Posts filed under ‘Regulatory’
I fully expected to tell you this morning that the CFPB was once again getting ready to wallop you with regulations by imposing new notice and collection restrictions on creditors with the audacity to collect debts from delinquent borrowers. The Fair Debt Collection Practices Act is a federal law that regulates the conduct of third-party debt collectors (i.e. not your frontline debt collector but the party you sell or outsource your debt collection efforts out to when you have given up all hope of collecting anything from your member).
This day still may come but, having just gone over the material, my first take is that credit unions received a stay of execution.
Today, when the CFPB outlines its proposals for enhanced regulation of debt collection, it won’t be seeking to make creditors subject to the FDCPA. In addition the Bureau is publishing an outline of its potential proposals instead of proposing a new regulation. It will take several more months before a regulation is even proposed. (A chart on page 12 outlines the major components of its proposal).
But not all is copasetic. Some of the Bureau’s proposals unveiled today would have an indirect impact on those of you who use third-party collectors.. More importantly, the Bureau signaled that it will most likely begin a separate regulatory process to address how best to regulate creditor collection activities In his prepared remarks the Director promises “ As part of our overhaul, we also plan to address first-party debt collectors soon, but on a separate track.”
I can hardly wait. It’s almost as exciting as seeing what hacked email Donald Trump coaxes Russia to release next. Still I’m extremely surprised that the CFPB has held its fire.
According to the CFPB it’s considering regulations that would Require debt collectors to “substantiate,” or possess a reasonable basis for, claims that a particular consumer owes a particular debt and impose higher standards for substantiating debts that are litigated; Mandate the transfer of information when a debt is transferred between debt collectors; and create a new and improved FDCPA validation notice and a Statement of Rights provided by debt collectors “to provide consumers with the most critical information needed to determine whether they owe a particular debt and to navigate the debt collection process more generally.”
After all no CFPB proposal would be complete without new and improved disclosures.
Last week I highlighted financial issues in the Republican platform and with the Democrats set to kick off their reality TV show called the National Convention, today here are some of the intriguing tidbits in their platform.
If you just arrived from another planet, you would think that post offices, not credit unions or community banks, are the key counterweight to a banking industry run amok. The financial service offerings of post offices were mentioned in two separate parts of the party’s platform. In one section the Democrats want to help save the Post Office by, among other things, allowing them to offer basic financial services such as check cashing.
In another section dedicated to reigning in Wall Street and fixing our financial system, the platform explains that “Democrats believe that we need to give Americans affordable banking options, including by empowering the United States Postal Service to facilitate the delivery of basic banking services.”
Now, there are some who believe that expanding the authority of Post Offices is a win-win for the American taxpayer. They argue that since all communities have a post office, by allowing the service to provide banking services, perhaps including small dollar alternatives to pay-day loans, all Americans would be assured access. They also argue that the Postal Service has to be preserved even as it is made increasingly anachronistic by technology. Either way, it looks as if credit unions will be competing for political oxygen not only against banks, but the mailman.
Other highlights of the Democratic platform include: calling for an updated version of Glass-Steagall and “breaking up” too big to fail financial institutions that pose a systemic risk to our economy. Democrats implicitly called for the preservation of an active public role in housing. For instance, they support preservation of the 30 year fixed mortgage, “modernizing credit scoring, expanding access to housing counseling, defending and strengthening the Fair Housing Act and ensuring that regulators have a clear direction” and authority to enforce rules effectively.
Finally, while Republicans support major reform of the CFPB, Democrats view defending its current structure as an important means of defending the housing rights of Americans in general and minority communities in particular.
High Priced Mortgage Loan Appraisal Exemption Clarified
Pursuant to the Dodd-Frank Act, special appraisal requirements are mandated for higher-priced mortgage loans. Starting in January of 2014, the banking agencies, including the NCUA, exempted mortgage loans of $25,000 or less from these requirements. Regulations have been introduced to clarify the method by which this threshold is adjusted for inflation.
My time for posting a blog today is running a little short, courtesy of Albany’s woefully inconsistent transportation system. For me, Uber can’t come soon enough. But I wanted to give you a heads-up on a Q&A guidance issued by FINCEN yesterday clarifying the Customer Due Diligence requirements obligations of financial institutions that open accounts for entities such as corporations and trusts with beneficial owners. The rule has taken effect but you have until May 11 , 2018 to comply.
To demystify this regulation it’s important to put it in context. There have been a series of articles in the New York Times reporting on how corporations often act as fronts for shall we say, individuals with questionable backgrounds. Setting up corporations to open up accounts where ill-gotten gains can be stored and from which a Manhattan penthouse can be purchased is a classic form of money laundering. After all, public pensions only go so far and any prudent dictator has to put aside funds for safe keeping in the event of an ill- timed coup. In addition, businesses can be controlled by persons not readily identifiable.
It didn’t get all that much attention in the compliance world but in May FINCen finalized regulations requiring credit unions and banks to extend account opening customer identification due diligence procedures to the beneficial owners of legal entities. The Q & A is intended to further clarify these obligations.
By the way, a beneficial owner is:
“each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong); and a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions (i.e., the control prong). This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured. ”
Hoping your journey to work was better than mine, your faithful blogger wishes you all a good day.
There were several foreclosures and transfers in May and June with one medallion going for as low as $405,000 and another selling for $610,000. Remember that this is an industry where, until a couple of years ago, foreclosures were as rare as a show of humility by Donald Trump.
Keith Leggett predicted in his Credit Union Watch blog that “These transactions indicate that credit unions with New York City taxi medallion loans will likely see an increase in delinquencies, troubled debt restructured loans, and charge-offs.” We really won’t know the full extent of the damage until we know whether or not medallion prices are at their nadir. Stay tuned
NY Fine tunes Direct deposits You may want HR to take a look at regulations proposed by NYS’s Department of Labor addressing , among other things, the use of Direct Deposit by employers
Fed OK’s KeyCorp\First Niagara Merger
The inevitable consolidation of the financial services industry is on track to continue as the Federal Reserve Board approved the merger of Buffalo based First Niagara into Ohio based KeyCorp.
Two days ago Bloomberg news reported that Senator Schumer, who had expressed reservations about the merger, signaled he was no longer opposed after KeyCorp agreed to cut no more than 250 jobs and to hire at least 500 people in the next three years. The deal will make KeyCorp the 26th largest bank in the US and will have a direct impact on New York. The Albany Times Union reported that the merger will result in the closure of 30 branches with 18 closing as early as October .
By the way, in reviewing the impact that the merger would have on financial services in the Buffalo area the Fed noted that “nine credit unions exert a competitive influence in the Buffalo market. Each institution offers a wide range of consumer banking products, operates street-level branches, and has broad membership criteria that include almost all of the residents in the market.”
So let me get this straight. According to the Banking industry, Credit union competition is a bad thing which is why, for instance, NY municipalities shouldn’t be allowed to place taxpayer money in credit unions; but if it helps banks become larger, credit union competition is a good thing. Got it.
Just how much money will those 250 new employees be making? JP Morgan CEO Jamie Dimon announced Tuesday that the bank would be raising the minimum salary of its employees from $12 to $16.50 an hour depending on where they work. Dimon explained that “Wages for many Americans have gone nowhere for too long.” What a guy!
Score on for Bernie Sanders on this one.
In 2015, NCUA reacted to risk-weighting imposed on banks under the BASEL III framework by creating a capital risk-weighting system for federally insured credit unions with $100 million or more in assets. Wouldn’t it be funny if by its effective date in 2019, regulators and policy makers decide that the whole risk-weighted approach to protecting against systemic risk makes no sense, or, at the very least, needs to be substantially reformed? This could happen. Over the last month:
- Jeb Hensarling (R), Chairman of the House Finance Committee, proposed giving banks mandate relief from certain Dodd-Frank requirements in return for maintaining a 10% leverage ratio in which a firm’s capital is measured against its assets without including risk-weightings in the calculation.
- Federal Reserve Chairwoman Yellen indicated that she also supported higher capital requirements in return for simpler regulation, but added that the option should be open to community banks.
- And, an influential European advisory board urged regulators last Friday to use a leverage ratio as a primary means of measuring a bank’s capital strength instead of risk-weighted assets.
To me, this growing realization that risk-weightings may not be the best way of gauging capital adequacy comes in the better late than never category. Between World War I and World War II, the French built a huge trench called the Magnot Line to protect themselves against future German attacks. But when World War II came, the Germans used tanks to maneuver around this trench and crush the French.
Risk weightings are the financial equivalent of the Magnot Line. For instance, weightings are, by definition, an assessment of an assets risk based on historical experience. The problem is that we don’t know what the equivalent of the mortgage backed security is going to be by the time the next financial crisis rolls around. Risk-weighting actually allows financial institutions to engage in regulatory arbitrage. Hopefully, the momentum will continue to grow and we can develop a system that places emphasis on capital and not guesses as to what banking products and investments are safe.
One more thing, in my dream world, an emphasis on capital leverage ratios would be coupled with a breaking up of the big banks. No amount of capital can adequately protect us against the need to bail out the Goldman Sachs or BoAs of the world. However, a more rigorous emphasis on capital requirements is a step in the right direction that would provide relatively small banks and credit unions greater flexibility and, I believe, just as much protection against severe downturns as does the existing risk-weighted framework.
Right now it’s illegal for you to autodial a delinquent homeowner without their consent but that may be changing and not everyone is happy.
I’ve previously blogged about the Telephone Consumer Protection Act. It generally requires a caller to obtain the prior express consent of the called party when: making a non-emergency telemarketing call using an artificial or prerecorded voice to residential telephone lines.
The problem is that the TCPA was passed in the dark ages of 1991 when prerecorded computer generated phone calls sounded like…well prerecorded computer generated phone calls. Today’s technology makes these phone calls as soothing as talking to the HAL 9000 And they provide an awfully convenient way for a major holder of mortgages to reach out and touch someone.
So last year congress amended the TCPA to permit autodialing without consent ”if they are made solely pursuant to the collection of a debt owed to or guaranteed by the United States” which certainly covers loans being serviced on behalf of the GSE’s.
But in its comment letter the FHFA argued that all residential mortgage servicers should be exempt from the TCPA’s prohibition. This touched a nerve with Ohio Democratic Senator Sherrod Brown, whose name is mentioned as a possible VP pick for Hilary Clinton. He is quoted in yesterday’s American Banker as expressing concern that” the FHFA is pushing to subject Americans to more computer-generated phone calls and texts rather than ensuring servicers offer foreclosure alternatives.” Ouch.
Meanwhile, on June 16, the Mortgage Bankers Association petitioned the FCC to exempt all mortgage lenders from the consent requirements as applied to delinquent homeowners. It argues that the TCPA’s prohibition makes it more difficult for lenders to comply with federal and state regulations requiring lenders to reach out to delinquent homeowners.
Stay tuned. HAL may soon be making phone calls on your behalf.
No Blog tomorrow. Enjoy the holiday.
I know that you are easing into those lazy, hazy days of summer. But there’s an operational change on the horizon that you should take the time to consider. Specifically, it is only a matter of time before an S gets added to the CAMEL rating.
This S stands for a separate category for examiners to assess your credit union’s sensitivity to interest rates. If you remember, when NCUA was proposing changes to its Risk-Based Capital requirement for complex credit unions, one of the concerns with its initial proposal was that it was using its Risk Weightings as a means of guarding against interest rate risk. NCUA agreed and when it finalized the Risk-Based Capital proposal, it instead put credit unions on notice that it would be looking for other ways to deal with interest rate risk. At its June 16th Board Meeting, the Board got an update of staff work in this area. It put credit unions on notice that a formal interest rate sensitivity proposal would probably be proposed in the next few months.
This is a change that is overdue. Banks have already been subject to the S. Specifically the following factors are already part of banking examinations, including:
- The sensitivity of the financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, foreign exchange rates, commodity prices, or equity prices.
- The ability of management to identify, measure, monitor, and control exposure to market risk given the institution’s size, complexity, and risk profile.
- The nature and complexity of interest rate risk exposure arising from nontrading positions.
- Where appropriate, the nature and complexity of market risk exposure arising from trading and foreign operations.
To me, there are two questions for credit unions as the NCUA moves to adopt a similar framework. First, is there an asset size below which the traditional CAMEL system remains adequate? Second, are examiners going to be trained to be cognizant of the difference between assessing an institution’s exposure to interest rate gyrations and micromanaging credit unions’ judgment about how best to grow in a low interest-rate environment that isn’t going to change any time soon?
On that note, have a nice day.