Posts filed under ‘New York State’
Quick cultural point. I like Adele but I think she could sing this blog and turn it into a hit. But alas, I digress.
What’s gotten my attention this morning is the brewing battle between New York’s AG, Eric Schneiderman and fantasy sports Internet providers FanDuel and DraftKings. While it may not directly impact your credit unions, I wouldn’t be surprised if you find out precisely how many gambling members you have if all the sudden their ability to access these fantasy providers with their credit cards is blocked.
You might remember that the issue of gambling over the Internet was dealt with on the federal level when Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 (31 USCA Sec. 5301). The statute banned using the Internet to make a bet or wager, but it stipulated that betting does not include participation in any fantasy or simulated sports games. (31 USCA Sec. 5362).
I am sure it’s just a coincidence that two of the highest profile owners in the NFL, Jerry Jones of the Cowboys and Robert Kraft of the New England Patriots, reportedly have invested in fantasy sports companies.
So why do the Attorney Generals of Nevada and New York feel they have the right to block these companies from operating? Because the statute also stipulated that its purpose was not to preempt “any state law prohibiting gambling.” As a result, the Attorney General’s argument centers on his interpretation that fantasy sports are games of chance prohibited under both the state constitution and state law.
Here’s where it gets a little closer to home for your credit union. Actually coming up with a system for enforcing the Internet better bans was left to the regulators. When the pertinent regulations were eventually finalized, they largely left credit unions and banks off the hook provided they have policies and procedures in place for determining if any if their business accounts are involved with gambling. The entities that really have to make a tough call this morning are the credit card networks and third party processors. They are responsible for coding illegal gambling transactions. If they agree with the AG then a member using a credit card to access a fantasy site should be blocked, if they don’t then they should continue processing the transactions as if nothing has changed. FanDuel has suspended New York Business but I don’t believe DraftKings has followed suit
Put this in context. DraftKings and FanDuel are each valued at more than $1 billion. According to Bloomberg business, New York accounts for over 5% of FanDuel’s customers and over 7% of DraftKings. Losing New York would cost then at least $35 million and more importantly put their entire business model at risk.
NY’s Department of Financial Services yesterday sent out a unique letter to key state and federal regulators, including the NCUA, urging them to start implementing a more rigorous and robust cyber security framework and implicitly warning them that New York will go ahead with efforts to strengthen oversight of cyber security with or without their help.
According to Anthony J. Albanese, Acting Superintendent of Financial Services, “[t]here is a demonstrated need for robust regulatory action in the cyber security space, and the Department is now considering a new cyber security regulation for financial institutions. The Department believes that it would be beneficial to coordinate its efforts with relevant state and federal agencies to develop a comprehensive cyber security framework that addresses the most critical issues, while still preserving the flexibility to address New York-specific concerns.” The letter is intended to “help spark additional dialogue, collaboration and, ultimately, regulatory convergence among our agencies on new, strong cyber security standards for financial institutions.”
This is usually the type of memo circulated behind closed doors. My translation of the Department’s action is that it is frustrated by what it believes is insufficient federal action to address cyber security. New York is willing to coordinate its efforts but is ultimately moving forward with or without the feds.
The letter explains the steps that New York is considering taking, including imposing increased requirements on institutions for cyber security policies and procedures; oversight of data held by third parties; multi-factor authentication requirements for consumers and employees who have access to sensitive data; a requirement for institutions to have a chief information security officer; the adoption of standards reasonably designed to ensure the security of all applications utilized by an institution; and quarterly audits and protocols for providing regulators notice of cyber security breaches.
The letter doesn’t spell out precisely what entities would be subject to this framework, but by calling on a public dialogue the Department clearly wants it to apply to both state and federal institutions among the widest possible scope of industries. The proposals aren’t surprising since the Department has consistently expressed concern in recent years that too little is being done to monitor cyber security in general and third party oversight in particular.
What surprises me so much about the letter is that it amounts to a public rebuke of federal regulators. After all, the purpose of the Federal Financial Institutions Examination Council (FFIEC ) is to coordinate regulatory oversight of these issues. In fact, it recently issued a guidance on detecting cyber security threats.
Where the dialogue ends up is anybody’s guess. It will be interesting to see just how long New York waits before implementing a more rigorous security framework with or without the blessing of federal regulators.
Speaking of the FFEIC, two days ago it issued a revised Management booklet, which is part of the FFIEC Information Technology Examination Handbook (IT Handbook). The handbook has been updated to incorporate cyber security concepts as part of information security. See more at: http://www.ncua.gov/newsroom/Pages/news-2015-nov-revised-management-booklet.aspx#sthash.7NLsdTx7.dpuf.
I knew that would get your attention. The clash to which I am referring has to do with the legality of statutes banning credit card surcharges. Earlier this week, the Court of Appeals for the 11th Circuit, which has jurisdiction over Florida, invalidated a state statute that made it a misdemeanor to impose a surcharge on credit card purchases. As readers of this blog will know, the Court of Appeals for the Second Circuit, which has jurisdiction over New York, recently upheld a similar New York statute.
The split between the circuits raises the profile of the issue even more and increases the possibility that the Supreme Court will step in and decide if it is legal for states to impose such bans. The New York Credit Union Association submitted an amicus brief in the New York case arguing that the statute should be upheld.
In Dana’s Railroad Supply v. Attorney General, State of Florida, the 11th Circuit had to decide whether the Florida surcharge ban violated the First Amendment right of merchants to engage in free speech. The statute in question (Florida statute Sec. 501.0117) makes it a crime for a seller to impose a surcharge on a buyer for electing to use a credit card. However, it also allows “the offering of a discount for the purpose of inducing payment by cash.”
In its majority opinion, the Court noted that under Florida’s statutory scheme a merchant who offers the same product at two prices “a lower price for customers paying cash and a higher price for those using credit cards is allowed to offer a discount for cash while a simple slip of the tongue calling the same price difference a surcharge runs the risk of being fined and imprisoned.” Against this backdrop, the Court concluded that the statute violated the Constitution by penalizing merchants based on what they say and how they say it.
In a demonstration of how reasonable people can come to vastly different conclusions, in Expressions Hair Design v. Schneiderman, the Court of Appeals for the Second Circuit reviewed New York’s surcharge ban and concluded that statute does not implicate the First Amendment at all. The way this issue is ultimately decided will have important implications for credit card issuers. Since merchants are no longer barred from imposing credit surcharges in their contracts with Visa and MasterCard, the remaining state level bans are the only way to prevent these increases consumer costs.
Enjoy your weekend. Stay tuned.
Yesterday President Obama called on Congress to follow a growing number of states, cities, and private companies that have decided to “ban the box” on job applications. (https://www.whitehouse.gov/the-press-office/2015/11/02/fact-sheet-president-obama-announces-new-actions-promote-rehabilitation )
This and other criminal justice reforms might actually happen since a diverse coalition of libertarians, fiscal conservatives and traditional liberals are in agreement that the country is doing something wrong by incarcerating approximately a quarter of the world’s prisoners even though it accounts for 5% of its population . In fact, there are more than 2.3 million incarcerated people, including 1.6 million in state and federal prisons and over 700,000 in local jails and immigration detention.
If my reading of the political tea leaves is correct , the question is not if but when legislation banning pre-employment conviction questions will impact your credit union? What concerns me most about these proposals is the amount of complexity, liability and expense they could add to the hiring process for credit unions unless they are drafted responsibly.
For an example of what I’m concerned about I need look no further than the Big Apple which now prohibits pre-employment inquiries related to criminal convictions until a conditional employment offer has been extended. If a subsequent criminal background check reveals a criminal history than the employer must perform an analysis pursuant to state guidelines to determine if this history disqualifies the applicant. It must then provide him with a written explanation of the reasons why his employment is being denied and provide him with an opportunity to respond to these concerns prior to formally withdrawing the offer. (http://legistar.council.nyc.gov/LegislationDetail.aspx?ID=1739365&GUID=EF70B69C-074A-4B8E-9D36-187C76BB1098)
The good news is that this prohibition against pre- offer criminal inquiries does not apply to employers required by state, federal or local law to conduct criminal background checks for employment purposes or who are barred from hiring employees with criminal histories. This is a critical carve out for federally insured credit unions in New York City since, “any person who has been convicted of any criminal offense involving dishonesty or a breach of trust,.., may not become, or continue” to be employed by or otherwise participate, directly or indirectly, in the conduct of a credit union without the prior consent” of the NCUA. 12 U.S.C.A. § 1785 (West)
The problem is that even with this carve out and a helpful 2008 guidance interpreting the statute (GUIDANCE REGARDING PROHIBITIONS IMPOSED BY SECTION 205(D) OF THE FEDERAL CREDIT UNION ACT, 2008) the question of who is and who is not subject to NCUA scrutiny is inevitably a fact-sensitive inquiry. For example, precisely when does an independent contractor influence or control the management or affairs of an insured credit union enough to be covered by this law? Furthermore this prohibition does not apply to de Minimis convictions.
My point is that even if you agree with the “ban the box” movement in concept, credit unions belong to an industry that will be faced with some of the most difficult questions in implementing any bans.
In order to avoid these pitfalls we should argue that any ban the box prohibitions should (1) be passed by Congress; (2) preempt state and municipal laws ; (3) Provide a “safe harbor” for good faith implementation (4) provide a definitive list of offenses for which a person is banned from working with a financial institution and (5) Limit damages for violations to back pay and a job offer.
The FFIEC, the Council of banking regulators including the NCUA, issued a “joint statement” yesterday warning financial institutions to take steps to guard against cyber-attacks involving extortion. Numerous news reports have chronicled the increased vulnerability of businesses to computer hackers that use malware to encrypt data on a company’s computers making it impossible for the institution to access key data. The data is then ransomed.
Another increasingly common attack businesses are vulnerable to is the so-called denial of service attack in which hackers threaten to take down a company’s computer systems unless certain demands are met. The FFIEC’s statement warns all financial institutions that they face “a variety of risks from cyber-attacks involving extortion” and outlines several risk-mitigation steps that they should be taking. At the same time, the regulator stressed that the statement “does not contain any new regulatory expectations.”
So, here is my very practical take-away. Remember that all risk assessments involve periodic adjustments of plans and procedures as new threats emerge. With this statement, examiners have signaled that they consider cyber-extortion to be a serious threat. As a result, you should take the time to make sure that your risk assessment and procedures address this threat to your credit union’s operations. Obviously, the steps a five member credit union will take are vastly different than those expected of $1 billion credit union.
Senate Republicans Hold Serve
The most important election on the State level last night was the special election held to fill the Senate Seat vacated by Republican Senator Thomas Libous, who was convicted of corruption-related charges. Broome County Undersheriff Fred Akshar easily beat Democrat Barbara Fiola. This win means that the Republicans maintain control of the State Senate as they head into an election year. The Senate Democrats held onto the Brooklyn Senate seat previously held by Senator John Sampson, who also lost his seat following a criminal conviction on embezzlement charges. Three open Assembly seats in Queens and Brooklyn were also held by the Democrats.
For the political junkie, the most interesting result of the night was in Nassau County, Long Island – where Democrat Madeline Singas, who was making her first run at political office, defeated Republican Kate Murray for the office of District Attorney. According to Newsday, she leads by 30,000 votes. The size of the victory and the fact that a Democrat won over a well-known local Republican politician is certain to raise the eyebrows of Democratic operatives as they decide where they have their best chances to take control of the State Senate.
For those of you in New York who want to get back at your HR person this morning, give her this morning’s blog before she’s had her first cup of coffee. It sounds like a bigger deal than it is, but only time will tell.
The Legislature yesterday sent the Governor three bills expanding state level protections against employment discrimination. Assuming that the Governor wants to remain Governor and signs this legislation these new laws will be in effect 90 days after he signs them. They clarify New York’s current law banning wage discrimination on the basis of sex; outlaw discrimination based on “familial status,” and extend New York’s ban against sexual harassment to all work places, regardless of how few employees they have.
New York law currently authorizes wage determinations to be made on “any other factor other than sex.” The legislation, S.1 (Savino)/A.6075 (Titus) clarifies this standard. It provides that a “bona fide factor” to determine wages can be used only if it is related to the position in question and is “consistent with business necessity.” Furthermore, if a factor has a disparate impact on the wages based on sex, and there are less discriminatory criteria available then the employer is also liable for wage discrimination. It authorizes damages equal to three times the amount of back wages owed so it further incentivizes pay wage lawsuits. The bill’s language closely tracks standards that have already been imposed by the federal courts interpreting the Civil Rights Act
But wait; there’s more: Employers can’t prohibit employees from inquiring about, discussing, or disclosing wage information. The bill does not create an affirmative obligation to provide wage information to your employees but prohibits you from refusing to provide this information if it is requested. Believe it or not, this provision is consistent with existing law as interpreted by the NLRB, which is out to extend union protections to every employee in America whether or not they want them.
S4 (Little/Russell) makes it illegal for employers to discriminate against someone because of their Familial status. The sponsors argue that the bill is necessary because “Women with children are less likely to be recommended for hire and promoted, and, in most cases, are offered less in salary than similarly situated men.”
S2 (Valesky/Galef) extends New York’s law banning sexual harassment to all employers. Currently, employers can be sued for sexual harassment under section 296 of the Executive law if they have four or more employees.
Now don’t break into HR induced hives, at least in the short-term. Many of these new prohibitions track federal law and are narrow enough to easily integrate into the existing policies I know you all have. The longer term impact remains to be seen. New laws mean new lawsuits with new interpretations. Over time, New York employers will have less flexibility in making hiring and promotion decisions than their counterparts in other states.
Now if you’ll excuse me, I want to start reading “How Good Do You Want to Be: A Champion’s Tips on How to Lead and Succeed at Work and in Life,” by my favorite college coach, Nick Saban of the Alabama Crimson Tide.
RBC II: This Time Its Serious
It’s a big day in CU land today. If all goes according to plan the NCUA board will vote to finalize a revised Risk Based Capital framework. With the announcement we will know the asset threshold at which credit unions will have to comply with the more sophisticated framework, the precise risk weightings that will be given to their assets, how much they will need to be considered “well capitalized” and the deadline by which they will have to fully comply with this new framework. If I were you I would tune in and watch the live webcast of the Board meeting today at 10:00 AM. It promises to be both informative and entertaining although not quite as entertaining as yesterday’s game between the Toronto Blue Jays and the Texas Rangers but it will be pretty close.
New SAR Data Released
FinCen’s annual report on SAR filings came out yesterday and anyone involved with BSA enforcement should take some time to skim it. For one thing, it provides a good source of the emerging trends in criminality for which you should be on the lookout. For example, this year’s report indicates that depository institutions have seen a large increase in “funnel activity” which is closely related to drug financing. As described by FinCen in a 2011 Guidance “Funnel account activity often involves a customer structuring currency deposits into an account in one geographic area, with the funds subsequently withdrawn in a different geographic region with little turn-around time.” (FIN-2011-A009, April 21, 2011)
FinCen is also rolling out a new interactive SAR activity report that will be updated on an ongoing basis and that allows you to search for specific SAR trends and geographic information. Here are some links to the latest report and interactive website.
DFS Issues Symphony Software Warning
If you are a state charter here is one for your IT person to take a look at. NY’s Department of Financial Services issued a letter to state regulated Institutions yesterday related to the use of a third-party e-communications platform engineered by Symphony Communication Services LLC (“Symphony”). Symphony enables encrypted data to be sent between the sender and receiver. What has the DFS concerned is that the company’s promotional promise of “guaranteed data-deletion” may result in violations of record retention requirements. Here is a link to the Letter: http://www.dfs.ny.gov/banking/agree_symphony_10132015.htm
While Congress Slept
As Paul Ryan continues his performance of Hamlet on the Potomac (“To be or not to be Speaker? That is the question”) reality is coming dangerously close to intruding on politics. In case Congress is interested, its own budget office predicted Wednesday that, absent a deal to raise the national debt, the “Treasury will begin running a very low cash balance in early November and the extraordinary measures will be exhausted and the cash balance entirely depleted sometime during the first half of November. At such time, the government would be unable to fully pay its obligations, a development that would lead to delays of payments for government activities, a default on the government’s debt obligations, or both.”
Angry up North
Speaking of yesterday’s Toronto game, former Yankee announcer Frank Messer used to say you see something new every time you watch a baseball game and truer words were never spoken.
In case you had something better to do with your time yesterday, like getting the kids home from school or talking with your spouse, what you need to know is that the Texas Rangers scored the go ahead run in the seventh inning of the series deciding game after Toronto catcher Russell Martin mistakenly hit Texas batter Shin-Soo Choo as he tried to throw the ball back to Texas pitcher Aaron Sanchez. I’ve never seen a catcher do this. After all getting the ball back to the pitcher is a pretty basic part of the game. Everyone, including the ESPN radio announcers, thought the play was dead and paid no attention to the fact that Rougned Odor ran home from third base.
That was until Rangers manager Jeff Banister went out to argue with the umpires who, after several minutes, ruled that a run had scored. It was a play worthy of Little League and the fans responded by throwing as much beer on the field as Labatts sells in a day.
I never thought you could get 48,000 Canadians to lose their temper watching anything but a hockey game. Its a good thing Toronto ended up winning.
Could someone please explain to me how a run can score after the umpire ruled the play dead?