Posts filed under ‘Regulatory’

News Flash: Treasury Report is Worth Reading

No administration is truly complete without at least one Treasury Department Report calling for radical reforms to the banking system. They are like a Sean Spicer press conference: they generate lots of headlines and are sometimes entertaining, but they are almost always meaningless exercises.

The report released by the Trump Administration on Monday however proposes a series of changes for credit unions that are worth paying attention to. First, many of the proposals can be implemented without legislative action; Secondly, with the Trump administration being able to pick a new director of the CFPB next July, these proposed changes could be viewed as a blueprint for the type of reforms we could see under a Trump chosen director. Here is a best- of- list in which I am highlighting the reforms that would both impact credit unions positively and are actually achievable.

  • The report calls on NCUA to apply its risk based capital requirements only to credit unions with $10 billion or more in assets. Instead credit unions of all sizes should have a single leverage test.
  • Currently RBC requirements are scheduled to be imposed on credit unions with $100 million more in assets, starting in 2019.
  • The proposal calls for the CFPB to raise the threshold for compliance with Dodd-Frank’s ability to repay/qualified mortgage requirements from institutions with $2 billion in assets to those with assets somewhere between $5 and $10 billion. This is an example of the type of change we could see with a new director.
  • Treasury calls for the coordination of cybersecurity requirements.
  • Amen to that. Do we really want 50 different state and competing federal cybersecurity requirements?
  • The report endorses the expanded use of supplemental capital by credit unions. This clearly will provide further support to NCUA as it considers what authority it can give credit unions to use supplemental and secondary capital.
  • If I had to list one warning sign in the report, it is Treasury’s call to consider streamlining and coordinating regulatory activities. While this sounds harmless in theory, in practice it could open the door to elimination of the NCUA.
  • The report recommends raising the threshold for mandated credit union stress testing from institutions with $10 billion to $50 billion in assets.

On that note enjoy your day!


June 14, 2017 at 9:11 am Leave a comment

The ABC’s of MBL

Those of you who do MBL loans or who are thinking about doing MBL loans should take a look at this recent FAQ released by the NCUA in its Quarterly Report.

As readers of this blog know, on January 1st NCUA instituted a radical new approach to MBL regulation under which credit unions are given greater flexibility in shaping their MBL programs while examiners still retain the responsibility for making sure that credit union programs are designed and implemented in a safe and sound way. This approach is certainly worth trying, but it is a work in progress that requires credit unions not only to embrace their increased flexibility but their increased responsibility and examiners to distinguish between an inappropriate MBL program and a creative one.

As such, this FAQ is an important guidance which should be read in conjunction with NCUA’s Examination Guide. Most importantly, the guidance reiterates that there are baseline elements that examiners are expecting to see in an MBL program. For example, credit unions are not just expected to have relevant policies and procedures commensurate with the sophistication of their MBL programs but also personnel qualified to manage these programs.

I continue to get questions about whether NCUA expects credit unions to continue to get personal guarantees when making commercial loans. So I was happy to see NCUA explain that “in those cases where there are strong mitigating factors” a credit union is not required to get a personal guarantee, but should detail in writing why it decided that a guarantee was not necessary.

Curmudgeons like myself have always been concerned that, just as credit unions now have greater flexibility in administering their MBL programs; examiners also have greater flexibility in curtailing credit union practices on safety and soundness grounds. As a result clear and consistently applied guidance is absolutely crucial if this bold experiment is going to succeed. The FAQ explains that the primary sources for credit unions implementing MBL programs are the proposed and final rules and their preambles, as well as the updated commercial and MBL section of the examiners guide.

The NCUA also explains what steps credit unions should feel free to take when they disagree with an examiners assessment pertaining to their MBL program. I have been around credit unions long enough to know that some of you read that last sentence and snickered out loud (SOL), but seriously, for this new approach to regulatory oversight to work credit unions can’t be afraid to engage in a dialogue with their examiners about their MBL practices.

SC Decides Important Debt Collector Case

Yesterday, the Supreme Court unanimously upheld a narrow interpretation of the Fair Debt Collection Practices Act (FDCPA). The court ruled that Santander Bank was not subject to the FDCPA after it purchased delinquent car loans.

Incidentally, for you legal geeks and grammarians the decision was the first written by Neil Gorsuch and included a discussion of the past participle.

June 13, 2017 at 10:24 am Leave a comment

Three Things To Ponder In the Week Ahead

Here are three things you should know as you snap back from reality following a sunny and dry summer weekend;

  • The Washington Post is reporting that Fannie Mae will begin raising its maximum debt to income ratio from 45 percent to 50 percent, beginning July 29, 2017. This is of course big news for those of you who provide mortgages because it expands the pool of member mortgages that can be sold to the secondary market. Also, remember that under the Dodd-Frank Act any mortgage that qualifies for sale to either Fannie Mae or Freddy Mac is a qualified mortgage. This is a big deal because without this, under the qualified mortgage requirements, the debt to income ratio cannot exceed 43 percent per the CFPB.
  • If all goes as expected, the Federal Reserve will once again nudge interest rates higher when its policy making committee meets later this week. Personally, I am really looking forward to Federal Reserve’s Chair Janet Yellen’s press conference following the festivities. The economy continues to send out a string of mixed signals and it will be interesting to see how much she hedges her bets when it comes to the possibility of future rate hikes later in the year.
  • The Wall Street Journal is reporting that the Treasury Department may release as early as today, a 150 page blue print for Regulatory Relief. Among the executive orders signed in the early days of the Trump Administration, was one requiring that the Treasury Department report on potential areas of regulatory reform. While the report has no legally binding impact, it will provide an indication about the top regulatory relief priorities of the administration. Incidentally, the report will not call for the elimination of the CFPB’s single-director structure, but will instead propose that the position be answerable to the president. If it comes out today, I will of course be skimming it as I watch game 6 of the NBA finals, to tell you what is in there about credit unions tomorrow morning. I hope the anticipation doesn’t keep you awake tonight.

On that note enjoy your day!

June 12, 2017 at 8:19 am Leave a comment

Are You Really Ready For Remote Deposit Capture?

One of my compliance pet peeves has been the rush to embrace remote deposit capture without a clear framework for apportioning liability. “Check 21” authorized “substitute checks” which are truncated electronic images of paper checks that are treated as real checks. The idea was to speed up settlements between banks.   At the time no one envisioned a world in which your average consumer would have the ability to create electronic images with a smartphone. As a result, what happens if a credit union receives a deposit of an original paper check that was returned unpaid because the check was previously deposited using a remote deposit capture service and paid?

So I was pleasantly surprised that the Federal Reserve finally approved regulations slated to take effect in July 2018 which updated regulation CC for the new century. There is a lot of important stuff in here so in the coming weeks I will be periodically highlighting some key changes as well as an additional proposal the Fed is seeking comment on. Remember this impacts your credit union irrespective of its size.

A new section 229.34 addresses this precise issue and I’m quoting extensively from the accompanying commentary:

“Depositary Bank A offers its customers a remote deposit capture service that permits customers to take pictures of the front and back of their checks and send the image to the bank for deposit. Depositary Bank A accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in turn, pays the check. Depositary Bank A receives settlement for the check. The same customer who sent Depositary Bank A the electronic image of the check then deposits the original check in Depositary Bank B. There is no restrictive endorsement on the check. Depositary Bank B sends the original check (or a substitute check or electronic check) for collection and makes funds from the deposited check available to its customer. The customer withdraws the funds. Paying Bank returns the check to Depositary Bank B indicating that the check already had been paid. Depositary Bank B may be unable to charge back funds from its customer’s account. Depositary Bank B may make an indemnity claim against Depositary Bank A for the amount of the funds Depositary Bank B is unable to recover from its customer.”

Does all this mean that you are at the mercy of your member? Not entirely. The commentary goes onto explain that if the original check deposited in Bank B contained a restrictive endorsement “for mobile deposit at Depositary Bank A only” and the customer’s account number at Depositary Bank A. Depositary Bank B may not make an indemnity claim against Depositary Bank A because Depositary Bank B accepted the original check bearing a restrictive endorsement inconsistent with the means of deposit.

What all this means on a practical level is that you may want to limit access to remote deposit capture to your more seasoned members. Remote Deposit Capture is the future but it’s also ripe for abuse. The new regulations make clear that the credit union offering the service is ultimately vouching for its member’s trustworthiness.


June 8, 2017 at 9:28 am 1 comment

Lake Thoughts for Your Thursday AM

Greetings from the Sagamore on Lake George where the Association is hosting its 100th anniversary. I’m more of a Hamilton than a Jefferson guy but TJ was spot on when he called Lake George “without question” the most beautiful water he had ever seen.

The need to help people of modest means strive for financial security is as pressing today as it was 100 years ago. What has changed is the economy. Here is a factoid from today’s NY Times: a study of 250,000 bank accounts by JP Morgan/Chase Institute found that 80% of households face a mismatch between income and expenses in a given month. The break-even point is about $105,000. Translation: There are many middle class folks out there for whom every penny counts and for whom cost effective banking is a real life saver.

The nation has become so entangled in regulations that rural parts of the country are finding it hard to find enough qualified appraisers to get mortgages processed in a timely manner. Who knew?

Since 1989. presumably in response to the S &L crisis, federal law has required states to set minimum standards for appraisers and appraisals. Over the last two and a half years these requirements have been a bone of contention for lenders in rural communities who argue that licensing requirements are overly burdensome, particularly in the age of Zillow.

A joint guidance issued yesterday by federal financial regulators including the NCUA highlights two existing options that may address appraiser shortages, particularly in rural areas:  a temporary practice permits and temporary waivers.

First, federal law generally requires the state appraiser certifying or licensing agency to recognize the certification or license of an appraiser issued by another state on a temporary basis. As a result, subject to certain exceptions,  practice permits could allow state certified or licensed appraisers to provide their services in states where they are not certified or licensed, including those experiencing a shortage of appraisers.

In addition, federal law already permits the FFIEC to grant a temporary waiver from state licensing requirements in geographic areas where a shortage of appraisers has led to “significant delays” in appraisal shortages.  Requests for waivers  can be made by:

  • A federal bank regulatory agency;
  • A regulated financial institution or credit union; or
  • ther persons or institutions with a demonstrable interest in appraiser regulation.

On that note, I hope to see you over the next few days.

June 1, 2017 at 7:52 am 1 comment

McWatters to Cordray: Do more to help CUs


NCUA board chairman H. Mark McWatters yesterday sent out a forceful letter to Richard Cordray urging him to categorically exempt credit unions from many of the pending HMDA mandates, and called on it to clarify the scope of its Unfair and Deceptive Acts and Practices (UDAP) powers in guidance or regulations. This letter is proverbial music to the ears for those of us who believe that the benign dictator of consumer finance and former supreme court clerk has either been too cautious or too unwilling to utilize his authority to exempt credit unions from Dodd- Frank mandates.

Here is my favorite quote; “Section 1022(b)(3)(A) of the Dodd-Frank Act, provides that the bureau may exempt any class of persons, service providers or consumer financial services from certain regulations. Use of this permitted, yet underutilized statutory authority is appropriate to address compliance costs and the unintended consequences of limiting access to affordable financial services for many millions of middle class credit union members, through the enactment of needless regulatory burdens.”

Specifically he would like to see the threshold for HMDA compliance, which the Bureau has already raised, further increased. The Bureau’s UDAP powers have allowed it to regulate through litigation even as it hesitates to promulgate new regulations in the Age of Trump. So NCUA is spot on in urging the Bureau to explain how exactly it interprets its authority under Dodd- Frank.

WWF Politics

This has absolutely nothing to do with CUs but I couldn’t resist commenting on this bizarre story, involving a Republican Congressional candidate who apparently body slammed a reporter who had the audacity to question him about healthcare costs. Now, if America wasn’t going insane, I would say that an individual capable of responding to issues of public concern, with acts of violence, isn’t qualified to serve in the US Congress. But in an age when politicians describe newspapers as fake news I’m not so sure what the outcome of this Montana special election will be. It makes me wonder; what Thomas Jefferson would say?

May 25, 2017 at 8:54 am Leave a comment

BS(A) Strikes Again


What would happen to your credit union if federal regulators and prosecutors determined that over a five year period you processed over 30 million remittances to Mexico, assigned two employees to monitor these transactions, filed a total of 9 SARS, ignored employee concerns that you were violating federal law, and then admitted to “willfully violating” The Bank Secrecy Act? I’ll tell you what would happen: Your credit union would be out of business, your top executives would be banned from the industry, and you might even find yourself on the front page of the Wall Street Journal. After all, Bethex Federal Credit Union no longer exists.

Unfortunately evidence suggests that the same rules don’t apply to the largest institutions. Yesterday the justice department announced that it was entering into a non-prosecution agreement with Banamex USA, a subsidiary of Citigroup, to settle claims that it violated the Bank Secrecy Act from 2007-2012 by facilitating remittance transfers to Mexico without complying with some of the most basic requirements of the Bank Secrecy Act. The price of its “get-out-of-jail free” card is $97.4 million. This is in addition to the earlier fines paid to the FDIC. Citgroup has also announced that it was shutting down the offending bank’s operations- better late then never, I guess.

The bank’s intentional oversight had real live consequences as the Non Prosecution agreement explains. “As a result of these compliance program failures, BUSA failed to file suspicious activity reports (“SARs”) on suspicious remittance transactions to Mexico that fit typologies consistent with illegal activity, such as human smuggling, fraud, and drug trafficking.”

It is hard not to be cynical when reading this news. Over the decade I have been working with credit unions, I have been impressed by the earnestness with which most of them strive to comply with regulations even as some of these mandates are clearly not designed for institutions of their size and sophistication. Not all regulations make sense but they are the price we pay for participating in a well-functioning financial system.

But if the institutions for which BSA regulations were primarily intended can get by with a slap on the wrist for knowingly ignoring the law and making a big profit along the way it is kind of hard to tell credit unions with a straight face that they should take their obligations seriously.

One final thing, the big losers here are of course not the credit unions, but the American citizens. We have heard a lot about building walls and bad hombres, but when it comes to prosecuting banks engaging in reckless activities that help facilitate actual crimes the Justice Department goes silent under both democratic and republican administrations. Too big to fail, jail, and regulate is alive and well.



May 23, 2017 at 9:11 am 1 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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