Posts filed under ‘New York State’

New York State Jumps On Politically Correct Banking Bandwagon

Yesterday, New York’s Department of Financial Services jumped on the politically correct banking bandwagon by issuing guidance reminding state chartered financial institutions that they “can play a significant role in promoting public health and safety in the communities they serve, thereby fulfilling their corporate social responsibility to those communities.” It encourages them to “review any relationships they have with the NRA or similar gun promotion organizations, and to take prompt actions to managing these risks and promote public health and safety.” They should also review their “codes of social responsibility.”

Don’t shoot the messenger so to speak but this is the guidance and as such should not be ignored by state level institutions in New York. Personally, I would review your existing policies and be able to explain to the public as well as examiners the criteria you use when determining whether or not to establish business accounts.

Now for my opinion. We are officially headed down an extremely slippery slope. Do we really want government using its powers to coerce financial institutions to bank or not bank with organizations and individuals who some people don’t like? Could guidance about the reputational risks of working with Starbucks be far behind? Then again, examiners like their hazelnut lattes more than they like guns.

I’m proudly not a member of the NRA and never will be but my views on gun control should have absolutely nothing to do with the advice I give credit unions or with the supervisory oversight to which they are subject.

NCUA Finalizes Advertising Regs

NCUA officially approved a subtle but meaningful changes that will help credit unions in their marketing efforts. When making a print ad, credit unions are currently required to use one of three methods to inform the public that they are federally insured by NCUA. Specifically, 12 CFR 740 provides that credit unions may include the statement “This credit union is federally insured by the National Credit Union Administration”; a shorter version, informing the public that this credit union is “Federally insured by NCUA”; or a shorter version simply stating “Federally Insured by the NCUA.” These notices must also be included in all radio, television and internet ads greater than 15 seconds in length.

The rule finalized yesterday gives credit unions the option of simply reproducing NCUA’s official sign provided it is “clearly legible and no smaller than the smallest font size used in other portions of the advertisement.” In addition, the signage requirement exemption for radio, television and internet ads has been extended to advertisements no more than 30 seconds in length. Those of you looking for specific advertising requirements for social media will have to wait for another day.

The NCUA also approved an amendment giving regulatory relief to credit unions with $10 billion dollars or more in assets that are subject to special stress testing requirements. I haven’t read the final rule yet so that’s all I’m going to say on the subject.

NCUA Responds To FOM Ruling

NCUA provided the Federal District Court in Washington with an explanation of how it intends to implement its ruling invalidating two components of NCUA’s field of membership expansion rule. In its notice to the court, NCUA explained that it will no longer permit federally chartered credit unions to expand, using the invalidated portions of the regulations or accept new members eligible under the invalidated provisions. It argued however that the court’s ruling does not retroactively invalidate the membership of persons who become credit union members as a result of these regulations.

Still no word on whether or not the NCUA intends to appeal the ruling.

GDPR Causes Hamlet Like Angst for Compliance Pros

To comply or not to comply with the GDPR? That is the question confronting credit unions as the May 25th deadline for complying with the European Union’s General Data Protection Regulation gets closer and closer. I know I have equivocated as much as anyone when it comes to complying with this regulation but unless you are a large credit union with extensive portion of EU citizens in your membership base, you have to take a reasoned and proportionate approach to this measure. I love this quote from an article earlier this week in the American Banker, “Big banks, fund companies, large insurance companies are all working through large GDPR compliance efforts,” said Jeff Sanchez, managing director, information security and privacy at Protiviti. “For smaller community and regional banks, it’s more dependent on their analysis of what their customer base looks like and what their exposure to European data subjects is.”

 

April 20, 2018 at 9:13 am Leave a comment

Banker Hypocrisy At Its Worst

Image result for bankerI love bankers and banker lobbyists. Some of my best friends are banker lobbyists but the display of hypocrisy that will no doubt be on display at the State Capitol in the coming days is a ritual of which I am tiring.

Assembly bill 6949-B has been put on the Assembly’s debate list, which means that it can be debated and voted on notwithstanding the objections of opponents. The bill would allow localities to participate in Banking Development Districts with credit unions. For more than two decades the BDD program has allowed localities in need of banking services to jointly apply with interested financial institutions for designation as a BDD. In return for opening up a branch in the area, the financial institution receives incentives including low-interest deposits from the comptroller. Despite these incentives, banks have been less than enthusiastic in embracing the program and last year the Governor proposed extending it to credit unions. Nevertheless, the word on the street is that banking lobbyist were scurrying around legislative offices yesterday with memos in opposition to this bill. Don’t get me wrong, I’m not the slightest bit surprised but at some point enough is enough.

I haven’t seen this year’s version but I’m sure it’s the same old song, maybe with a slightly different tune. Credit unions don’t pay taxes – they do, just not corporate taxes – because they are after all not for profit corporations. That’s right, credit unions pay a host of taxes like any other employer in New York State.

I love the fact that bankers become so concerned about tax policy as soon as credit unions enter the conversation. Today’s Wall Street Journal is pointing out that some of the nation’s largest banks, including Wells Fargo, which has done so much to earn the public’s trust over the last couple of years, are among the big winners of the so-called tax reform. I would love to know how much of this tax windfall – $2.5 billion and counting – is going to be returned to consumers in the form of cheaper products and more compliance services, but I’m not holding my breath for an answer.

But having heard the same old arguments for almost two decades now, first in the legislature as a staffer and now as a member of the Credit Union Association, there’s only so much time we should be wasting on responding to tired old arguments. BDD districts should be extended to credit unions because they are potentially innovative economic development tools that help people in areas in need of investment. What I’ve always liked most about the program is that it reflects a three-way consensus between local, financial and state stake holders about the best way to bring needed financial services to an area in need.

In my last blog, I talked about the Lower East Side People’s Federal Credit Union. Even though it was started precisely to serve the areas that banks have historically shied away from serving, it cannot participate in this program. Why? Because the banking industry is increasingly devoid of a positive legislative agenda and instead is obsessed with zero-sum politics in which if credit unions lose, they win, consumers be damned. In fact, if anyone reading this blog today is approached by a banking lobbyist explaining why this bill should be opposed, please ask that lobbyist what positive, constructive proposals the banking community has to make financial services better for New York State consumers?

Of course, the banking lobbyists are just doing their job. It’s time for legislators to stop hiding behind their increasingly hollow rhetoric and do what’s right for the New York State consumer.

 

April 18, 2018 at 9:06 am 1 comment

Another CU Pioneer Stepping Aside

Linda Levy is about to become a key part of credit union history, at least for New York State institutions. As the New York Times reported in a profile over the weekend, she’s retiring as CEO from the credit union she started in 1982. In direct response to a lack of banking services in certain parts of the Lower East Side in Manhattan.

Today the credit union is $54 million assets and hasn’t lost one bit of its fighting spirit. It recently filed its own lawsuit, since dismissed, contending that President Trump acted illegally in appointing Mick Mulvaney as the acting head of the CFPB. It actively aided and encouraged the Occupy Wall Street movement, even though it meant losing a $5,000 donation from Goldman Sachs.

Her most important accomplishment though is the simple existence of the credit union. It was created in direct response to Manufacturers Hanover bank’s decision to close down a branch. The credit union was created to fill the void. The example it set provided a model for New York state to follow when it implemented the Banking Development District program which provides incentives to banks to set up branches in areas in need of banking services. Ironically, as a credit union, Lower East Side is not eligible to participate in the program, an oversight which continues to be a black mark on New York State’s banking development policies to this day.

Let’s face it, the environment in which credit unions are operating is changing. Increasingly, we seem to be living in a go big or go home environment, in which any credit union with less than $500 million in assets is struggling to grow.

It is also fair to say that not all credit unions think that supporting the CFPB or movements such as Occupy Wall Street are in the long-term interest of consumers. But let’s not ever lose sight of the fact that even as credit unions grow, they owe their existence to institutions from all across the state and country that were started to help the little guy. Today that little guy is still not all that attractive a customer for the largest banks that now dominate the financial landscape.

To be absolutely clear, you don’t have to be small to be a true credit union and there are many credit unions that both grow and help in ways that banks do not. After all, increased resources mean more can be done, ranging from helping out small businesses to providing fair, short-term loans. But let’s face it, one of the great challenges and responsibilities of the credit union movement is to retain the spirit and commitment of the Linda Levy’s of the world, even as it competes in an ever-changing and ever more competitive financial environment. It is that spirit, not a Federal tax break, which ultimately sustains the credit union movement.

Are Medallions Tied In With The Cohen Investigation?

Unless you spend your free time in a bomb shelter, a mile under the Earth’s surface somewhere in North Dakota, you know that Federal prosecutors took the unusual and dramatic step last week of obtaining a search warrant for the office of President Trump’s long time lawyer, Michael Cohen. My brother tipped me off to some news stories over the weekend reporting that the search warrants executed last Monday included a request for documents related to Cohen’s ownership of taxi medallion loans. For example, CNN is reporting that “Cohen has held numerous New York City medallions in his portfolio according to records, where the value has been diminished since the onset of Uber and Lyft.” A similar report was made by NPR over the weekend.

Is it only a matter of time before the medallion loans become the subject of cable news rants? Stay tuned.

April 16, 2018 at 9:31 am 1 comment

Time To Explore The State Charter

 

The dust is beginning to settle from the decision of the US District Court in Washington DC, striking down two parts of NCUA’s package of reforms primarily intended to give greater flexibility to community charters. If you are one of the credit unions that has been notified by NCUA that your charter expansion plans have been thwarted or a credit union that is putting a planned expansion on hold, the natural question is, what now?

For Federal charters in New York, I have a straightforward answer. It is time to take a serious look at the State charter. For many credit unions it offers more flexibility than you can ever hope to achieve absent a legislative amendment to the Federal Credit Union Act.

To me it’s this simple. Since 1998, a Federal community credit union is limited to serving “Persons or organizations within a well-defined local community, neighborhood, or rural district.” In contrast, under 451-a of New York’s banking law, credit unions can serve “well-defined identifiable neighborhood, community or rural district and who, in the judgment of the superintendent, have such a community of interest as will ensure proper administration.”  For purposes of this section a “well-defined identifiable neighborhood, community or rural district” may consist of one or more adjacent precincts, districts, cities or counties.” Crucially, there is no requirement that the community be local.

This means that so long as the Federal statute remains in place, Federal credit unions will forever be challenged any time they seek to expand in a community no matter how cohesive it may be so long as the bankers can argue that it is not local enough. No such statutory prohibition exists on the state level so the only hurdle facing a credit union seeking to serve a community is to demonstrate that it can do so in a safe and sound manner. This is reasonable. In contrast, placing geographical restrictions on what is or isn’t a “local community” in the age of the internet, is not. But that is what the law requires.

A second major component of the state statute is that it gives credit unions the flexibility to mix and match fields of membership. So, for instance, a community based credit union can now take on SEG groups outside of its community and a SEG based credit union could absorb whole communities without converting.

Despite the fact that the new and improved state charter has been in place for several years now, no Federal credit union has yet to take advantage of it by converting. And although some of our state charters have taken advantage of their increased flexibility, it’s safe to say that New York credit unions have yet to take full advantage of the opportunities granted to them. New York is unique in that the vast majority of its more than 400 credit unions are federally chartered. To be blunt, this no longer makes any sense to me.

Don’t get me wrong, whether or not a credit union should go through the time or expense of converting is a fact sensitive inquiry which every Board should ultimately make based on its own unique circumstances. But if you are a credit union that hasn’t taken the steps to at least examine the potential advantages of a state charter, now is the time. I’m hopeful that NCUA chooses to appeal the District Court’s ruling. The issues involved are too important not to. But even in a best case outcome for credit unions, does it make sense for your credit union not to convert simply to avoid the time and effort of doing so?

Ironically, one of the reasons NCUA made the changes which are now being litigated is because it realized that its charter was becoming less and less attractive in comparison to those offered by the states. A vibrant dual charter system ultimately helps everyone but it only works if credit unions are willing to explore all realistic options.

I am getting off my soapbox now. Enjoy your weekend.

 

April 13, 2018 at 8:57 am Leave a comment

HR Beware: Cuomo Proposes To Ban Use Of Salary History

Yesterday, the Governor introduced proposed legislation that would prohibit employers in New York  State from inquiring about a job applicant’s salary history unless certain conditions are met.

Under the Governor’s program bill, employers would be prohibited from relying on or inquiring about a job applicant’s salary history. The prohibition would not apply when a job applicant voluntarily and without prompting discloses this information.

The Governor’s proposal follows on the heels of similar legislation which has already been enacted in localities including Albany. Supporters of these measures point out that women tend to get lower salaries than their male counterparts at the very start of their careers and that this pay gap grows over time. As the Governor argues in the accompanying memorandum, that his proposal would help eliminate the gender pay gap by making it illegal for employers to inquire about an applicant’s prior salaries.

Whether or not you agree or disagree with proposals such as this one, if we are going to have a state-wide law then it would be in everyone’s interest that it preempt competing local legislation. To the extent possible, employers should deal with uniform standards, particularly when it comes to something as nuanced and fact sensitive as the job hiring process. In addition, the Governor’s bill drafters deserve kudos for concise and straightforward drafting which would help avoid unnecessary litigation.

Joint Agency Statement Issued On Cyber Insurance

In my experience, the more people you have standing around the barbecue, the less flavor the meat ends up having. Similarly, the more regulators involved in drafting guidance, the blander and more obtuse the final product becomes. Yesterday’s joint statement issued by the Federal Financial Institutions Examination Council (FFIEC), which includes the NCUA, is no exception. According to the regulators, this guidance imposes no new regulatory expectations on financial institutions; nevertheless, I would certainly incorporate it into your due diligence protocols or at least document that you have discussed the guidance as opposed to just placing it in the to-do bin on your desk. Remember that my quick synopsis is not intended as a substitute to read the statement.

NCUA has indicated that cyber security is a top examination priority this year. So it is no coincidence that they and their fellow regulators feel the need to provide guidance on the propriety of the cyber security insurance. It stresses that while financial institutions are under no obligation to purchase such insurance it may, under appropriate circumstances “offset financial losses resulting from cyber incidents.” As a result, one of my takeaways is that depending on the size and sophistication of your credit union, it makes sense for you to periodically examine if now is the time to get cyber insurance or change the insurance you already have. For instance, the guidance points out that some insurance will only guard against so-called first-party losses which generally include the cost of direct losses to your institution. In contrast, third-party insurance can help guard against indirect claims such as one brought by a small business which suffered huge losses when a hacker compromised their account.

Another important takeaway from the guidance is the reminder that insurance doesn’t eliminate, but simply compliments a cyber security program. I’m always a little concerned when I come across some credit unions that think insurance translates into “someone else’s problem.” I’ve said it before and I’ll say it again, no matter what third-party you use to get your work done, your credit union remains ultimately responsible.

April 11, 2018 at 9:13 am Leave a comment

The End Of The Beginning Of The Medallion Crisis?

Image result for churchill“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” – my man, Winston Churchill

I’m always accused of being a glass half empty kind of guy but this morning I’m here to tell you that I actually see signs that it is perhaps the end of the beginning of the medallion crisis, albeit with the caveat that these are only positive signs in the context of the pummeling medallion prices have taken. Here is why I’m cautiously optimistic that at least we could be headed towards a resolution, albeit a painful one.

Most importantly, the machinery of foreclosure is working. This means that credit unions won’t be caught up in years of litigation over who controls the medallions and under what circumstances. For example, recently a trial court in Queens rejected claims that NCUA, acting in its role as conservator of Melrose Credit Union lacked standing to foreclose on taxi medallions, Union v. Dzhaniyev, 2018 NY Slip Op 30521(U). Similarly, in Melrose Credit Union v. Soyferman, 58 Misc. 3d 1224(A) (N.Y. Sup. Ct. 2018), the court upheld the credit union’s foreclosure action to reclaim a delinquent medallion after a thorough review of the credit union’s promissory note and an analysis of its rights under Article 9 of the UCC.

Why are cases like these important? Because if a floor is ever going to be put in place on the price of medallions, it is absolutely crucial to show prospective buyers that this property can be efficiently transferred. By the way, this is a lesson that New York lawmakers would be wise to learn when it comes to delinquent mortgages but that’s a blog for another day.

Then there is the news that at a recent auction, there were no buyers for the sale of medallions as low as $200,000. How could this possibly be good news when just a few years ago a medallion valued at $200,000 would have been as unthinkable as a Trump presidency? Because as Bay Ridge CEO Anthony Grigos explained to Crain’s, “This [auction] was not to attract the heavy-hitter investors.” Instead, the aim was to “put these 15 medallions back on the road, in the hands of owner-drivers.”

This is the type of creative thinking that is needed right now. The reality is that medallion prices in New York were so high that your average driver couldn’t afford them. Instead there was a thriving secondary market. What the credit union realizes is that the price of medallions is now low enough for your average driver to actually buy one. A driver who has invested his livelihood in a medallion is a lot less likely to stop making payments than a broker.

Do any of these developments indicate that the industry is not in for a painful reckoning? Of course not. But the most important step in dealing with a problem is to admit you have one and these trends indicate that the industry is beginning to grapple with this reality.

DiNapoli Pressures Big Banks Working With Gun Retailers

New York Comptroller, Thomas DiNapoli, jumped on the politically correct banking bandwagon last week. According to the New York Post, it sent a letter to the nine largest banks as well as VISA and MasterCard urging them to crack down on firearm sales lest they suffer “reputational harm” because they allow banking services to be used in firearms transactions.

Not that the largest banks in the world need my support, but we are getting on an awfully slippery slope when politicians start urging financial institutions not to bank with legal businesses or facilitate perfectly legal transactions by consumers as I explained in this recent blog.

April 10, 2018 at 9:03 am Leave a comment

5 Things You Need To Know About Last Week

Increasingly it seems that there’s no down time for credit union news anymore, which is good if you’re a blogger but bad if you are a blogger who took an Easter break. So here in order of descending importance is a look back at some of the key developments that occurred last week with the understanding that I may expand further on these developments in the coming weeks.

DC Federal Court Strikes Down Key Provisions of NCUA’s Community Membership Rules

I know you’ve already heard about this one but considering that it takes about a week to read the decision, there’s still much more that needs to be said about Am. Bankers Ass’n v. Nat’l Credit Union Admin., No. CV 16-2394 (DLF), 2018 WL 1542049, (D.D.C. Mar. 29, 2018). Suffice it to say, that in its ruling the court held that NCUA overstepped its authority in defining a local community as any portion of a combined statistical area that contains no more than 2.5 million people. The court also ruled that the Board did not act rationally in defining a rural district as an area containing up to one million people. The court put a monkey wrench in many credit union expansion plans. Without getting this decision overturned or at least modified on appeal, community based credit unions will find it increasingly difficult to grow to meet member needs. On the bright side, portions of the rule were upheld and there may be a path forward for credit unions and NCUA, even if this decision is not reversed.

Prodigal Son Returns

When I left for vacation, an eight member democratic faction in the state Senate provided an independent power base at the state Capitol. When I came back, the Independent Democratic Caucus was no more. What’s more, Governor Cuomo was vociferously campaigning for Democrats in two upcoming special elections. The practical impact of this development was seen immediately as Senate Majority Leader John Flanagan replaced Jesse Hamilton as the Chair of the Senate Banks Committee with Long Island Republican Elaine Phillips. Remember, for the Democrats to take control of the Senate, they have to win two upcoming special elections in seats vacated by Democrats and convince Democrat Simcha Felder to caucus with them instead of the Republicans.

State Budget Impact

When the legislator finally got the budget deal done on Saturday, it contained a few provisions that will impact credit unions and their operations. S. 7508-C PART QQQQ creates a revolving loan fund for community development financial institution.

The bill imposed a $2.75 charge on ride sharing vehicles in Manhattan. A charge of $2.50 is imposed on medallion taxis. Why does this matter? Because critics of the approach argue that ride sharing vehicles are much more able to absorb the cost of the fee increase than are their medallion counterparts, making it even more difficult for the medallion industry to remain competitive.

This is the way the plan is described in the Governor’s budget press release: “Enact a $2.75 Surcharge on For-Hire Vehicles: To establish a long-term funding stream for the MTA and to reduce motor vehicle congestion, the FY 2019 Budget enacts a surcharge on for-hire vehicles below 96th Street. The surcharge is $2.75 for for-hire vehicles, $2.50 for yellow cabs, and $0.75 for pooled trips. This funding will go into an MTA “lock box,” and will provide long-term funding to sustain for the Subway Action Plan, outer borough transit improvements, as well as a NYC general transportation account.”

 Beneficial Owner Q&A Release

Regulations requiring credit unions and banks to identify the beneficial owners of accounts must be complied with by May 11, 2018. Although many credit unions may not deal with the type of sophisticated entities that this regulation is designed to address, you still need policies and procedures in place to know who the beneficial owner of an account is. You should definitely take a look at this Q&A if you haven’t done so already.

State Treasurers Want Cannabis Meeting With Sessions

With confusion continuing to reign regarding the legal status of marijuana proceeds in states that have legalized its use, a group of state treasurers wrote a letter last Thursday to Attorney General Jeff Sessions requesting a meeting with him to discuss this issue. Since withdrawing the Cole Memorandum in November, the AG has imposed radio silence on how financial institutions should deal with this issue.

 

 

April 9, 2018 at 8:59 am Leave a comment

Older Posts


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.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 483 other followers

Archives