Posts filed under ‘Regulatory’

UPDATED Consumer Groups Wrong to Oppose Fintech Charter

fintechWhen it comes to financial innovation, the financial industry can either lead, follow or get blown away;  nevertheless Consumer groups are opposing  OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking services. Keeping in mind that the views I express in this blog are mine and mine alone, their reactionary opposition to the proposal envisions a world that does not exist and minimizes the important role technology can and ultimately will play in bringing services to the almost 20 percent of American’s who are underbanked.

In December, the OCC released a white paper outlining a framework for providing Special Purpose Charters to technology companies offering financial services. At this point we are dealing with a very general overview. The OCC contends that it can use its power to authorize special purpose banks to grant fintech charters to technology companies that want to offer core banking services, including, receiving deposits, paying checks or lending money. Depending on which one of these a company wants to take on, it may not even need deposit insurance.

Consumer groups and some legislators are concerned that this framework will permit payday lenders to offer their products even in states such as New York, where usury laws make payday loans illegal. In a recent letter signed by a large array of consumer groups including Arcade Credit Union, critics of this proposal argue that, as presently drafted “ the OCC , with the stroke of its pen, will put millions of people and years of state level enforcement at risk of exploitation by high cost lenders”. In addition, they argue that by giving these corporations a federal charter, state level enforcers, including AG’s will not have the ability to appropriately regulate their activities.

It is these types of well-intentioned but misguided arguments that drive me nuts about consumer groups. The world is not perfect. Even though there will undoubtedly be some companies that take advantage of a fintech charter to offer Payday Loans, this legitimate concern has to be weighed against the very real value of a more efficient banking system. For example, a fintech charter would make transactions cheaper by allowing corporations to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a branch. If our goal is to help as many people as possible get banking services, then technology is the way to do it.

Finally, and most importantly the ship is leaving with or without regulation. fintech charters make sense, if only because anyone under the age of 30 is much more likely to use a mobile banking app than a branch.

One more thing, some of the same groups that are arguing against the fintech charter are the same groups supporting the CFPB’s Payday Loan Proposal. It seems to me that they can’t have it both ways. Either state level regulation of Payday Lending is adequate, in which case there is no need for national standards, or state regulation of payday lending can already be circumvented by consumers in need of a short term loan. I strongly suspect the latter is closest to the truth. Why should a framework that doesn’t work be used to block financial innovation?

January 17, 2017 at 10:37 am Leave a comment

fintechWhen it comes to financial innovation, the financial industry can either lead, follow or get blown away;  nevertheless Consumer groups are weighing in in opposition to   OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking services. Keeping in mind that the views I express in this blog are mine and mine alone, their reactionary opposition to the proposal envisions a world that does not exist and minimizes the important role technology can and ultimately will play in bringing services to the almost 20 percent of American’s who are underbanked.

In December, the OCC released a white paper outlining a framework for providing Special Purpose Charters to technology companies offering financial services. At this point we are dealing with a very general overview. The OCC contends that it can use its power to authorize special purpose banks to grant fintech charters to technology companies that want to offer core banking services, including, receiving deposits, paying checks or lending money. Depending on which one of these a company wants to take on, it may not even need deposit insurance.

Consumer groups and some legislators are concerned that this framework will permit payday lenders to offer their products even in states such as New York, where usury laws make payday loans illegal. In a recent letter signed by a large array of consumer groups including Arcade Credit Union, critics of this proposal argue that, as presently drafted “ the OCC , with the stroke of its pen, will put millions of people and years of state level enforcement at risk of exploitation by high cost lenders”. In addition, they argue that by giving these corporations a federal charter, state level enforcers, including AG’s will not have the ability to appropriately regulate their activities.

It is these types of well-intentioned but misguided arguments that drive me nuts about consumer groups. The world is not perfect. Even though there will undoubtedly be some companies that take advantage of a fintech charter to offer Payday Loans, this legitimate concern has to be weighed against the very real value of a more efficient banking system. For example, a fintech charter would make transactions cheaper by allowing corporations to offer services directly to consumers rather than work with a middle man. In addition, research indicates that the unbanked and underbanked are much more comfortable using a smart phone then going into a branch. If our goal is to help as many people as possible get banking services, then technology is the way to do it.

Finally, and most importantly the ship is leaving with or without regulation. fintech charters make sense, if only because anyone under the age of 30 is much more likely to use a mobile banking app than a branch.

One more thing, some of the same groups that are arguing against the fintech charter are the same groups supporting the CFPB’s Payday Loan Proposal. It seems to me that they can’t have it both ways. Either state level regulation of Payday Lending is adequate, in which case there is no need for national standards, or state regulation of payday lending can already be circumvented by consumers in need of a short term loan. I strongly suspect the latter is closest to the truth. Why should a framework that doesn’t work be used to block financial innovation?

January 17, 2017 at 9:38 am Leave a comment

NCUA on exam cycles; NYS names Banking Chairs; Sessions likely to crackdown on legal Pot

NCUA Details Extended Exam Cycle

In case you missed it, recently NCUA released a letter to credit unions detailing changes to its examination cycle for both federal and federally insured credit unions.

There hasn’t been much good news for state charters recently, let me tell you some. Unless your credit union meets any one of the following criteria you will receive an NCUA evaluation not less than every five years.

  • Assets greater than $1 billion;
  • Composite NCUA CAMEL code 4 or 5 with assets greater than $50 million; or
  • Composite NCUA CAMEL code 3 with assets greater than $250 million

In addition, a working group is being formed to consider ways to further improve the examination process as it relates to state chartered credit unions. Any steps designed to decrease NCUA’s oversight of state charters are welcomed. As readers of this blog will know, yours truly has complained that NCUA has moved so aggressively to oversee the activities of these institutions that it has diminished the value of a state charter.

As for federal credit unions, they will be eligible for extended exam cycles that begin 14 to -20 months after the prior exam completion date. To be eligible for the extended cycle, a federal credit union must have:

  • Assets less than $1 billion;
  • CAMEL code 1 or 2, in both the composite rating and the management component rating;
  • “Well capitalized” under prompt corrective action (PCA) regulations;
  • No outstanding documents of resolution (DOR) items related to significant recordkeeping deficiencies; and
  • Not operating under a formal or informal enforcement or administrative order, such as a cease and desist order (C&D), letter of understanding and agreement (LUA), preliminary warning letter (PWL), or a PCA directive

 New Banking Chairs named

A new session triggers a game of political musical chairs as members jockey to take the helm of key committees. This year is no exception. There are two new faces that credit unions in New York State will be working with more closely over the next two years..

Senator Jessie Hamilton, the newest member of the IDC, representing the 20th Senate District in NYC, has taken the helm of the Senate Banks Committee. He replaces fellow IDC member, Senator Diane Savino, who is moving on be Vice-Chair of the powerful Senate Finance and Code Committees. Savino has been a good friend to credit unions and we wish her the best in her new assignments.

Over on the assembly side, Kenneth P. Zebrowski, was named Chair of the Banks Committee, replacing retired Assemblywomen, Annette Robinson. Zembrowski becomes the first Chairman of the Assembly Banks Committee from outside of the five boroughs in at least twenty years.

Senator Sessions: I’ll enforce Pot Laws

At his senate confirmation to be the US Attorney General, Alabama Senator Jeff Sessions strongly suggested that he would take a stronger stand against states with legal marijuana businesses then has the current justice department. According to this article , when Sessions was asked if he would continue the Obama Administration’s “don’t ask, don’t tell” policy (my characterization) on illegal drugs, the Senator responded “It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws as effectively as we’re able,” said Sessions, adding that “Congress was entitled to change federal law if it so desired.”

Enjoy your day!

January 12, 2017 at 9:28 am Leave a comment

Why Flood insurance is About To Get More Complicated

floodComments are due today on proposed regulations implementing one of the most important provisions of the Biggert-Waters Act. This is an example of a regulation that may be a wolf in sheep’s clothing.

Here is why. The federal law is designed to spur the growth of a truly competitive flood insurance market by allowing insurance companies to sell their own flood insurance directly to the consumer. Since 1993, insurance companies have been allowed to effectively act as agents for the program by selling National Flood Insurance Program policies.  Federal law now mandates that lenders must accept private flood insurance so long as the insurance meets NFIP standards.  The question is who is going to be responsible for making the determination that policies meet the necessary requirements? And who is going to be on the hook in the event that such policies do not? Which brings us to the regulations that are currently being considered.

The final mandate should include a “Safe Harbor” lobbied for by the industry.  Under this approach, insurance companies would certify to lenders that their policies meet federal requirements and insurance companies would be on the only ones on the  hook when an irate member calls after experiencing a natural disaster and finds out that their coverage is inadequate.

Regulators are squeamish about this approach; instead, they want to provide lenders a “compliance aid.” The regulations would give credit unions the option of mandating that a private flood insurance policy includes a written summary that demonstrates how the policy meets NFIP’s requirements by identifying the relevant provisions. They could also mandate the inclusion of a  “provision or endorsement” that the policy meets the definition of flood insurance.  Unfortunately  the regulations also  require that credit unions verify in writing that the identified provisions satisfy the definition of flood insurance.  This qualifier, if it remains, in the regulation, means that your credit union will have to have the expertise to independently verify that a policy meets the  National Flood Insurance criteria.

In other words, in order to expand the use of truly private flood insurance regulators are proposing that lenders  be placed in a  Heads I win Tells you Lose situation:  They will face heavy fines for refusing to accept valid flood insurance and face the possibility of lawsuits in the event that they accept flood insurance which ultimately doesn’t meet the criteria as mandated by the NFIP.

In fairness to the regulators, NFIP insurance is a very unique animal. Almost all insurance is regulated on a state-by-state basis. In contrast the NFIP has always been administered by the federal government. But this very unique aspect of the program doesn’t explain why regulators aren’t willing to give lenders a complete Safe Harbor to the extent that they rely in good faith on insurance companies’ representations. After all, insurance companies and the federal government are the experts when it comes to this insurance, not lenders.

January 6, 2017 at 9:53 am Leave a comment

New York Amends Cyber Security Proposal

cyberI’m back and ready for  a year that promises to be  a blogger’s dream come true.

On December 28th, New York’s Department of Financial Services reissued its proposed Cybersecurity Program Requirements which are to be phased in starting in March.

Although the amendments are designed to clarify that entities covered by these regulations (a category that would include state chartered credit unions and CUSOS incorporated pursuant to State Law) can develop policies that reflect individual risk assessments, it remains to be seen whether these changes will go far enough to assuage the concerns of insurance companies, banks and credit unions that will have to comply with these “First in the Nation “requirements.  Remember these regulations only apply to state chartered institutions, but may very well provide a template for other states across the nation.

First the good news. The exemption from these regulations (proposed section 500.19) has been expanded; it now includes an organization with fewer than 10 employees or less than $ 5,000,000 in gross revenue in the last three years. The previous exemption only applied to entities with fewer than 1,000 customers in each of the last three calendar years.

The proposed regulation has also been amended to clarify that an organization’s policies and programs are to be based on its risk assessment. While this helps, the Department refused to clarify the extent to which compliance with federal standards can satisfy these regulations.

The amendments also clarify that a covered entity can satisfy these regulations by using an affiliate’s cybersecurity program. In other words, a state charter with a CUSO can use a single program so long as it applies to both entities.

A huge issue, particularly for larger institutions, is the state’s proposals requiring institutions to encrypt nonpublic information that is not being transmitted. I have conversed with a couple of techies about this. They argue that when information is being stored on a secured system it shouldn’t be subjected to the same encryption requirements as data being transmitted. Show revised section 500.15 to your IT people and see if the proposed changes go far enough to address these concerns.  Yours truly is by no means an IT expert, nor does he play one on TV.

There is still plenty in here to make institutions moan. For example, covered entities will still have to have to undergo cybersecurity training.

Happy New Year!

 

January 3, 2017 at 9:51 am Leave a comment

What’s Next for New York’s Abandoned Property Requirements?

abandoned-propertyIt may be the week before Christmas but it’s shaping up as a busy time in the state.

Tomorrow, NY’s abandoned property regulations take effect.  This blog is intended as a guide to help you  understand your credit union’s  obligations. It is  not intended  as a substitute for reading the regulation.

3 NYCRR 422 has two components that are of major concern to you if your credit union does mortgages. First, there is the requirement to maintain abandoned property upon which you hold a mortgage lien even if you have not yet foreclosed on it.  As finalized ,  the vast majority of credit unions will be exempt from the maintenance requirements BUT

Your credit union must apply for the exemption based on numbers provided by the state. The state will tell everyone the  total number of residential real property mortgages originated in the State during  2014.  Take a look at the exact formula, but the basic idea is you will divide that number by the number of mortgages issued in the state by your  credit union during that calendar year.  Only credit unions and banks   that originated serviced and\or maintained or serviced more than three-tenths of one percent of the mortgages originated in the state must comply with the maintenance requirements. It is up to your credit union to submit a form-to be provided by DFS-explaining why your credit union is exempt.  The final regulations pushed back the deadline until Feb 28 which is a good thing because the exemption numbers haven’t been released yet.

There is a second mandate that applies to all credit unions. The new 3 NYCRR 422.4 requires that, effective tomorrow,  Within twenty-one business days of when a mortgagee or mortgage loan servicer of a property learns, or should have learned, that a property is vacant and abandoned, the mortgagee or mortgage loan servicer shall submit information including the location of abandoned property to the DFS.  The information will be used to update the State’s abandoned property registry.  No one is exempt from this  reporting  requirement  BUT only credit unions and banks that have to maintain  abandoned property must provide a quarterly report to the DFS.

If you are not exempt from the maintenance requirements than get ready to report to DFS on a quarterly basis the number of loans you hold that are 90 days or more delinquent and the steps you have taken to identify the  property as vacant or abandoned. Hopefully the state will provide a little more guidance and clarify that institutions only have to report on houses that  are  or could be abandoned as opposed to report on all loans  that are ninety days delinquent .  The two are not synonymous.

On that note enjoy your day.

December 19, 2016 at 8:54 am Leave a comment

Ben Carson Could Reshape Mortgage Lending Laws

bencarsonThe selection of Ben Carson as the Trump Administration’s nominee to be the Secretary of Housing and Urban Development (HUD) puts the former Johns Hopkins neurosurgeon turned conservative presidential candidate in a position to decisively and quickly reshape the fair lending landscape in a way that will make it easier for your credit union to deny mortgage loans without fearing a lawsuit.

HUD is responsible for enforcing the Fair Housing Act. As I’ve written in previous blogs, it interprets this law in its regulations as prohibiting lending practices that are intentionally discriminatory as well as those that have the effect of discriminating on the basis of someone’s protected status.

HUD has been steadfast in holding to this interpretation even as it has faced challenges questioning the propriety of its interpretation. For example, in 2013 it issued an updated interpretation of its analysis. At the time, it was assumed that the Supreme Court would be taking a look at how the FHA should be interpreted. HUD also refused to exempt lenders who make Qualified Mortgages that comply with CFPB’s regulations from possible enforcement actions if their Qualified Mortgages had a discriminatory effect on mortgage lending to minorities.

It’s always dangerous to speculate about what will happen in a Trump Administration and perhaps even foolhardy to speculate about the policy predilections of Dr. Carson, who has no formal background in this area, but I’m feeling lucky. I expect him to reexamine and narrow HUD’s interpretation of the Fair Housing Act. Conservatives believe that intent matters. Criminalizing lawful conduct because of its incidental impact is a recipe for regulatory overreach that deters lenders from making reasonable judgements about who can and can’t afford a home.

December 7, 2016 at 9:10 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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