Posts filed under ‘New York State’

Do Nice Guys Really Finish Last?

If you are a board member helping select candidates to be your next CEO or you’re an Executive filling a slot on your management team, are you more likely to hire George Bailey or Mr. Potter? Be totally honest. George Bailey is a much nicer guy, but who’s more likely to be running a growing credit union ten years down the line? For that matter, should character even matter when making hiring decisions?

These questions came to mind recently after reading an intriguing bit of research in the most recent Harvard Business Review. According to at least one recent survey, the higher character ratings a CEO is given by his staff the better a company tends to perform.

According to the research, CEOs whose employees gave them high marks for character had an average return on assets of 9.35% over a two-year period. That’s was almost five times higher than the return generated by Executives given the lowest ratings. The cynics might be wrong after all.

The findings are based on research performed by a leadership consultancy. They identified what they considered to be the most universally identified moral principles – integrity, responsibility, forgiveness and compassion. They then sent anonymous surveys to employees at 84 companies and not-for-profits and followed up by interviewing many of the Executives. The highest performing Executives, both based on their character and financial performance, were given high ratings on all four principles. For example, they were described as standing up for what’s right, expressing concern for the common good, letting go of mistakes and showing empathy.

On the flip side, the ten worst performing management teams – euphemistically described as self-focused – were described as warping the truth for personal gain and caring mostly about themselves “no matter what the cost to others.”

Ultimately, it may be impossible to objectively quantify character.   After all, we would all have a intriguing enough to ponder next time you start looking for a top executive.

NYS Budget Plan Set

Late last enough, the smoke rose from the State Capitol. It’s been reported that a budget plan has been agreed to for the 2015-2016 State Fiscal Year. It doesn’t look like this will have much of a direct impact on your credit union. More generally, budget negotiations in NYS begin and end with an annual struggle over state aid to education. The “framework agreement” reportedly includes a school aid increase of $1.6 billion and ethics reforms.

On that note, enjoy your Monday. They say Spring will arrive any day now. I am not holding my breath.

March 30, 2015 at 6:44 am Leave a comment

Smorgasbord Friday

Today my blog is like a mall food court – there is a little something for everyone just so long as you aren’t expecting a great meal.

Senate Minority Leader Chuck?

This is huge news that might be even bigger for New York. It’s just been reported that current Senate Minority Leader Harry Reid, D-NV, will not seek reelection. Power abhors a vacuum and you can bet that Senators are already talking about who will replace Reid as the Chamber’s top Democrat. One of the most likely candidates is New York’s own Chuck Schumer. He has developed a reputation as one of the Senate’s top tacticians and his past chairmanship of the Democrat’s Senate Campaign Committee means that he has fostered the type of long term relationships that are awfully important in leadership fights.

Smartphones Are Smarter Than You Think

Just how important is the smartphone to your growth plans? Whether you want it to be or not, it is absolutely crucial because more and more of your members are using their smartphones to access services. Yesterday, the Fed released its fourth annual survey of mobile phone use. According to the Fed, as of December 2014, 39 percent of adults with mobile phones and bank accounts reported using mobile banking – an increase from 33 percent a year earlier. Furthermore, although people continue to use their phones for the more basic transactions – such as checking account balances – they are getting more adventurous. I was surprised that 51 percent of mobile banking users reported depositing a check using their mobile phones, up from 38 percent a year earlier.

Viewing the mobile phone as just another access device is tantamount to describing the Model T as just another vehicle. It magnifies the power of the web by cost effectively giving everyone the means to transact business with anyone else anywhere in the world at the touch of a button. For those of you who want to delve more deeply into the issue, here is a link to a great recent article in the Economist magazine. Here is my favorite quote:

“Smartphones are more than a convenient route online, rather as cars are more than engines on wheels and clocks are not merely a means to count the hours. Much as the car and the clock did in their time, so today the smartphone is poised to enrich lives, reshape entire industries and transform societies—and in ways that Snapchatting teenagers cannot begin to imagine.”

The Great Bank Robbery

I’ve always been ambivalent about the Tea Party movement. On the one hand, it started as a visceral reaction to the banking crisis. People saw the average middle class family losing their homes in the name of capitalism while the very institutions that tanked the economy got a taxpayer bailout. On the other hand, their misdirected rage has been harnessed by a clever group of anti-government extremists masquerading as Republicans, but that’s a blog for another day.

This morning’s WSJ has an extensive article about how “regional banks” are once again lending money to factories. What caught my eye and stirred my ire in the article were quotes from small business owners about how difficult it was to get the loans three or four years ago when they would have been most useful.

Let’s not let bygones be bygones. Every time a legislator questions why credit unions need authority to make member business loans or worries that the big bad credit union movement is somehow undermining community banking, let’s remind them that the same institutions he or she wants to protect are those that took Government handouts and did nothing to help the American consumer in return. Sometimes the truth hurts.

About That Pregnant Employee. . .

Here’s one for your HR people. A couple of days ago the Supreme Court decided one of the most interesting HR cases of the year: Young v. United Parcel Service. I thought the case involved a fairly straightforward question – asking whether a pregnant part-time employee was discriminated against after the company refused her request that she not be required to lift heavy packages. Apparently, the issue is not as clear cut as I thought. The Court’s ruling seems to make dealing with the claims of pregnant employees more complicated than it was just a few days ago. As summarized by the SCOTUS blog, the ruling “sets up this scenario for a female worker claiming she was the victim of pregnancy bias: she must offer proof that she is in the protected group — that is, those who can become pregnant; that she asked to be accommodated in the workplace when she could not fulfill her normal job; that the employer refused to do so, and that the employer did actually provide an accommodation for others who are just as unable, or unable, to do their work temporarily.”

A man, even one who blogs, has to know his limitations. This is a case to ask your seasoned HR professional about.

March 27, 2015 at 8:54 am Leave a comment

Three Things You Should Know On A Tuesday Morning

Here are three things you should know if you want to be one of the cool kids at the water cooler this morning.

Yesterday, the Supreme Court issued one of the handful of decisions each year that directly impact your credit union’s operations.  Most importantly, if you have employees whose job is to assist prospective borrowers in applying for various mortgage offerings, the Supreme Court upheld a Department of Labor interpretation mandating that such persons be treated as non-exempt employees. This means, for example, that originators are entitled to overtime for the time they work over forty hours.

If you don’t do mortgages, I have some bad news and some good news for you. The bad news is that the Court gave agencies like the NCUA the green light to continue and arguably expand their practice of issuing guidance “reinterpreting” existing regulations. The case decided by the Court yesterday (Perez, Secretary of Labor, et al v. The Mortgage Bankers Association, et al) involved the validly of a legal interpretation issued by the Department of Labor in which it opined that mortgage originators should be treated as non- exempt employees. The mortgage bankers argued that the DOL’s interpretation amounted to a new rule and could only be imposed following a formal rule making process. The Court overturned lower court precedent and concluded in a unanimous decision that a formal rulemaking notice and comment period is only required when an agency amends – i.e. changes the wording – a regulation. It can issue all the interpretations it wants and the only remedy for the regulated is to argue that an interpretation is “arbitrary and capricious.” Don’t be surprised if you see amending the Administrative Procedures Act become a major component of Republican regulatory reform efforts.

The good news? You also have three Justices begging for future challenges to the APA. In the short run, the agencies won a major victory yesterday with the Court giving them expanded powers to interpret their own regulations. But, in the long run, the Court will probably give less deference to agencies drafting their own regulations. In the meantime, your credit union faces the potential of more regulatory oversight. Oh Boy!

Regulatory Relief On The Way?

There was some good news on the regulatory front yesterday. Chairwoman Matz dubbed 2015 “the year of regulatory relief.” (I think she stole that from the Chinese calendar) while outlining an impressive-sounding list of reform proposals. The list Includes expanded use of supplemental capital, authorization for large credit unions to securitize mortgage loans and greater Field of Membership flexibility.

All of this sounds promising, but let’s not get too excited until we see the detail. Let’s not forget that NCUA has already proposed changes to FOM requirements that make it more, not less, difficult for credit unions to expand their associational based memberships. In addition, even with yesterday’s Supreme Court ruling, it’s far from clear how much the use of supplemental capital can be expanded without amendments to the law.

Schneiderman Secures Credit Rating Agency Reform

NY AG Eric Schneiderman continued to raise his profile on consumer protection issues yesterday when he announced what is being described as a national settlement with the three major credit rating agencies: Experian, Equifax, and Transunion. Under the agreement, the CRA’s will, among other things, agree to enhanced dispute resolution procedures and delay the recording of medical debt for 180 days. One passage of the press release really got my attention: the settlement “prohibits the CRAs from including debts from lenders who have been identified by the Attorney General as operating in violation of New York lending laws on New York consumers’ credit reports.”

Although the settlement involves the reporting agencies, furnishers of credit information such as credit unions aren’t completely off the hook: “The Attorney General’s agreement requires the three CRAs to create a National Credit Reporting Working Group (“Working Group”) that will develop a set of best practices and policies to enhance the CRAs’ furnisher monitoring and data accuracy.” Stay tuned.

March 10, 2015 at 8:51 am Leave a comment

Apple Pay is U Pay When It Comes To Fraud

This morning’s top headline in the WSJ is sure to get some attention: It breathlessly announces that Apple Pay “Is beset by low-Tech Fraudsters” It goes onto report news that I have seen floating around the blogosphere for the last few days, mainly that fraudsters are able to use old-fashioned low tech techniques,like using stolen credit cards,   to sign-up for Apple Pay and make illegal credit card purchases.

In truth this news should surprise no one.  What bemused me about the headline is that if your credit union has  signed up to make  Apple Pay available  for your members-and if you haven’t you should give it serious consideration-remember that it is your credit union that it on the hook for “Apple’s” fraudster problem.

For all the frenzy surrounding it, Apple Pay is nothing more than a way of allowing consumers to make purchases without having to go through the hassle of taking their plastic out of their wallets. If your wallet is like mine this is a big deal.   Credit unions and banks  are signing up because they are correctly assuming that Apple has the ability to make mobile purchases as common as a song download. But this is by no means a win-win.  Apple is taking a slice out of every transaction and your credit union not Apple is on the hook for the type of fraud that the Journal is writing about. If your contract with Apple is  anything like the information that I have seen it makes it quite clear that the company  is doing nothing more or less than providing a payments platform.  It has no way of knowing whether or not a consumer is an authorized user.  That is the issuer’s job.

Also contrary to the impression you may get from reading the headlines there haven’t been any reports yet of hackers breaking into Apple’s system  and manipulating it to approve fraudulent purchases.  If and when this does happen than Apple should  have to shoulder some of the liability but until that happens it’s your credit union that is on the hook for that fraudulent transaction to the same extent it is on the hook today for any other unauthorized credit or debit transaction.

Electronic wallet platforms actually highlight the need for basic fraud prevention.  Instead of simply allowing your members to sign-up by taking a picture of their card as I did the other day  with a card issuing bank,  you could require a member to call a number to activate the account or type in additional information.   In addition Apple Pay makes stolen financial information that much more valuable.  The simpler it is for crooks to use stolen credit cards the more cost-effective it may be for your credit union to issue new cards in response to major breaches.

And remember as a faithful reader of this blog likes to point out Apple is not the only electronic wallet in town.  Credit unions have developed CU Wallet.  Perhaps as people get user to using their phones for payments they will be more receptive to using different platforms that don’t cut into your bottom line.

Here is a link to a related story


High noon for credit card Surcharges

Do laws that ban merchants from imposing surcharges on credit card transactions while authorizing merchants to offer cash discounts for the same transactions violate the First Amendment? That was the question being mulled over by the Court Of Appeals for the Second Circuit yesterday in Expressions Hair Design v. Schneiderman,   The case involves an appeal of an earlier ruling that struck down as unconstitutional New York’s General Business Law Section 518 which bans credit card surcharges. The Association filed an amicus brief in support of the law. Also yesterday our friends at CUNA submitted a brief in a similar lawsuit challenging a Florida surcharge ban on similar grounds (Dana’s Railroad Supply v. Bondi)

March 6, 2015 at 9:23 am Leave a comment

When Alice comes to the branch…


One of the things that I have learned about the credit union industry since I joined it about eight years ago is that there are few places as alert to subtle changes in communities as is the credit union branch.  By- and-large you really do know your members.

So there are few people as well positioned as your average credit union employee to sense when an older member is being exploited or is becoming confused.

So I emphasize with New York’s Department of Financial Services , which  recently issued a Guidance urging financial institutions to make greater use of existing federal and state laws that allow financial institutions to report   suspected cases of elder abuse.  According to the Department NY has the third largest elderly population in the country but financial institutions are underreporting suspected abuse.

The Department “recommends that financial institutions in New York make greater efforts to protect the elderly from financial exploitation by adopting red flag protocols, enhancing staff training, and reporting suspected financial abuse to Adult Protective Services (“APS”) or other authorities.” I added the underline.  The Department goes onto describe existing legal protections for financial institutions as well as best practices for financial institutions to follow.

Credit unions want to help and protect their members but we don’t need more Guidance. The single best step regulators can take to aid detection of financial abuse is to authorize the wider and faster distribution of SARS or the creation of state level facsimiles.

Financial institutions already use SARS to report elder abuse. The Manhattan DA’s office already extensively uses  them   to investigate elder abuse.  Using SAR reporting as a model regulators could prioritize disseminating SARS involving elder abuse to local police and prosecutors and state legislators could give financial institutions reporting suspected elder abuse to local welfare agencies  the   identical protections they currently  get for reporting SARS These steps would quickly aid the elderly without imposing additional mandates on financial institutions,

Here is the Guidance

It’s nice to have a strict constructionist in high places but….

NCUA board member Mark McWatters told CU Times that he would vote against any Risk Based Capital plan that  includes  capital levels for both Adequately Capitalized and Well capitalized credit unions.  McWatters’s line in the sand makes board member Rick Metsger  and  not Chairman Matz the most important figure in the RBC  debate.  It also highlights yet again the question of NCUA’s authority   to mandate that complex credit unions be anything more than adequately capitalized.

This may sound boring but as a CEO and reader of this blog pointed out to me recently,   the distinction is a crucial one for those  credit unions ultimately subject to an  RBC framework since they will have much more flexibility if they only have to worry about being Adequately capitalized.  Under the latest NCUA  RBC proposal   for a complex credit union to be Well Capitalized it would have to have a Net-Worth Ratio of 7% or greater and an RBC ratio of 10.0 or greater. To be Adequately Capitalized that same credit union would have to have a Net-Worth Ratio of 6% or greater and an RBC ratio of  8%      Remember NCUA is proposing that only credit unions with $100 million or more in assets be  subject to  am RBC requirement.

The industry certainly has a good faith basis for questioning the extent of NCUA’s powers-if it didn’t NCUA would not have spent money on a legal opinion letter addressing the issue-but the argument is by no means a sure-fire winner for credit unions.  Let’s not lose sight of the fact that NCUA has responded to industry concerns by proposing a vastly improved though by no means perfect RBC framework.  Rather than obsessing about legalities the industry should be patting itself on the back for a successful lobbying effort and focusing on ways to make the revised RBC proposal even better. Here is a link to the article,

Here i



March 3, 2015 at 9:31 am Leave a comment

ACH System Scores Crucial Victory

Financial institutions and advocates of a vibrant electronic payment system won a crucial early victory in a federal courthouse in New York last week. Specifically, a federal judge dismissed a lawsuit seeking to sue Bank of America for honoring ACH debit transactions to pay for payday loans. The court ruled that the bank did not violate its account agreement or engage in unfair or deceptive practices when it followed electronic clearinghouse rules.

Why is this ruling so important? Because the lawsuit is an outgrowth of an attempt by New York’s Department of Financial Services to brow-beat banks and credit unions into refusing to process payday loans. To understand the importance of this case, look at the number of ACH debit transactions your credit union will process today. Imagine if you could not rely on the representations made by the bank originating the transaction that the debits are legally authorized. Conversely, imagine if your member could hold you responsible for every ACH transaction, even if they have contractually agreed to let a merchant pull money from their account. My guess is that the ACH system would grind to a halt, and quickly.

In Costoso v. Bank of America (14-CV-4100), a plaintiff took six payday loans with out-of-state lenders. As is common with almost all payday loans, when she entered into these agreements, she agreed to authorize the payday lenders to request that payments be electronically debited from her account over the ACH network. The plaintiff argued that the bank violated its own account agreement and various New York laws by processing payments for loans that violated New York’s interest-rate cap on non-bank lenders of 16%. She pointed to language in the account agreement stipulating that the bank would strictly adhere to NACHA operating rules, which governs ACH transactions. These rules require financial institutions to block ACH transactions that it knows to be unlawful or unauthorized.

The court rejected this argument. In a crucial passage that all NACHA members should memorize, the court held that even if the defendants were obligated to comply with NACHA rules with respect to debits on consumer accounts, “defendants may rely on the representations of the original depository financial institutions, the bank that processes the ACH debit for the payday lender.” This sentence reaffirms one of the most important lynchpins of the ACH network.

I can already hear consumer groups bemoaning this decision. So, let’s be clear on what it does not do. It does not legalize payday loans in New York. Perhaps future plaintiffs should sue banks that knowingly hold accounts for out-of-state payday lenders who offer such loans in New York. In addition, the ruling means that credit unions and banks don’t have to hesitate before honoring a member’s request that payments to their health club, for example, be automatically debited from their account. This is good for consumers.

March 2, 2015 at 8:36 am Leave a comment

What despots can teach us about student branching

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:




February 27, 2015 at 9:42 am 2 comments

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Authored By:

Henry Meier, Esq., Associate General Counsel, New York Credit Union Association

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