good faith and reasonable care to report suspected financial exploitations of a person at least 65 years old to law enforcement or selected agencies. While the statute is important, particularly in states like New York, which has among the narrowest of protections for financial institutions reporting suspected elder abuse, implementation is trickier than one might suspect. Read §303 carefully and make sure you put the proper procedures in place.

What has me a little nervous is that for an individual to be given immunity from a lawsuit after reporting a suspected abuse, such individual must serve as a supervisor, a compliance officer or in a “legal function” (which, by the way, includes a BSA officer). The person must make the disclosure in good faith and with reasonable care. This means that only specific individuals can report suspected elder abuse. In other words, if your credit union decides to implement this framework, it is absolutely crucial that frontline staff in particular understand that they cannot, no matter how well-intended they may be, report suspected elder abuse. Instead, they must know what individuals to report suspected abuse to.

Similarly, financial institutions shall only be protected against liability if the supervisor, compliance officer or persons serving in a legal function who make the report has received the necessary training.

And what is the necessary training? Interestingly, the training material shall be maintained and made available by the agency with examination authority over the institution. In plain English, that means NCUA has to get to work. This training has to be provided not later than one year after a person becomes employed by the credit union. The credit union would be responsible for maintaining records of training.

Is the law better than nothing? Absolutely. But there are plenty of potential loopholes and trip wires to deal with.

I’m cynical. I believe this is one area where a good deed will not go unpunished and your credit union will find itself on the opposite end of a lawsuit if it does the right thing and reports a suspected elder abuse enough times.


May 31, 2018 at 11:14 am Leave a comment

Time To Regulate Online Lenders?

The New York State Department of Financial Services has been seeking comments from industry stake holders on the implications of online lending for the purposes of submitting a report on its  Legislature. Reports typically end up collecting dust on the second floor of the legislative library only  to be pulled out by staffers anxious for filler to put into a memo after someone comes up with the idea of reissuing the same kind of report years later. This time I think the DFS is on to something.

Online lending is the latest example of an innovative financial development that has the potential to help consumers but which , without more  oversight,  could very well result in triggering the next financial crisis or close to it. Credit unions have a stake in advocating for the appropriate regulation of this industry not only to prevent consumer harm but to ensure that online lending isn’t allowed to develop in a way that makes it impossible for credit unions to compete against this type of banking.

First, what is online lending? There’s not a precise definition. What I am talking about for purposes of this blog are virtual platforms such as Kabbage and Lending Club. These entities are not banks. Instead, they make their money by providing a central place where borrowers meet “lenders”. I put lenders in quotes because what actually happens is that the borrower posts the loan she is looking to get and lenders actually compete auction style for the loan. The winning bid is actually originated by a bank affiliated with the platform. The lender holds the note and the platform makes its money through fees and servicing of the loan.

To its supporters this innovative use of technology updates banking. For one thing, the internet now makes it possible to aggregate huge numbers of lenders and borrowers to an extent not possible in the days of simple brick-and-mortar financial institutions. It results in more competition for more loans; combine this with the use of big data analytics to assess an individual’s credit worthiness and what you have is a means to increase the number of people eligible to get reasonably priced loans. Its  is a win/win right? Not really.

For one thing, the regulatory framework under which these institutions operate is lacking in clarity. For example, the platform itself is subject to SEC regulation but not oversight by the OCC for example. Conversely, the OCC and other banking regulators such as the CFPB do have oversight over any affiliate bank originating online loans but the SEC has no oversight, or expertise for that matter, to oversee the originating banks.

Then there’s the simple issue of liquidity risk. Online lending has developed in a period of solid if not spectacular economic growth. We still don’t know what’s going to happen to these platforms during an economic downturn. For instance, is it really healthy for the economy for entities making loans that don’t have to have baseline loan loss provisions? In fact, this industry has many of the attributes of the mortgage securitization industry before the crash.

How does all this tie in with credit unions? Most importantly, regulators shouldn’t be in the business of standing by and letting one segment of an industry attract new business by not imposing basic safety and soundness requirements. This not only puts consumers at risk but also creates an uneven playing field in which the more prudently regulated and run the institution, the more difficulty it is going to have competing for members.

New York State should take a look at online lending but ultimately the Federal government must step in and create a unified regulatory structure that has jurisdiction over both online platforms and associated originators.


May 29, 2018 at 8:40 am Leave a comment

Six Things To Know Before You Start Your Summer Vacation

You can tell everyone’s getting ready for a long summer hibernation with the amount of stuff that came out yesterday. Here is a list of the big news:

  1. The Association’s very own Michael Lieberman just informed me  that the President not only pulled out of the North Korean Summit today but he signed S.2155. This means that I have to start looking at all those effective dates. You’ll be hearing more about this in the days to come.
  2. I was beginning to think this day would never come. The NCUA yesterday filed a Notice of Appeal seeking to reverse the district court decision holding that the NCUA did not have authority to automatically qualify credit unions to expand communities comprised of combined statistical areas up to 2.5 million members. The ruling also changed the definition of rural community in a way that the court says was an abuse of discretion. There’s no sense understating the importance of this appeal. NCUA’s ability to define what constitutes a local community for purposes of permitting credit unions to expand to meet member needs.
  3. NCUA is proposing regulations that would give credit unions authority to offer new types of payday loan alternatives. These would be in addition to the PAL loans which credit unions can already offer. Among the new features in the proposed PAL II (that’s NCUA’s term) are: permitting loan amounts of up to $2,000 and loan terms as long as a year. The NCUA isn’t the only regulator looking to thread the needle by encouraging lenders to make short-term loans but discouraging them from making payday loans. Just two days ago the OCC created a minor stir when it “encouraged” banks to make responsible short-term loans. Let’s face it, short-term loans are the financial equivalent of needle exchange programs: In an ideal world, you wouldn’t need them but allowing mainstream lending institutions to provide short-term loans is a responsible alternative to the worst excesses of payday lending.
  4. NCUA clarifies vacation payouts for liquidating credit unions. Hopefully this is a bit of information that will never be relevant to you. At its Board meeting yesterday, the NCUA also harmonized two conflicting regulations to clarify when CEO’s of credit unions being involuntarily liquidated are entitled to a payout of their vacation time. The new regulation clarifies that such payments will not constitute a prohibited golden parachute so long as it is provided for in the credit union’s handbook and is consistent with payments provided to all employees who meet the eligibility requirements.
  5. As I’ve explained in previous blogs, Chairmen McWatters has never been a fan of the risk based capital rule which takes effect in January 2019. So it is not surprising that he wrote a letter in support of legislation that would push back the effective date until 2021. Hopefully McWatters can be joined by a board member who is also willing to acknowledge that NCUA’s risk based capital rules were and remain a solution in search of a problem.
  6. Finally, just how much does the Trump administration dislike New York and California? Remember that the tax legislation caps at $10,000, the amount of money that can be deducted for the payment of state and local taxes. Two days ago, the IRS released this memo explaining that: “some state legislatures are considering or have adopted legislative proposals” that attempt to circumvent the property cap limit by re-categorizing property tax payments as other types of payments. The stated aim of both New York and California is to minimize the impact that the new federal tax law will have in high property tax areas such as Westchester and Long Island. The IRS goes on to explain that “Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

On that note, enjoy your summer. If past readership trends are any indication, many of you will be taking a break from the nitty-gritty of reality for the next couple of months. I will be joining you on occasion.


May 25, 2018 at 7:53 am 2 comments

Federal Ruling Puts Mortgage Escrow Exemption in Doubt

Are federally chartered credit unions in New York exempt from a state law mandating that banks and credit unions pay interest on mortgage escrow accounts? The answer used to be a resounding yes, but now it is not that clear anymore.

California, like New York, has a statute mandating that financial institutions pay a minimum amount of interest on mortgage escrow accounts, and it has long been settled law that these provisions don’t apply to federally chartered institutions because they are preempted by federal law. Earlier this year, the Court of Appeals for the Ninth Circuit held that Dodd-Frank changed the law so that now even federally chartered banks have to pay interest. Yesterday, it refused to reconsider its ruling, meaning federal banks in California must pay the escrow.

This decision is not binding in New York and my guess is it will be appealed to the Supreme Court, but there is now persuasive authority to argue that federal institutions in New York, including by implication federal credit unions, have to pay the escrow interest. I anticipate to start seeing similar lawsuits in our neck of the woods if they haven’t started already.

The issue is the extent to which Dodd-Frank watered-down the preemption of state laws for national banks under the National Bank Act. The National Bank Act does not apply to credit unions, but NCUA has traditionally examined the preemption of state laws for national banks when delineating its own preemption authority. The issue in this case involves the following language in Dodd-Frank, which amends the TILA:

(3) Applicability of payment of interest

If prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any impound, trust, or escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law.



May 17, 2018 at 9:59 am Leave a comment

Can you charge extra for mailing that billing statement?

When I get a phone call from a CEO so early that I haven’t even started my blog yet,   I know something must be bugging him; sure enough, we ended up having a good-natured conversation about whether and when credit unions can charge extra for providing paper statements

Remember, this is just one man’s opinion and is not intended, nor should it be used, as a substitute for consultation with your own counsel. But I believe the best reading of federal and New York state law combined is that, when a statement detailing transaction activity  or requesting payment must be provided as a matter of law a financial institution can not charge to a member more for receiving a paper copy of this document but it can charge less to a member who receives an electronic statement .

Let’s start with something we can all agree on. NY General Business law Section 399 zzz provides as follows:

1. Subject to federal law and regulation, no person, partnership, corporation, association or other business entity shall charge a consumer an additional rate or fee or a differential in the rate or fee associated with payment on an account when the consumer chooses to pay by United States mail or receive a paper billing statement.  This subdivision shall not be construed to prohibit a person, partnership, corporation, association or other business entity from offering consumers a credit or other incentive to elect a specific payment or billing option.

Violations of this statute are considered deceptive acts for which your credit union can be sued. To me this is pretty straight forward. Let’s use a credit card bill as an example. Unless a member affirmatively opts in to receiving an electronic billing statement, he or she will receive monthly billing statements in paper form. We can also agree that there are several account statements which credit unions are required to provide to members as matter of federal law such as credit card statements.

Let’s assume that “Henry” is an 80-year-old curmudgeon who prefers the feel of the paper in his hand when it comes to looking over his monthly credit card bill. The statute prohibits you from charging Henry more simply because he wants his good, old-fashioned paper statement, while at the same time permitting you to provide incentives and/or credits for members who opt in to receiving their statements electronically. This means you can use incentives to charge someone less for agreeing to electronic statements but you can’t simply punish someone by charging more for paper statements.

Henry, you may say, isn’t that a distinction without a difference? Arguably, it is but it still has to be operationalized at your credit union. The key point is that, from a compliance standpoint, you should avoid language that imposes a higher fee simply because a member has chosen to receive a paper statement.

But what about those situations when the member is not receiving a billing statement but simply a periodic record of transactions such as a checking or savings accounts statement? First the statute doesn’t just apply to billing statements; it applies to fee ‘associated” with payment on an account. You are going to have a hard time convincing me that a statement which lists overdraft or account balance transfer fees isn’t covered by this law. A case filed in April seeking to bring a class action lawsuit against TD bank for violating NY law by charging a dollar more for paper statements may provide some guidance on this issue. I will keep you posted.

Then there is the question of the applicability of the   E-Sign Act. Accounts are contracts.  The Act requires members to affirmatively “opt in” to receiving electronic vs. paper statements. To me, to make someone pay extra for what they are legally entitled to as a matter of federal law comes awfully close to being an unfair and deceptive act. This is one of the reasons CFPB and the FDIC fined Continental Airlines because of several practices related to its credit card program. Among the shortcomings cited by the examiner was the language used by the company suggesting that members had to receive paper statements for which they were subsequently charged a higher fee

This brings us back to where we started. If you take my admittedly more conservative view of fee charging, you can still charge people less if they choose to do the environmentally friendly thing of getting their statement information electronically.  Conversely, if you make the decision that there are circumstances under which New York’s statute doesn’t apply or that the E-Sign Act allows institutions to charge extra for services they are mandated to provide, you’re increasing the possibility that your credit union will find itself in the cross hairs of a litigator or regulator.



May 14, 2018 at 9:53 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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