Posts filed under ‘Political’
One of my faithful readers emailed yesterday and asked me what I thought of the cyber security legislation that passed the Senate earlier this week. So here goes: Quite simply any action that shows Congress is waking up to the need for federal action aimed at creating a more robust cyber security infrastructure is a step in the right direction, but since the core challenge of making merchants more responsible for how they protect consumer information remains. credit unions will see little direct or immediate benefit if this legislation becomes law.
Senate bill 754, The Cyber Security Information Sharing Act of 2015, passed with strong bipartisan support and takes some important steps designed to make it easier for the government and the private sector to respond to and deter cyber threats. For example Homeland Security, the Director of National Intelligence, the Department Of Defense and the Justice Department would have to promulgate procedures for the “timely sharing” of classified cyber threat indicators. The bill would also setup a framework that would allow companies to voluntarily monitor each other’s information systems. Companies that exercise these powers are shielded from lawsuits, including those alleging violations of antitrust law.
Now all of this might be real important stuff for fortune 500 companies, including the largest banks that are such tempting targets for hackers, but none of it addresses the concerns of credit unions wondering why merchants don’t have to pick of the tab for data breaches caused by merchant negligence.We not only need more information sharing but we also need to make sure that all businesses have to adopt common sense procedures to protect the personal information of consumers.
The bill also makes the civil libertarian in me that much more concerned about how easy we are making it for the government and business to spy on us in the name of national security but that goes beyond the scope of this post or the concerns of credit unions. Stay dry out there.
Here is a link to information about the bill.
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.
Maybe it’s because the desolate Albany landscape with its frozen mounds of exhaust-tinged snow and sub-zero temperatures makes me feel like I’m inhabiting a post-apocalyptic world, but a couple of days ago I got around to reading the FFEIC’s new appendix to its examination handbook dedicated to disaster preparedness entitled Strengthening the Resilience of Outsourced Technology Services. In all seriousness, it is a must-read for any credit union that has to have a business continuity plan (BCP) and contracts with third parties for services that should be integrated into this business plan. I bet that is almost every credit union.
Regulators have long emphasized the need for appropriate due diligence when entering into third-party relationships. In addition, Business Continuity Planning has been a major point of regulator emphasis since 9-11; not to mention that “once in a century storms” seem to be coming every other year. This new appendix zeros in on the importance to financial institutions of insuring that appropriate vendor services are integrated into BCP plans and testing. As the regulators commented in releasing the appendix, “a financial institution should ensure that its third-party service providers do not negatively affect its ability to appropriately recover IT systems and return critical functions to normal operations in a timely manner.“
The appendix highlights four key points of emphasis for examiners assessing third-party relationships.
(1) Third-party management addresses a financial institution management’s responsibility to control the business continuity risks associated with its third-party service providers (TSPs) and their subcontractors.
(2) Third-party capacity addresses the potential impact of a significant disruption on a third-party servicer’s ability to restore services to multiple clients.
(3) Testing with third-party TSPs addresses the importance of validating business continuity plans with TSPs and considerations for a robust third-party testing program.
(4) Cyber resilience covers aspects of BCP unique to disruptions caused by cyber events.
I don’t want anyone to break into a cold sweat thinking that a new compliance requirement is necessarily being imposed on them. If you don’t outsource core operational functions to third parties this appendix shouldn’t concern you much. But if your credit union can’t operate effectively unless a vendor is also on the job, then you have an obligation to work with that vendor and make sure that it has a Business Continuity Plan that is compatible with your own.
Think about it: if your vendor backs up all your account information at a facility down the block from your credit union, your BCP plan has some serious holes.
Don’t Fire Until You See the Whites of Their Eyes
Yesterday, the CU Times reported that Sen. Richard Shelby (R-Ala.), chairman of the Senate Banking, House and Urban Affairs Committee, would not rule out doing away with the credit union tax exemption as part of an overhaul of the tax code.
Shelby’s equivocation on the tax exemption underscores that tax reform poses dangers for credit unions, but his stance should hardly surprise anyone, nor should it send us scrambling to the ramparts as if the industry is in imminent danger. The fact is that in any push to overhaul the tax code a prominent veteran lawmaker like Shelby isn’t going to take anything off the table. There is a lot of negotiating to be done, if and when we ever get to a tax reform end game.
Should the industry be vigilant? Absolutely. But, in my ever so humble opinion (and I stress only my opinion), in recent years the industry has overreacted to the threat of tax reform with the result that it has not pushed aggressively enough for other parts of its agenda. There may come a time when we need to activate the grassroots in a major push to save the exemption, but that time is not here yet. In the meantime, let’s not let the bankers sideline our agenda every time they advocate for ending the exemption or draw too many conclusions every time a legislator gives less than 100 percent support for the industry.
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.
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.
Ding Dong, the witch is dead.
With the Supreme Court’s decision not to hear an appeal by merchants complaining that the Federal Reserve’s interchange fee cap is too high – and I thought we lived in a free market system – the latest round of merchant interchange litigation has come to an end. Remember that the litigation never directly impacted your credit union unless you work for one of the relative handful with $10 billion or more in assets. Still, the victory is an important one because of concerns that the interchange cap puts downward pressure on what all issuers ultimately receive.
The litigation came down to how much deference the Federal Reserve should be given by the courts in implementing Durbin’s mandate that it devise an interchange fee cap. The amendment tasked the Federal Reserve with making sure that interchange fees were “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” It further specified that “in making this determination distinguish between … the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular debit transaction, which cost shall be considered …, [and] other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered.” NACS v. Bd. of Governors of Fed. Reserve Sys., 746 F.3d 474, 480 (D.C. Cir. 2014) cert. denied sub nom. NACS V. BD. OF GOVERNORS (U.S. Jan. 20, 2015).
The merchants argued that the twenty one cent transaction cap was too high because the Board took costs into account that the statute didn’t allow. The Government argued, and the federal DC appellate court agreed, that the statute was less than clear. The Board properly utilized discretion in filling in the congressional blanks. Yesterday’s denial to take up this decision by the Supremes puts an end to this round of litigation. But let’s face it, when it comes to litigation, merchants are like those Taken movies starring Liam Neeson, who, I vaguely recall, used to be a good actor. Even though it seems like the bad guys have taken or killed all his family members, as long as someone is making money off these sequels we haven’t seen the last of them. . .
Luck Would Have It
While we are on the subject of regulations and litigation, it’s kind of fitting that on the same day the interchange fee litigation ended, the NCUA released a legal opinion explaining why it has the authority to categorize credit unions as either “adequately” or “well capitalized” under whatever risk-based capital framework it imposes on complex (i.e. larger) credit unions. http://www.ncua.gov/News/Pages/NW20150120Opinion.aspx
The merchants argued that the Federal Reserve Board lacked authority to devise the cap the way it did because the Durbin Amendment was clear enough to be implemented without exercising discretion. Credit unions have suggested to NCUA that it lacks the authority to impose “well capitalized requirements” on complex credit unions – a group that NCUA is now proposing include any credit union with over $100 million in assets – because Congress clearly prohibited NCUA from doing so. NCUA was spooked enough by the argument to go out and get a legal opinion on the subject from the Paul Hastings laws firm. The firm concluded that Section 216 of the Federal Credit Union Act was vague and as a result NCUA had the flexibility to establish requirements for complex credit unions to be considered “well capitalized” under a risk based capital framework, so long as the agency provided “a sufficient explanation” for imposing “a higher and more conservative” capital requirement on complex credit unions.
As Washington Turns
We wouldn’t have to be delving so much into the arcane world of regulatory interpretation if Congress actually passed laws with clear directives. Like estranged lovers, as Congress and the President have drifted apart both have turned to others to meet their needs. The President has turned to Executive Orders for validation of his powers; Congressional Republicans have turned their affections to courts. Anyone hoping for a change to this dynamic was woefully disappointed by the President’s State of the Union address last night. Don’t get me wrong. If you turn on Rachel Maddow every night you loved the speech because it hit all the right liberal notes of what the world would be like if only there were no Republicans. Conversely, if you don’t miss a day of Rush Limbaugh the speech undoubtedly confirmed your worst fears of an impending socialist takeover. But, if you thought that the idea of a State of the Union address was to propose ideas that could actually become law, you were out of luck.
If you want to see just how out-of-whack Washington is, be sure to tune into today’s State of the State address by Governor Cuomo. He will actually propose ideas that can be accomplished in the coming months and occasionally even compliment Republicans without fear of being brought up on impeachment charges.
That’s the headline of a lengthy and important article in Politico which reports on the extent to which the Government is, for better or worse, the nation’s primary banker. The numbers are staggering.
The Government currently has $3 trillion in loans, comprised mainly of mortgage loans guaranteed by the GSEs and loans to more than 40 million college students. The problem is, “its lending programs sprawl across 30 agencies at a dozen cabinet departments with no one responsible for managing its overall portfolio, evaluating its performance or worrying about its risks.” The article points out that there are only four mid-level government bureaucrats given responsibility for assessing the efficacy of these loans as a whole. Think about that. Your average credit union has more people dedicated to assessing the effectiveness of its lending than does the federal government.
To anyone involved in mortgage lending, the idea that the government gets involved in extending credit is not surprising. I’ve pointed out before that although this country rightly prides itself as being an example of capitalist success, its housing and agricultural industries have been partially socialized since the Great Depression. What is surprising though, is just how much the use of credit has skyrocketed in recent years. In 2007, the federal government extended nearly $1.5 trillion; today, that number has more than doubled and stands at $3.2 trillion.
The article underscores yet again how Congress should decide once and for all how great a role the U.S. Government should play in housing policy in this country and what form that intervention should take. A lot of government credit programs make sense, particularly as a form of stimulus when larger institutions are unwilling or unable to open up the spigot on lending. But banks and credit unions do a much better job of assessing risks than does your typical government bureaucrat. Let’s decide to scrap Fannie or Freddie, devise a secondary market mechanism for small lending institutions, and scale back the extent to which the American taxpayer is the de facto guarantor for the world’s largest creditor.
Are encryption regulations on the way?
God bless the bureaucratic mind. I was going to give NCUA a pass after one of its examiners lost a flash drive containing personal information about members of the $13 million Palm Springs FCU. Accidents happen. The breach was dealt with and unless I missed something we don’t have an epidemic of examiners misplacing personal information. After all, your typical examiner is more anal than a germaphobe on a bathroom break.
But this article in the CU Times demonstrates why regulators need to be challenged. In an interview, Chairman Matz said that the agency is considering regulations mandating that credit unions provide examiners with encrypted data. Let me get this straight: a single agency employee makes a mistake and all credit unions are made to comply with a new regulation? Would encrypting data be burdensome? I have no idea. What I do know is that a steady stream of regulations combined with an almost convulsive instinct on the part of all regulators to react to every problem with a regulation demonstrates why there is an increasingly long list of mandates, many dealing with arcane subjects. In the interview, Chairman Matz said “Believe it or not, we really don’t like putting out more regs than we need.” Okay, then why doesn’t NCUA simply send out a letter to Field Examiners stressing the importance of properly handling credit union data. NCUA won’t make a decision on whether or not to propose an encryption reg until after it receives the results of its Inspector General’s investigation.
Gibson calls it quits
Upstate Republican Congressman Chris Gibson, who represents New York’s 19th Congressional District, announced that his current term will be his last. But in making the announcement the Congressman left the door wide open to remaining involved with New York politics. This is pure speculation on my part, but as a politician whose district includes part of the Hudson Valley and who has established a moderate record, Gibson would be an ideal candidate for Governor on the Republican ticket in four years.
On that note, have a pleasant day.