Posts filed under ‘New York State’
Say what you want about your most successful despots and dictators they are almost all keen observers of the human condition. Take for instance Lenin who once explained that, “Give me four years to teach the children and the seed I have sown will never be uprooted.”
He is onto something that should serve as a reminder\wake-up-call to your credit union about the importance of engaging kids in the financial system. It’s good for the kids and good for business. It’s good for the kids because the sooner people start learning that money doesn’t magically grow in Daddy’s wallet but almost as magically via compound interest the better off they will be. It’s good for business because brand loyalty starts to develop early. Today’s seven year old with his two dollar deposit may very well be the erstwhile member, who turns to the credit union for her first mortgage twenty years from now.
So I was happy to see that the NCUA joined with other financial regulators in issuing a joint guidance on school branching. I’ve always been a little surprised by how little legal guidance is actually available on the topic so anything is a step in the right direction The Guidance does a good job of explaining how federal laws can be complied with in a school setting. That being said NCUA could have done a much better job in the Guidance of answering some of the basic questions as well as highlighting its own resources
For instance where exactly do federal credit unions get the right to conduct banking activities on school grounds anyway? According to the Guidance the development of financial literacy programs is consistent with the mission of credit unions to promote thrift. It explains that “Applicable state law and the appropriate state supervisory authority determine branch application requirements, if any, for state-chartered credit unions.” It is odd to me that NCUA didn’t also reference that federal credit unions have the right, but not the obligation, to accept minors as members.
For state chartered credit unions interested in providing branching services you have to start with your state law. For instance in NYS a state chartered credit union may open up a student branch with the approval of a school’s governing body. N.Y. Banking Law § 450-b (McKinney). Membership is available to all the kids.
Does this mean that credit unions can offer normal branches on school grounds? This part of the blog is just my opinion but the answer is no. NCUA authorizes federal credit unions to offer student branches in order to promote thrift. NYS law specifically defines a student branch offered by state charters as “pertaining to the in-school services and financial education offered to students.” There has to be an educational component to your student branching activities. After all, how is an FCU promoting thrift by students or a NY CU helping to educate students if they just happen to go to a school with a branch?
I think credit unions would be well advised to follow one of the criterion used by banking regulators when approving banking activities on school grounds. Specifically branch applications on school grounds are not required for banks when:
“The principal purpose of the financial literacy program is educational. For example, a program is educational if it is designed to teach students the principles of personal economics or the benefits of saving for the future and is not designed for the purpose of profit-making.”
What form would that education take? That might include getting students to help run the branch or having employees come in to talk about how the credit union works but it does mean that these are not normal branches
Another Guidance oversight is that it didn’t reference an informative 1999 NCUA opinion letter on student branching in which it answers these practical but important questions:
How do we show the accounts on the FCU books?
Should the accounts be in the student’s name with parent co-signing?
Should the accounts be in parent’s name as [or in] trust for the student?
Should the accounts be reflected as custodial accounts?
On that curmudgeonly note I wish you all a fine weekend.
Here is the Guidance:
Should CEO’s have to personally attest to the adequacy of their Anti Money Laundering programs the same way top executives have to vouch for the accuracy of their financial reports under Sarbanes-Oxley? That is an idea being considered by Benjamin M. Lawsky, NY’s Superintendent of Financial Services for the State of New York’who outlined his proposal in a speech on “Financial Federalism” at Columbia law school yesterday.
A recurring theme of Lawsky’s public comments of late has been his frustration with the unwillingness of major financial firms to change their practices even after they have been subjected to huge fines. The former federal prosecutor argues that more has to be done to hold specific individuals and not just the corporations they run responsible for malfeasance that takes place on their watch.
For my money nowhere is this truer than in the area of BSA and AML enforcement. Just this morning BankingLaw360 reports that Citigroup Inc. and its Banamex USA unit are under investigation by the Treasury and California regulators over their compliance with anti-money laundering requirements and the Bank Secrecy Act.
The truth is that even as the smallest of credit unions have made attempts to comply with BSA requirements some of the most legally savvy, technologically advanced corporations in the world have chosen to ignore some of the most basic AML\BSA requirements. It’s a national scandal that has gotten nowhere near the attention it deserves. They write a big check when they get caught and then go about their business as if nothing ever happened. Fines alone aren’t working.
Lawsky’s solution is to bring about more personal accountability:
“First, we are considering random audits of our regulated firms’ transaction monitoring and filtering systems, employing the same methodology our independent monitor used to spot deficiencies.
Second, since we cannot simultaneously audit every institution, we are also considering making senior executives personally attest to the adequacy and robustness of those systems.
This idea is modeled on the Sarbanes-Oxley approach to accounting fraud.”
In theory I love the idea, Our nation’s BSA framework is only as effective as our largest banks are willing to make it. Executives should generally understand what transactions are being red flagged and why.
But if this proposal gets implemented I don’t want to see smaller institutions get sucked into the vortex. Just as Sarbanes Oxley’s personal attestation provisions only applies to larger corporations a BSA attestation mandate should only apply to the largest banks. The evidence shows that the vast majority of credit unions and smaller banks have committed resources to complying with federal anti- money laundering laws. It’s the big guys who need to be reminded that violating the law isn’t in their personal or corporate best interest.
The entire speech is worth a read. Here is a link. http://www.dfs.ny.gov/about/speeches_testimony/sp150225.htm
Is another minimum wage hike on the way?
Governor Cuomo is pushing hard for legislation that would increase the State’s minimum wage to $11.50 in New York City and $10.50 elsewhere. Even if this wouldn’t directly impact your credit union’s pay scale remember that NY law generally shields the higher of 240 times the state’s minimum wage or the federal minimum wage from levy and restraint by private sector creditors even for those members who don’t have government funds directly deposited into their accounts. (N.Y. C.P.L.R. 5222). So as the minimum wage goes up so too does the amount of money in a member’s account shielded from creditors. That’s right: The more money Government mandates people get paid the more money people get to shield from their creditors. Here is an article on the Gov’s minimum wage push.
New York Attorney General Eric T. Schneiderman used a recent appearance before the New York State Association of Towns to announce that he would soon be introducing new and improved legislation aimed at making lenders more responsible for abandoned property that has not been foreclosed upon. Under this version, fines levied against lenders for non-compliance with property maintenance requirements will be given to local governments “to hire additional code enforcement officers.” According to the press release, independent Democratic conference leader Jeffrey Klein and Assemblywoman Helene Weinstein will be sponsoring the legislation.
First, a caveat. The views I express on legislation in this blog are mine and mine alone and do not necessarily reflect the views of the Association as a whole. There’s a second caveat. I understand why AG Schneiderman and the town leaders are so concerned about vacant property. According to the AG, in some areas of the State up to 42% of the properties in foreclosures are abandoned before the process is complete. The result is that property lays vacant and deteriorates as homeowners walk away from their responsibility to care for their homes and lenders are less than enthusiastic about assuming the legal responsibility for a deteriorating piece of real estate.
Schneiderman’s bill seeks to address this problem by imposing requirements on mortgagees and servicers. Specifically, Section 1307 of NY’s Real Property Actions and Proceedings Law currently imposes maintenance obligations on a plaintiff in a foreclosure action who obtains a judgment of foreclosure. The most important thing this bill will do is impose maintenance obligations on lenders and servicers whenever property is vacant and abandoned or a foreclosure action has been commenced. Among other things, vacant and abandoned property can be any property that is at least three months delinquent and vacant or the mortgagor has informed the mortgagee in writing that they no longer intend to occupy the property. Assuming your typical delinquent homeowner won’t be quite so conscientious, property can also be classified as vacant where there is “a reasonable belief that the property is not occupied.”
What frustrates me about proposals like this is that they refuse to address the core reasons behind zombie property in the first place. New York has one of the most difficult and time consuming foreclosure processes in the nation. It’s not uncommon for lenders to take four years to complete a foreclosure. Rather than imposing obligations on lenders with regard to property they don’t own, why not simply expedite the foreclosure process?
For example, we should use this legislation’s definition of vacant and abandoned property as a basis for allowing foreclosures to go through without many of the procedural hurdles that are currently in place including the requirement under New York Law for pre-foreclosure settlement conferences. In addition, any party that fails to show up in a foreclosure proceeding should be understood as having waived any and all defenses to the foreclosure.
Ironically, many of the towns supportive of this legislation are well aware of what a disaster a foreclosure in New York can be. Under New York Law, municipalities have a first-lien right to foreclose on property on which delinquent taxes are owed. It seems to me somewhat disingenuous to complain about lenders not taking responsibility for real estate they don’t own when municipalities could, in many instances, take control of the same property but choose not to. I wonder why?
And one more thought. It’s one thing for a lender who has taken over foreclosed property to be responsible for proper maintenance. It is another thing to impose on that lender the obligation to refurbish property that may not have been up to code for years before the lender entered repossession. Under this bill, municipalities would have the right to intervene in foreclosure actions to mandate that property be maintained up to code. Let’s think about this for a second. The GSEs have already complained that New York mortgages are not as valuable as in other parts of the country because of foreclosure costs. Now we are going to make the system even more expensive by allowing municipalities to impose a back door maintenance tax on mortgagees.
Finally, I personally would love to know how much of the stock of zombie property not only in New York but nationwide is owned by Fannie and Freddie. My guess is that we might find that these government sponsored entities are not particularly conscientious absentee landlords.
The news that Wells Fargo entered into a $4 million consent decree with NYS’s Department of Financial Services typically wouldn’t be blog worthy. After all, $4 million ($2 million fine and $2 million in restitution to 1,300 NY Consumers) is cushion change for your average mega bank and by some measures Wells Fargo is the biggest of the Big. But when the settlement involves one of the most unique operational constraints placed on New York State chartered financial institutions and touches on how and when state laws are preempted, it is worth taking a look at.
Section 413 of NYS’s Personal Property Law prohibits the use of credit cards secured by real property. As a result, state chartered institutions, including credit unions, are prohibited from offering HELOCS that can be accessed with cards with credit features, as explained in this legal opinion letter from the Department of Financial Services.
New York’s prohibition against credit card HELOCS is arguably the most significant operational difference between state and federal credit unions. NCUA has clearly preempted such laws as applied to federal credit unions. For example, this opinion letter from NCUA noted that a Connecticut law that banned HELOC credit cards was preempted by federal law. As the letter explained:
“NCUA’s lending regulation expressly recognizes that FCUs are subject to state law in certain matters, including insurance laws, issues related to the establishment and transfers of security interests, issues of default and so forth. 12 C.F.R. §701.21(b)(2). The Connecticut statute is not within the area of permissible regulation by the states because it affects conditions related to the purpose of the loan and the distribution of loan proceeds. ” RE: PREEMPTION OF CONNECTICUT OPEN-END MORTGAGE LAW, 2002.
What caught my eye about the settlement and has sent me scrambling through the legal opinion letters is that Wells Fargo is a nationally chartered Bank. Why would it be subject to New York’s Personal Property Law? As it turns out, Wells Fargo had brought the line of business from a non- bank entity that wasn’t federally chartered.
The bottom line: federally chartered institutions are no more subject to New York’s HELOC prohibition today than they were yesterday but if you are state chartered, the state is serious about enforcing its HELOC limitations. If you are a federal charter don’t assume that the exemptions that apply to your credit union automatically apply to your CUSOs.
Law and Order NY Style
For political junkies our morning political blogs are reading more like crime blotters.
Fresh on the heels of the Silver indictment former Senate Majority Leader Malcolm Smith was found guilty of trying to bribe his way onto the ballot as a Republican in his still-born run for NYC Mayor in last year’s election. His successor, John Sampson is awaiting trial. Meanwhile a $580,000 settlement involving alleged sexual harassment of staffers by former Assemblyman Vito Lopez has been reached. Taxpayers will be on the hook for $545,000 of the settlement.
Yesterday, the Government announced a settlement with S & P and its parent company McGraw-Hill in which the ratings agency effectively conceded that it violated its own policy by letting business considerations influence the ratings it gave to issues of mortgage-backed securities and collateralized debt obligations. The $1.375 billion settlement is ostensibly “historic” since it represents the first such admission of wrong doing by a ratings agency in a case brought jointly by the Department of Justice and 19 states’ attorneys general. New York did not participate in the litigation.
Like so much else in relation to the Government’s response to the mortgage meltdown, there’s less here than meets the eye. S & P’s major concession was that it will do what it already is publicly committed to, which is objectively rate the issues it assesses so that investors like credit unions can invest with confidence. However, does anyone really think that credit rating agencies, which are still dependent on doing business with debt issuers to stay in business, won’t continue to feel pressured to let business relationships influence their ratings? Remember that one of the most important, and in my mind silliest, Dodd-Frank reforms is to mandate that financial institutions, including credit unions, not rely exclusively on credit agency judgments when making investment decisions. But at the end of the day, credit rating agencies will continue to be relied on. After all, your average investor simply doesn’t have the expertise that good credit rating agencies do to make judgments about the quality of debt they are buying.
Bottom line, this is yet another example of how credit unions were more impacted operationally as a result of the mortgage meltdown than were many of the institutions responsible for causing the mess. Oh well.
Meet the New Boss
Bronx Assemblyman Carl Heastie was elected to replace Sheldon Silver as Speaker of the New York State Assembly. As such, he becomes one of the three most important people in State Government. The Speaker has been a supporter of credit unions in the past, and the Association looks forward to working with him going forward.
NY Attorney General Eric T. Schneiderman yesterday announced an agreement with Citibank under which it has agreed to change its policies for prescreening account applicants so that “applicants are not rejected for accounts based on isolated or minor banking errors, such as paid debts or a small overcharge.” Specifically newspaper reports indicate that Citibank will only decline applicants if they have two or more reported incidents of account abuse in recent years. A similar agreement was reached with CapitalOne earlier this year.
I know there are credit unions that use ChexSystems and similar services . Their use is not illegal and the AG’s announcement is certainly not binding on other financial institutions; however the writing is on the wall and it wouldn’t be a bad idea to examine the criteria your CU uses to disqualify applicants from membership. To their critics ChexSystems and other similar companies disproportionately impact the poor unbanked since these applicants are at greater risk of having bounced a check, for example. My personal advice would be that you disqualify applicants based on a clear pattern of account abuse.
I have also argued in a previous blog that credit unions have a unique obligation to the unbanked and underserved. Disqualifying potential members based on past misconduct could undermine that goal at institutions where membership is too restrictive.
Here is a copy of the press release
The limits of Operation Choke Point
In recent years regulators and the DOJ have become increasingly aggressive about pressuring the banking system not to facilitate legal banking activities that may ultimately aid down stream illegal conduct. . For example, New York’s DFS criticized the NACHA system for facilitating electronic payments of Pay Day Loans and some banks stopped opening accounts for gun dealers.
Yesterday the FDIC pushed back against these overly aggressive tactics. In a letter to FDIC insured institutions it encouraged them to ” take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk. Financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law.”
It further assured them that “Isolated or technical” BSA violations “do not prompt serious regulatory concern or reflect negatively on management’s supervision or commitment to BSA compliance.”
I wonder if NCUA will be issuing similar Guidance? Here is a link
The state of Monetary Policy
The FOMC issued a statement following its two day powwow in the nation’s capital. Even though it gave itself the typically abundant supply of qualifiers and caveats the best reading of the statement is that the Fed remains likely to raise short term interest rates in the middle of the year.
To me the most telling line in the statement is that “on balance, a range of labor market indicators suggests that under utilization of labor resources continues to diminish.” Why is this important? Because Chairman Yellen has consistently expressed the view that the most commonly used measures of unemployment haven’t provided an accurate snapshot of employment conditions facing American job seekers and the under employed. The generally upbeat assessment of the broader economy tells me that the Fed currently is inclined to believe that the economy is now strong enough to withstand slightly higher interest rates as a hedge against the inflation bogey man.
Here is a link to the statement.
And their off…
With Assembly Democrats moving ahead with plans to officially remove Sheldon Silver as Speaker as early as Monday jockeying for the position has begun in earnest. The Capitol Tonight Morning Memo is reporting that, Manhattan Assemblyman Keith Wright, who was considered a possible candidate for the Speakership, endorsed Bronx Assemblyman Carl Heastie. Also Rochester area Democrat Joe Morelle, who will likely be Acting Speaker pending a vote on a permanent replacement for Silver, announced Wednesday that he wants the job permanently. Another candidate is veteran J Assemblyman Joe Lentol.
Yesterday was kind of an interesting day in Albany. In case you missed it, and if you live in the New York area the only way that happened is if you were hiding out in a cave, Assembly Speaker Sheldon Silver, one of the longest serving speakers in the history of the Assembly, has been indicted on federal corruption charges. At this point, all we know for sure is that allegations have been made against the Speaker, the Democratic Conference remains publicly committed to him, and that the Speaker can legally remain in his post unless he is convicted.
Once the initial shock dies down and the dust begins to settle, we may very well see the Legislative Session proceed normally. In 1991, then Assembly Speaker Mel Miller was indicted on federal fraud charges involving real estate transactions on behalf of a client he represented in his private law practice. Miller continued to serve as the Speaker, including working with then-Governor Mario Cuomo in an attempt to convince the State Senate Republicans to go along with a 15-month budget. When Miller was convicted, a conviction that was overturned on appeal, he automatically lost his seat, Saul Weprin was chosen as Speaker and when he passed away, Sheldon Silver ascended to the Speakership in 1994.
The game of musical committee chairmanships that marks the start of every legislative session in Albany has begun. Senator Diane Savino, who was a member of the five-member Independent Democratic Conference, has been named Chairman of the Senate Banks Committee. She replaces Senator Joseph Griffo who is moving to Chair the Senate Energy Committee. Griffo was a key supporter of credit union legislation including sponsoring our field of membership bill (Chapter 502 of the Laws of 2014). Savino has also been supportive of credit union initiatives. We look forward to working with her in her new role.
Speaking of the credit union field of membership bill, as expected, earlier this week Senator Griffo and Assemblywoman Robinson introduced a chapter amendment to this legislation (S.1808/A.1348). The amendment, which was agreed to as part of negotiations with the Governor to secure the bill’s approval, provides that, when it considers a credit union’s application to enhance its FOM, the Department of Financial Services will “consider the credit union’s record and history of serving underserved areas, as well as low and moderate-income individuals within the communities it currently services, if any, and its commitments to serve underserved areas, as well as low and moderate-income individuals in the communities to be served.” The amendments also clarify that the DFS has the authority to impose geographical and other limitations it considers appropriate.