Posts filed under ‘Political’

FCU’s Can Access Federal Courts

Executives at larger credit unions have one more thing to be thankful for as they celebrate Thanksgiving on Thursday. The Court of Appeals for the Fourth Circuit reversed an earlier lower-court ruling which would have denied federal credit unions access to the federal courts in most circumstances. This may not sound like a big deal, but as credit unions grow larger and serve members in multiple states, the access to federal courts is crucial for these institutions going forward.

Federal law provides that a corporation  “shall be deemed a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.” 28 U.S.C. § 1332(c)(1) (emphasis added). 

Navy FCU was suing a company based in Florida, Delaware and New York to which it sold some of its loans for violating its contract by reselling the loans to another party. The defendant successfully argued that under 1332, a federally chartered credit union was not able to obtain jurisdiction or access to the federal courts. In the type of argument that thrills textualists on steroids, the district court interpreted the statute as requiring that a credit union must be both chartered by a state and have a principal place of business in order to be eligible to start a suit in federal court. Federal credit unions are chartered by the federal government, not states.

Fortunately for the home team, common sense prevailed. In reversing the lower court, the Fourth Circuit reached three conclusions that are fundamental to credit union operations. First, credit unions are corporations even though they are cooperatives. Second, the statute covers federally chartered credit unions which are either chartered by a state or have a principal place of business in a state. Third, as a result, Navy FCU with it’s C-suite of top executives located mainly in Virginia, qualified as a Virginia resident. This decision is not binding on other federal circuits. Still, it does represent persuasive authority if, and I believe when, federal credit unions face similar challenges in places like New York. 

After Further Review…

It took a mere three weeks to figure it out, but at long last, the electorate in New York has solidified Democratic control in the State Senate. Yesterday, Senate Majority Leader Stewart-Cousins and her top deputy Michael Gianaris announced that when all the votes were counted, Senate Democrats would hold at least 42 seats, but with other races still to be decided, this majority may grow. 42 is a magic number not just because it was worn by Jackie Robinson, but because it is also the threshold for a supermajority in this chamber, giving the Senate the ability to override a Governor’s budget proposal. The Assembly already has a supermajority. 

On that note, enjoy your Thanksgiving. I’ll be back next week.

November 24, 2020 at 10:01 am Leave a comment

Congress Moves Closer to Providing AML Relief

On Thursday, Congress moved closer to passing legislation which would relieve banks and credit unions of the most burdensome new Bank Secrecy Act requirement imposed on them in recent years. Negotiators have tentatively agreed to include the Corporate Transparency Act in the National Defense Authorization Act, which provides military funding for Fiscal Year 2021. It is considered must-pass legislation, although given the dysfunction in Washington, is there really any such thing anymore?

Enactment of the legislation would be a major victory for longtime Manhattan Congresswoman Carolyn Maloney, who has advocated for the passage of legislation like this for several years. In 2018, regulations took effect which required banks and credit unions to identify the beneficial owner of corporations and trusts. The intent of the regulation makes an awful lot of sense. One of the easiest ways for people to hide money is to create corporations that act as a front for their personal use. But the smartest way to get this information is to place disclosure requirements on the corporation. 

Under Representative Maloney’s bill, an applicant for a corporation or a limited liability company (LLC) would be required to file a report with FinCEN containing the identities of an entity’s beneficial owners. Under this legislation, as is required by existing FinCEN regulations, a beneficial owner is an individual who, directly or indirectly, controls a corporation or LLC; owns a certain percentage of such an entity; or generally receives “substantial economic benefits” from the company. We should know in a few weeks if this is going to become law. 

Drama at the NCUA

Maybe there was something in the water in our nation’s capital, but governing dysfunction has even infected the three-person NCUA Board. In case you missed it, J. Mark McWatters resigned on Thursday, ending a colorful six-year run in which he became the de-facto gadfly at the agency with his strict adherence to the plain text of NCUA’s regulation and governing law. You always got the feeling that he was not completely comfortable at NCUA. As early as 2016, he was in line to take another job at the Export-Import Bank of the United States. According to David Baumann, if McWatters did not resign, he was going to be fired by the White House, which it had the authority to do as McWatters’ term had already ended. If all goes according to plan, McWatters’ seat will soon be filled by Kyle Hauptman, but nothing seems to go smoothly in Washington these days.

November 23, 2020 at 9:30 am 1 comment

Election Post-Mortem, Continued Gridlock Means Tough Times Ahead

One thing that Barack Obama and Mitch McConnell agree on is that elections have consequences. Although the final results won’t be known for weeks, what appears to be clear from this election is that it did little more than confirm a deeply divided status quo with all sides able to point to evidence that they were the actual victors. For credit unions, this has important consequences which will shape the industry in both the near and medium term. Here is a list of some of those consequences:

  • PPP Relief Delayed – Yesterday, the Federal Reserve once again tinkered with its regulations for the Main Street Lending Program, which was designed to encourage banks and credit unions to make loans to medium-sized businesses not eligible for PPP loans. At the same time, Federal Reserve Chairman Powell issued this extremely thoughtful release in which he once again stressed that without fiscal intervention, the Fed is at the outer limits of what it can do to support a slowing economy. Although Mitch McConnell is committed to getting a stimulus bill through Congress, I really don’t see this happening with a disgruntled, lame duck President Trump in charge and two Senate elections outstanding. This delay has real consequences. The market as a whole is welcoming the apparent gridlock, but investors in regional banks are now recognizing that business activity and consumer spending will almost certainly decrease in the months ahead. 
  • The pandemic continues to spread – In case you missed it because you were glued to John King’s magic wall of vote counts, America experienced its worst single-day count of COVID-19 cases. As Federal Reserve Chairman Powell pointed out, the economy can’t get back to full strength as long as people have to worry about contracting the virus. The good news is that in the coming months, perhaps we will move away from this false dichotomy between economic growth and the need to contain the virus. The bad news is that this means one of the top priorities for your credit union, or any business for that matter, has to be discussing, maintaining and monitoring the criteria you will use in determining how to run your operations during the Second Wave. 
  • Tough times ahead in New York – Let’s be honest. The more democrats have control of the US Senate, the more aid that will come to New York State. Anyone who pays property taxes knows how badly we need it. But with hopes for a big Senate victory fading, New Yorkers are facing an unappetizing choice between budget cuts and tax increases at a time when we need more, not less, stimulus. On the bright side, the economic vice the state may well find itself in underscores the value of giving localities mandate relief in the form of credit unions being allowed to accept municipal deposits. 
  • Let’s Go Get Stoned – Five additional states legalized marijuana in some form or another on election night. Not only did New Jersey legalize cannabis, but even red states have now decided it’s time to take a puff, with Montana, Mississippi and South Dakota joining the ranks. I don’t know what it says about America that pot legalization is one of the few issues we can all agree on, but I will now bet that by the end of the next legislative cycle, banks and credit unions will have clear legal authority to provide banking services to these businesses. If you haven’t already discussed how actively your credit union wishes to engage this business or taken a deep dive into the compliance implications, now is the time. Full disclosure: I made the same prediction two years ago. 
  • Credit Union Tax Exemption is in Play – I’m always hesitant to put too much emphasis on the threat posed to credit unions and their tax exempt status. Too often, I think it distracts us from other more pressing issues. But there are four dynamics which make the coming years particularly treacherous for the industry. Even without subsequent stimulus packages, the country has gone on an unprecedented spending spree which will have to be repaid; democrats are going to be pushing hard for tax reform, especially as the pandemic exacerbates economic inequality, three – banks have already been laying the groundwork for a targeted attack against so-called “larger” credit unions and lastly – they may find common ground with the younger, more progressive AOC wing of the democratic party, which is increasingly looking to other entities – such as the Post Office and CDFIs – to provide financing for the underserved. The action points for credit unions are obvious, but if I could make myself king for a day, I would mandate that every credit union draw up a concrete list of the products, services and activities it undertakes as a result of its tax exemption. As an industry, we like to say that we don’t pay corporate taxes because we are not-for-profit institutions. In fact, we don’t pay taxes because of a policy judgment by Congress that the financial value of having not-for-profit financial institutions available to the American public outweighs the fiscal benefit of taxing credit unions. Each and every institution benefitting from that tax exemption can, should and ultimately will have to demonstrate this fact in concrete terms to elected officials anxious for cash. 

Believe it or not, there are many other points to raise, but it’s a beautiful day and I’ve depressed my readers enough. Besides, I still have to brace myself to watch the Giants play the Washington Football Team. Perhaps Ron Rivera will hand us another victory. Have a good weekend. 

November 6, 2020 at 10:25 am Leave a comment

Withholding Tax Deferral Takes Effect: Now What?  

When Wimpy from the Popeye cartoons gladly promised to pay on Tuesday if he could have a hamburger today, it was just a joke.  In contrast, today marks the first day of President Trump’s Executive Order permitting employers to defer withholding the 6.2% Social Security Tax from employees making up to $4,000 on a bi-weekly basis.  The good news is that the Treasury and IRS issued a joint guidance late Friday night explaining the Executive Order.  The bad news is that there is still much confusion about how the tax is going to work.

What we know for sure is that the President has instructed the Treasury to defer the mandatory collection of the Social Security Withholding Tax from September 1 to December 31, 2020.  This tax is typically collected by employers who withhold it from the pay of their employees.  Employers are ultimately responsible to the Treasury for making sure the tax is collected and paid.  Starting January 1, 2021 through April 30, 2021 employers will be authorized to collect the amount of money deferred from employee’s paychecks. In other words, the employee who opts not to have his or her taxes collected will have to repay the deferred amount in addition to having their Social Security taxes automatically deducted from their paycheck once again.  This will be a great surprise as they start paying off the credit card bills from the holiday season.

Can the employer decide not to participate in this program?  According to the press release, the guidance “allows” employers to defer collecting the taxes.  The actual notice does not speak directly to this issue.  Please check with your accountant and/or attorney, but in my opinion, and simply my opinion, since Federal law indemnifies employers responsible for collecting withholding taxes from being sued and employers are still ultimately responsible for ensuring that the taxes gets paid, the most logical reading of the guidance is that employers may, but are not required to, defer collecting the tax.  Hopefully we will get more guidance on this issue in the coming days.

For those of you who decide that the safest thing to do is to defer collecting the tax, I would send out a notice to your employees explaining to them that they remain responsible for paying the tax and that starting in January your credit union will start collecting the taxes they have chosen to defer.

In his Executive Order, President Trump encouraged the Treasury to work with Congress.  Perhaps this will end up being nothing more than a game of legislative chicken with President and the Congress ultimately agreeing to waive collection of the taxes.  But making financial plans for your credit union based on the assumption that Congress and the President will agree on anything in the coming months is an awfully risky bet.  It would be like predicting that the Mets would lose to the Yankees even though they have a 5 run lead with two outs in the bottom of the last inning.

September 1, 2020 at 9:37 am Leave a comment

Legislature Breaks for the Summer; NCUA Moves Closer to Getting More Money for the Industry

The New York State Legislature adjourned yesterday, ending a bizarre hybrid session in which a spattering of members spoke from the floor while others participated via Zoom.  It was almost as strange as watching homerun balls landing into empty seats.  The legislature is not committed to coming back, but with the continuing uncertainty surrounding the state’s finances, no one would be surprised to see it reconvene later this fall.  Against that backdrop, here are a few key bills I want to tell you about today; we will provide you with a more detailed list early next week.

A bill to make remote notarization a permanent part of New York State law passed the Senate but has yet to be acted on in the Assembly.  This is important progress and yours truly remains optimistic that remote notarization will become part of New York State’s law.  The current Executive Order 202.53 authorizing remote notarization expires on August 20th.

As tough as New York’s existing forbearance requirements are, they stood to become a lot worse.  A pair of bills, A10532-A and A10544, would have extended New York’s COVID-19 forbearance requirements to commercial rentals and retail space.  These provisions would have only applied to state chartered institutions. Fortunately, neither of these bills was passed.

Finally, in a recent blog, I analyzed bill A5630A which would make major revisions to New York’s Power Of Attorney laws.  This bill has been passed by the Legislature but now must be sent to the Governor for his consideration.  If it is signed, your credit union will have six months to prepare for many of the changes.

NCUA Corporate Litigation Can Go Forward

A New York federal judge yesterday refused to dismiss a lawsuit brought by NCUA against U.S. Bank National Association.  The lawsuit claims, among other things,  that the bank, which was responsible for overseeing the trusts in which many of the Residential Mortgage Backed Securities purchased by the corporates were held, breached its contract with the corporates by failing to take action against  originators who provided mortgages that didn’t meet the appropriate underwriting standards.  By defeating this motion, the likelihood increases that NCUA will recover more money on behalf of the share insurance fund.

NCUA vs US Bank National Association

July 24, 2020 at 10:05 am Leave a comment

Regulators Release a “Must Read” Guidance for CUs

Agencies Issue Joint Examination Guidance

The NCUA yesterday joined with its state and federal counterparts to issue guidance describing examiner expectations during the pandemic.  Needless to say, this is required reading for someone at your credit union today.

What caught my attention most about the wide-ranging explanation of supervisory expectations was the emphasis it placed on institutions engaging in ongoing risk assessments related to the pandemic. For example, the examiners explain that they:

… will review the steps management has taken to assess and implement effective controls for new and modified operational processes. Examiners will assess actions management has taken to adapt fraud and cyber-security controls to manage heightened risks related to the adjusted operating environment. Examiners will also review how management has assessed institutions’ third parties’ controls and service delivery performance capabilities post crisis.”

I know how difficult it is for many of you scrambling around to meet the credit union’s needs on a day-to-day basis to find the time to look at the big picture, but at its most basic level this requirement demonstrates why it’s so important to take a deep breath, sit the team down and memorialize those new policies and procedures you have put in place so that examiners can see how your credit union responded to the pandemic.

AG Reaches $17M Settlement With Mortgage Servicers

New York’s AG announced that she has reached a $17 million settlement with Texas based mortgage loan servicer Caliber which she alleged had engaged in unfair and deceptive practices and violated New York Servicing Regulation Part 419 by, among other things, inadequately explaining to delinquent homeowners the consequences of interest only loan modifications and providing inadequate contact information.  The interesting thing about the settlement findings is that it was based entirely on violations of New York law.

New York Primary Results

Some much anticipated New York State Congressional primaries are too close to call, but it does look like we are on the verge of once again seeing some longtime incumbents losing out to a younger, more liberal, candidate.

 

June 24, 2020 at 8:41 am Leave a comment

Seven Things You Need To Know To Start Your CU Day

Today’s blog is tailor-made for those of you with ADHD.  There’s lot of information I want to get to you on a broad range of topics.

Governor Signs Mortgage Forbearance Bill – Governor Cuomo has signed into law legislation I have been telling you about regulating mortgage forbearances for homeowners impacted by COVID-19.  Here’s where it gets a little confusing.  You should read S.8243C in conjunction with PART C of A.10530 which amends S.8243C.  This is what New York State calls a Chapter Amendment.    I would certainly take a close look at these new requirements which are effective immediately.

Governor Declares Juneteenth A State Holiday—Governor Cuomo issued an EO recognizing Juneteenth as a holiday for state employees tomorrow.  June 19th marks the day in 1865 when Federal troops informed African American slaves in Texas that slavery had ended more than a year earlier following the end of the Civil War.

Meet The New Boss—On Monday the Trump Administration announced that it intends to nominate Kyle Hauptman, of Maine, to be a Member of the National Credit Union Administration Board.  He will replace current holdover board member J. Mark McWatters whose previous term expired August 2019.  If confirmed, Hauptman would serve through at least August 2025. Hauptman is currently an economic policy advisor to Senator Tom Cotton (R-Arkansas).

Don’t Forget The Money—Board Member McWatters used a gracious goodbye statement to the industry, to remind credit unions that they still have some money coming their way from the conserved credit unions as outlined on NCUAs website available here.

DFS Issues Guidance On Credit Reporting And Credit Reporting Agencies—As the sugar rush from the PPP loans and the stimulus checks begin to wear off, you can expect more and more issues to arise about your members credit.  Yesterday the New York State Department of Financial Services issued a guidance on credit reporting which is based on a set of principles the department negotiated with the CRAs.  It also will have some impact on what banks and credit unions report when acting as furnishers of credit information.

This Is One Wacky Economy; Retail Sales Surge—Any expert who tells you they know what to expect from the economy should bring you as much comfort as the weatherman confidently predicting what the weather will be like seven days from now.  Yesterday, retail sales bounced back with a vengeance.  Does this mean that a V-shaped recovery is once again possible? Or simply that people are anxious to get out of the house, anxious to spend some of that free money from the Federal Government knowing that the hard times are right around the corner?  The answers to these questions will of course have a profound impact on the financial health of credit unions large and small in the coming months.  Right now unfortunately, the economy is analogous to a 5,000 piece jigsaw puzzle with all the pieces spread across the table.

New York Primaries Worth Watching—With the state seemingly turning bluer by the day, and national pundits seeking to figure out how much staying power AOC has, here is a great piece of analysis from long time Albany hand Bruce N. Gyory handicapping the upcoming primaries in New York’s 16th Congressional District where longtime Congressman Eliot Engel is facing the proverbial spirited challenge from political unknown Jamaal Bowman and in the 15th Congressional District where the winner is all but assured of replacing retiring Congressman Jose E. Serrano.

 

June 18, 2020 at 10:04 am Leave a comment

Why Credit Unions Should be Concerned About The HEROES Act   

From the credit union perspective, what is most noticeable about the HEROES Act is not what’s in the bill, but what is not.  Despite laying out more than 1,800 pages of priorities, as noted by David Baumann in his excellent article, House Democrats did not include any of the industry’s priorities including PCA flexibility, extending the duration of amendments related to the Central Liquidity Fund or expanded authority for MBL loans.

What’s more, there is plenty in the bill to keep credit union executives worried about unpaid mortgages up at night.  Section 4204 would grant “automatic forbearance” to any borrower whose mortgage has become 60 or more days delinquent since March 13th.

If the conventional wisdom is correct, the house bill has about as much chance of becoming law as Donald Trump does of becoming an epidemiologist.  Still, the industry should consider this bill a warning shot.  The real threat to the continued growth of the industry does not come from the bankers.  It comes from the liberal younger base of the Democratic Party which, rightly or wrongly, is becoming increasingly dissatisfied with the efforts made by credit unions to help people of modest means.

Increasingly, the party is looking to CDFIs which is why the news is not as bad for you if you are one of the approximately 300 credit unions which are Certified Development Financial Institutions.  The bill includes $1billion in funding for the CDFI fund.

May 15, 2020 at 9:07 am Leave a comment

Seven Ways COVID-19 Is Impacting Your Operations

Greetings from the state that is number one in COVID-19 cases; as of Sunday afternoon.

There have been an amazing number of developments affecting your credit union over the weakened.  I am emphasizing those that you may not have heard about yet.

New York Delays New Servicing Regulations

I actually have some good news to tell you this morning.  I found out over the weekend that New York’s  Department of Financial Services has issued an emergency regulation putting on hold for an additional 90 days new servicing regulations which many credit unions and mortgage bankers were wondering how they were going to comply with.  In announcing the delay DFS Superintendent, Linda A. Lacewell explained that “the volume and complexity” of the new regulations, especially since they require new programing and disclosure requirements for home equity lines of credit, has led the department to conclude that businesses need more time to comply, particularly at a time when they have to concentrate on the pandemic.

A special shout out to the New York Mortgage Bankers Association, which did a great job alerting stakeholders to the difficulties in complying with this regulation.

State Issues COVID-19 Emergency Relief Order

New York’s Department Of Financial Services issued an order exempting state licensed and state chartered financial institutions including state chartered credit unions from some regulations with which they would normally have to comply.  Most importantly, these institutions can now close and relocate branches and offices without first providing notice to DFS.  In addition, licensed individuals such as mortgage originators can work from home with the understanding that they are still subject to New York’s regulations.  Entities are still expected to inform New York State of any relocations.

Additional Developments…

Also over the weekend, the Governor asked businesses that could do so, to voluntarily shut down and allow their employees to work from home.

Finally, the state has imposed limits on the size of mass gatheringsHere is his first order.  This situation is very fluid and we may see further reductions in the authorized size of mass gatherings.

Fed Gone Wild

Just how low can the Fed go?  The Federal Reserve Open Market Committee announced yesterday that it was slashing the Federal Funds rate to zero (!) and “expects to maintain this target range until it is confident that the economy has weathered recent events…”

When the history of this pandemic is written, it will be marked as the end of a unique period in American history during which the Federal Reserve exercised a decisive impact on the American economy.  In 1987, Alan Greenspan calmed the stock market following its dramatic decline; it was the Fed that helped minimize the impact when the dot-com bubble popped; and Ben Bernanke mitigated the impact of the Great Recession of 2008 by going on a mortgage buying binge.

My how times have changed.  Interest rates are already too low to have much of a stimulus impact and they will have no effect in coxing Americans out of their homes to hoard more toilet paper.

The Fed did take one important step recently.  It announced a massive infusion of funds into the repurchase market.  It also announced it would accept a broader range of securities for these arrangements.

The repurchase market plays an absolutely crucial role in the economy.  It is the mechanism by which the largest of the large financial institutions manage their liquidity on a daily basis by getting short-term loans of cash in return for collateral such as bonds.  The system has had some hiccups over the past year and no one quite knows why.  Stay tuned.

With the Fed out of bullets, it is up to Congress and the President to come together and agree on a stimulus package.  On Saturday, the house took the first step in this legislative dance by passing legislation which extends limited family leave protections to some employees and increasing funding for programs such as SNAP.  The precise impact of this proposal is being debated this morning, with critics already complaining it contains too many loopholes to help most workers.  If, as expected, the Senate passes the bill this week and the President signs it, the real contentious debate gets started.  Both sides are already jockeying for position over what should be included in a larger stimulus package.

March 16, 2020 at 10:38 am Leave a comment

Six Take-Aways From CUNAs GAC

Back from another year at CUNAs GAC. Every year I try to highlight some themes that emerge so here is my list of the six (6) things I learned at this year’s conference:

    1. Get those DORs done. Don’t be surprised to see NCUA taking a tougher approach to your credit union when it comes to following up on Documents Of Resolution. One of the big takeaways from the report of NCUA’s Inspector General about the collapse of the NYC taxi credit unions is that NCUA should have acted more promptly to enforce long standing DORs. Anecdotally I talked to a lot of credit union people and some of them said they are already seeing this trend.
    2. Taxi medallions are an even bigger issue than I thought they were. It would have been impossible to be at the conference the last few days without hearing about taxi medallions. This has not been true over the last few years. Both Chairman Hood and Board Member McWatters defended the agency’s decision to sell the medallions to a private equity firm, just as New York State was beginning to focus on ways to stabilize the medallion market. The big questions that remain are: How much flexibility are the new medallion owners going to extend to troubled borrowers? How much is the sale going to impact the sale price of medallions? And precisely why did NCUA feel that now was the best time to sell off these assets?
    3. Alice Through the Looking Glass and the CFPB. In a presentation to the conference, CFPB director Kathy Kraninger laid out an ambitious agenda on issues ranging from qualified mortgages to payday loans even as her own bureau refuses to defend the constitutionality of its leadership structure in a case pending before the Supreme Court. I’m telling you folks, when it comes to the CFPB, be careful what you ask for. Do you really want to wake up in a world in which the legality of all those mortgage regulations you have been implementing for the last 10 years are in doubt?
    4. I know subordinated debt isn’t the most exciting issue but I continue to believe that it is one of the most important facing the industry. The Association will shortly be coming out with a survey seeking feedback on the pending NCUA proposal which would allow complex credit unions access to secondary capital for purposes of meeting their risk based capital requirements while at the same time codifying guidance making it more difficult for low income credit unions to access subordinated debt. The agency has to see if it can balance these competing concerns in a way that does not exacerbate the differences between big and small credit unions.
    5. The more things change, the more they stay the same. There are so many issues on which there should be a bipartisan consensus but Congress is still unable to get things done. I’m thinking about data security and marijuana banking, in particular. We all know that there is a huge political divide in this country; I wonder how many people realize that this perpetual ideological warfare hurts industries and consumers regardless of what party they belong to.
    6. If there is a better politician in New York than Senator Chuck Schumer, I have not met him.

 

February 27, 2020 at 9:33 am 1 comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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