Posts filed under ‘Regulatory’

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

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

5th Circuit Decision Highlights Importance Of New York Insurance Law Proposal

A recent decision by the Court of Appeals for the 5th Circuit – Chamber of Commerce of United States of Am. v. United States Dep’t of Labor, No. 17-10238, 2018 WL 1325019, (5th Cir. Mar. 15, 2018) – highlights the importance of a New York State proposal initiative to expand the fiduciary obligations of insurance providers. It’s the latest example of the state proactively trying to fill in perceived regulatory gaps where the Federal government has rolled back regulations. This of course has a direct impact on New York credit unions but also provides a template for those of you in states where policy makers may be itching to take similar steps.

In 2016, the Obama Administration Department of Labor expanded the fiduciary obligations imposed on individuals offering products under Title II of ERISA to any individual who offers investment advice for free, who is compensated in connection with a recommendation as to the advisability of buying, selling, or managing an investment product. See, 29 CFR §2510.3-21(a)(1).

Furthermore, this duty to offer fiduciary advice was triggered any time advice is directed to a specific recipient of such advice. Cut through all the legal mumbo jumbo and what the DOL wanted to do was protect consumers against buying insurance products they didn’t need based on advice which was not being offered to help them, but rather to help the broker make a sale. Its direct impact on most credit unions was limited unless they operated an insurance CUSO.

The financial advice investment industry went apoplectic over this new mandate. Last week, it scored an important victory when the Court of Appeals for the 5th Circuit ruled that the DOL exceeded its regulatory authority when it promulgated this rule. For example, the court noted that “The Rule expressly includes one-time IRA rollover or annuity transactions where it is ordinarily inconceivable that financial salespeople or insurance agents will have an intimate relationship of trust and confidence with prospective purchasers. Through the BIC Exemption, the Rule undertakes to regulate these and myriad other transactions as if there were little difference between them and the activities of ERISA employer-sponsored plan fiduciaries. Finally, in failing to grant certain annuities the long-established protection of PTE 84-24, the Rule competitively disadvantages their market because DOL believes these annuities are unsuitable for IRA investors.”

Which brings us back to the Empire State. Our Department of Financial Services has been concerned since President Trump took office that the Republican DOL would gut the regulation and with good reason it has already delayed its implementation. So in late December, the DFS proposed regulations which would extend best interest fiduciary obligations to individuals and companies that sell a broad range of insurance and annuity products. This proposal would have an even greater impact on credit unions than the DOL’s regulations were going to have since it applies to Credit Life insurance, one of the most common products offered by the industry. In making the proposal, the Governor explained that, “As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field.”

The DFS is in the process of reviewing comments on its proposal including a letter from the Association, pointing out the damage that the regulation could have for consumers and credit unions alike. It’s possible that proposed amendments will once again be published for comment.

March 28, 2018 at 8:54 am Leave a comment

What Your Credit Union Needs To Know About The GDPR And Why It Needs To Know It

One of the toughest questions I’ve dealt with since I’ve been with the Association is this seemingly straight forward one: Does my credit union have to comply with the GDPR and if so, what can we do? Impacted companies must be in compliance by May 18th. Keeping in mind that the opinions that I express belong to me alone and are not intended as a substitute for legal advice from a lawyer of your choosing, the purpose of this blog is to give you some further thoughts on the subject as well as to explain why I think the Facebook fiasco will ultimately make the GDPR more relevant to all of us. I apologize for its length but there’s no way to boil this down to a few paragraphs.

What is the GDPR? The General Data Protection Regulations (GDPR) are landmark requirements promulgated by the European Union, designed to give consumers firm control of their electronic data and give the European Union enhanced authority to impose these requirements beyond its borders. Violators face potentially severe penalties.

Why is the GDPR such a big deal? On a policy level it represents a totally different conception of the use and monetization of electronic information than has developed in this country. The US has allowed e-commerce to develop organically. The implicit premise has been that, in return for allowing companies like Facebook to easily access our information, consumers receive an enhanced e-commerce experience. In fact, this has happened.

Conversely, the GDPR represents a conception of personal information as the property of the consumer, control over which the consumer never completely surrenders. Under the European approach, at least in theory, members would know that their personal data was sent to Cambridge Analytica and could simply withdraw their consent for the company to use it.

How do the regulations accomplish this goal? By mandating that consumers affirmatively opt in to providing consent before giving away their personal information AND by mandating that companies be able to both transfer information to another company at a consumer’s request as well as remove a person’s electronic footprint. These rights are known as the “right to be forgotten” and the “right to portability.”

Does the GDPR apply to my credit union? This is the part of my blog that’s going to drive people nuts. On paper the answer is yes. As I explained in a previous post, Article 3, paragraph 1 of the Regulation stipulates that it applies to “the processing of personal data in the context of the activities of an establishment of a controller or a processor in the Union, regardless of whether the processing takes place in the Union or not.” So on paper the regulation extends to any institution processing and holding data belonging to a citizen of an EU country, regardless of where that consumer happens to be located. For instance, I talked to a downstate credit union that was surprised to find out it had more than a hundred accounts belonging to members who lived in the EU.

Why is this such a big deal? After all, some form of these mandates have already been in effect in Europe. For one thing, this is the first time Europe is trying to impose these mandates outside of its borders. In addition, I’ve read and been told by IT people that, without a serious investment of time and money, these nice sounding mandates are difficult to achieve. They require companies to have the ability to effectively disaggregate data even as more and more of it is being aggregated into the big data hodgepodge. After all, the more information Cambridge Analytica has about Facebook users, the more it can confirm correlations between the type of car they drive, the coffee they drink and their views on gun controls. (I made this example up, but this is exactly the type of research that’s being done).

Can I be sued for not complying with the GDPR? The more I look at the issue, the more I think that the GDPR is likely to become increasingly relevant to your credit union’s compliance efforts, not because of formal action taken against individual companies by the European Union but because courts in this country, rightly or wrongly, recognize the GDPR as the base line standard of care when it comes to protecting a person’s private electronic data. This could happen in one of two ways. First, the GDPR includes a private right of action for consumers who feel their rights under the regulations have been violated.

Secondly, appellate courts may, over time, accept the argument that in an interconnected world, where everything from an individual’s playlist to what they buy when they go shopping could very well be stored on a server in Ireland, it is reasonable to expect companies to recognize the GDPR as the standard of care to which they should be holding themselves.

And let’s keep in mind as legislators seek to react to Facebook and Cambridge Analytica, the GDPR represents a model upon which to create their own system of mandates.

How concerned should my credit union be? Again, this is my opinion, but let’s be a little practical. Regardless of what the EU claims, its ability and desire to impose fines on a credit union that has no physical presence in Europe or does not even advertise its services to Europe is highly questionable. Furthermore, the intent behind the regulation is to put large multi nationals on notice that, to the extent they do business in Europe, then they have to abide by the GDPR. On a practical level, given everything your credit union has to do, investing time and money to comply with the GDPR should be at the bottom of the list unless you actively interact with the European Union.

What’s the bottom line? Unless you are a very unique credit union, I wouldn’t panic about the approaching deadline but I would consider putting a GDPR policy in place since some of what the regulation requires includes measures that your credit union is already taking such as data breach notification protocols. In the medium to longer term, credit unions should be mindful of the GDPR and begin to think of ways that they could comply with its overarching mandates, if not its specific requirements.

The recent Facebook fiasco has finally made people realize that their private information is worth protecting and they’re going to demand that GDPR type restrictions be placed on all companies in financial institutions regardless of where they are located.

March 23, 2018 at 9:55 am 1 comment

New York CU Authorized To Offer Lease Escrow Accounts

The other day, one of my most helpful readers forwarded to me a copy of a NCUA legal opinion which provides good news to New York based credit unions and may provide a road map for credit unions in other states to follow.

First, some background. Interest on lawyer trust accounts (IOLTA) are escrow accounts that many states mandate attorneys establish in order to place a client’s funds in escrow. Prior to 2015, credit unions were extremely limited in their ability to offer such accounts because membership eligibility was based on the qualifications of each individual person who’s funds were being escrowed rather than the membership eligibility of the attorney opening the account. This meant that most credit unions could not provide the share insurance necessary to house such accounts.

Many readers may recall that all this changed in 2015 when Congress passed the Credit Union Share Insurance Parity Act permitting credit unions to offer IOLTA accounts so long as the attorney qualified for membership. If he or she did, then share insurance coverage would be passed through to the clients whose funds were being aggregated. Crucially, for purposes of this fascinating post, this statute not only permits credit unions to offer IOLTA’s but “other similar escrow accounts.”

Which brings us to the present day. On February 1st, NCUA sent this letter to ESL Federal Credit Union in New York, authorizing to offer escrow services for “lease security accounts.” Under New York law, landlords holding security deposits are required to place such deposits in escrow. See NY General Obligation Law §7-103 et. seq. The NCUA agreed with ESL Federal Credit Union that such accounts are similar to traditional IOLTA’s. At the same time it stressed that it’s “analysis does not apply to other similarly named accounts where the factual and legal circumstances differ, even slightly, from those presented in the subject instance. Rather, the conclusions reached in this opinion are expressly limited to the specific facts and circumstances surrounding the subject account.” Still, it’s a nice victory for New York Credit Unions and is clearly beneficial to other credit unions seeking to offer a similar product in other states.

CFPB Releases Servicing Reg Q&A

As a follow-up to my blog from the other day, I’m happy to report that the CFPB has released a helpful Q&A further explaining how financial institutions are to implement the successor in interest/bankruptcy regulations which take effect on April 19, 2018. I’m glad to see I’m not the only one more than a little confused about the seemingly straightforward requirements.

The Q&A is extremely helpful but it underscores that credit unions are not out of the woods when it comes to complying with both these regulations and the bankruptcy law. Here’s what I’m talking about. One of the questions asked is, “Does a servicer receive a safe harbor under the Bankruptcy Code by sending periodic statements in compliance with the Bureau’s rules?” The answer won’t exactly fill you with confidence: “A servicer does not receive a safe harbor under the Bankruptcy Code by sending periodic statements to a borrower in bankruptcy in compliance with Regulation Z, § 1026.41(e) and (f)” the Bureau explains because it does not have authority over the bankruptcy law. But it goes on to explain that, “Based on this research and outreach, the Bureau does not believe that a servicer is likely to violate the automatic stay by providing a periodic statement in circumstances required by § 1026.41(a) and (e) that contains the information required by § 1026.41(c) and (d) as modified for bankruptcy by § 1026.41(f).”

Translation: Get ready to push back against the attorney who accuses you of violating his client’s automatic stay.

March 21, 2018 at 9:07 am Leave a comment

Six Things You Need To Know From Last Week

Because of a tight schedule at CUNA GAC and some wrath-of-God weather at the end of the week, yours truly was only able to get out one blog last week. I have a lot to get off my chest and the following is a list of topics I reserve the right to follow up on in the coming days and weeks.

More Taxi Medallion Fallout

In case you missed it, First Jersey Credit Union was shut down by state regulators and the NCUA on Wednesday. Its assets were assumed by USAlliance Federal Credit Union based in Rye, New York. The credit union was done in by an excess of medallion loans. Medallions are currently valued well under $200,000. According to its website, the credit union is open to “Anyone who lives, works, worships or attends school in Bergen or Passaic County, areas of Essex, Hudson, or Union County and family members of existing members, is eligible for membership.”

CFPB Requests Information On Its Information Collection Processes

As someone who has been harshly critical of the CFPB’s use and publication of consumer complaints, this announcement warms my heart. “The Bureau of Consumer Financial Protection (Bureau) is seeking comments and information from interested parties to assist the Bureau in assessing potential changes that can be implemented to the Bureau’s public reporting practices of consumer complaint information.” The Bureau will be accepting comments for 90 days after publication in the Federal register.

Another CU ADA Lawsuit Dismissed

Let’s face it. Judging by the constant discussion of the issue in Washington last week, the industry is in a foamed-mouthed frenzy over ADA website lawsuits. So I’m happy to report that the argument that anyone seeking to sue a credit union must demonstrate they could become a member gained steam recently with another case out of Federal Court in Virginia, dismissing a lawsuit on standing grounds.

Study Calls For Review of BSA “Derisking” Practices

Are the risks of non-compliance with the Bank Secrecy Act severe enough that it is actually making it difficult for persons who live in high risk money laundering areas to obtain banking services? That is the suggestion of this GAO report which analyzed the availability of banking services along the Southwest border. In the coming months, if you see FinCEN reexamining some of its requirements, or regulators taking a closer look at financial institutions which choose not to provide banking services rather than comply with the BSA, this is why.

As Interest Rates Rise So Do Banker Complaints About Municipal Deposits

That is the gist of this article in the American Banker, which reports that banks are bracing for Municipalities to demand more deposit interests now that interest rates are on the rise. It seems to me that states like New York could benefit from increasing the number of institutions that municipalities could turn to for placing their money. After all, if banks truly don’t want municipal business, I’m sure we could find some credit unions that do.

And The Oscar Goes To…

 If you get a chance, you should watch the frontline documentary “Abacus: Small Enough To Jail,” which was nominated for an Oscar. It details the aggressive efforts of the Manhattan DA to prosecute the alleged malfeasance of a small community bank while doing nothing to take on the larger institutions responsible for the mortgage meltdown.


March 5, 2018 at 9:29 am Leave a comment

Sticks And Stones Will Break My Bones But Letters Will Never Hurt Me

Yesterday, CUNA and NAFCU sent a letter to Senator Orrin Hatch responding to the escalating tirade of the Banking Industry against “large” credit unions. I put large in quotes of course because a handful of banks in Manhattan hold more assets than the entire credit union industry combined and that’s not even talking about the other 49 states. Anyway, in many ways the banker’s latest attack is a sign of credit union success, not weakness.

Think of it this way, we just had the biggest tax overhaul since 1986 and not a single credit union issue gained serious traction. This is pure speculation on my part, but I view this latest round of banking recriminations as nothing more or less than a political consolation prize combined with a well-timed tirade to muddy up CUNA’s GAC. Let’s not let the bankers succeed. There are too many other important issues for the industry’s Grassroots lobbyists to get side tracked on debating tax issues.

The consolation prize was a letter from retiring octogenarian and Senate Finance Chairman Orrin Hatch questioning whether some credit unions have grown too big for their mission. For the record, in the heyday of the Regan era, Orrin Hatch was one of my favorite Senators. He was a thinking man’s conservative who wasn’t afraid to work with Democrats like Ted Kennedy do get stuff done. In short, he was the type of Senator who would get primaried out of today’s Republican Party. The letter penned under his name to NCUA is a strange letter to be sending out after your committee completed a tax overhaul.

Then there is the substance of the letter from 52 state banker representatives concerned that credit unions are subsidized by the American tax payer. I can be as cynical as the next guy but the idea that anyone in the banking industry is suggesting that the tax code favors credit unions to the detriment of the American public is beyond cynical. This is as bad as some of the pabulum being peddled on talk radio.

After all, the banking industry is one of the industries that most benefited from the recent tax changes but continues to shut down branches in underserved areas at a record pace. Remember too, that this is the industry whose biggest members are further subsidized in the form of an implicit too-big-to-fail bail out guarantee which makes their products cheaper and makes it tougher for smaller banks and credit unions of all sizes to compete against them.

The bottom line is this: Banker nonsense is here to stay. Let’s not let them side track us when there are so many core issues such as regulatory relief, cyber security, the restructuring of the CFPB and many other issues that have to be addressed in the short to medium term. And by the way, compliment CUNA for a job well done. Just because we didn’t have to send busloads of members down in a last second drive to protect our tax status doesn’t mean it wasn’t very much at risk.

Home Equity Tax Treatment Clarified

Yesterday, the IRS used one of its publications to clarify the deductibility of home equity lines of credit or second mortgages for home improvement projects under the new tax laws. As readers of this blog know, I have pointed out that recent amendments now restrict the deductibility of interest payments on these loans meaning that those of you who offer them should be prepared to see a decrease in the business as well as answer basic questions to confuse members. According to the IRS, even with the new tax limits, there are many instances when home equity loans will remain tax-deductible. This is one of the examples highlighted by the IRS, “Example 1:  In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000.  In February 2018, the taxpayer takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.”

Curling Hits The Big Time

I promised myself I was going to go an entire two weeks without bad mouthing the Winter Olympics but I can’t resist. It appears that the Russians are so desperate to pile up medals that even a mixed couple curling competitor has to use drugs. I don’t know if this person should be thrown out of the Olympics for using banned drugs or being so pathetic that he needs to take drugs to compete in a sport involving a sweeper and a large disc.

February 22, 2018 at 9:06 am Leave a comment

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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.

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