Posts filed under ‘Regulatory’

More Good News On ADA Litigation

Carroll v. ROANOKE VALLEY COMMUNITY CREDIT UNION is the latest victory for credit unions arguing that the individuals seeking to bring claims against credit unions because their websites violate the ADA lack standing to bring these suits.

This case involved a blind individual who argued that the credit union’s website. Among other things lacked alternative text which prevented visitors from obtaining vocal descriptions of the credit union’s graphics. However, the court refused to address the merits of the claim, concluding that “Carroll does not allege that he actually uses or plans to use RVCCU’s services. And it is implausible that he would travel more than 200 miles to visit a RVCCU physical location when he has never done so before, has no immediate plans to do so, and falls outside RVCCU’s limited membership field.”

This case is noteworthy because the court rejected the plaintiff’s argument that even though he was not within the credit union’s field of membership, he nonetheless had standing as a “tester.” Under this argument, standing is available to test compliance with the ADA on behalf of others who might be eligible to join the credit union. The court quickly rejected this argument concluding that one status as a “tester” does not by itself establish standing.

Keep in mind that this is the latest example of a very good decision for credit unions that is only binding on credit unions located in the Fourth Circuit, which includes Virginia, Maryland and parts of North Carolina. We haven’t seen much litigation in other areas yet such as the Second Circuit in New York. However, the Fourth Circuit’s ruling constitutes persuasive authority which complicates the ability of plaintiffs to bring successful class action lawsuits in other jurisdictions.

OMB Insider To Be Nominated As CFPB Head

One of the first rules of understanding the Trump Administration is to expect the unexpected. So no one should have been surprised when word came out over the weekend that the Administration would be nominating Kathy Kraninger to head the CFPB. So much for retiring Congressman Darrell Issa and current NCUA Board Chairman J. Mark McWatters.

Now anyone who tells you they know what kind of Director Kraninger would make is either lying or needs a life. All we know from press reports is that she currently is an official at the OMB which is currently overseen by acting CFPB Director Mick Mulvaney. Still that hasn’t stopped the opposing sides in what promises to be a lengthy nomination process from running to the ramparts.

The White House informs us that she will bring a “fresh perspective and much needed management experience” to the Bureau which it contends has been “plagued by excessive spending, dysfunctional operations and politicized agendas.”

In contrast, Carl Fish, Executive Director of Allied Progress informs us that her nomination is “nothing more than a desperate attempt by Mick Mulvaney to maintain his grip on the CFPB.”

If she is ultimately approved, Kraninger will serve a five-year term. Stay tuned. 

Medallion Update

Lately I have unabashedly made this blog The New York State of Medallions blog. According to Craines New York, Nordo Acquisitions, Incorporated bought 131 of the medallions for $170,000 apiece. To put this into perspective, the same group bought 46 of the King’s medallions last September for $186,000. The company is hoping to lease the medallions, between $1,000 -$1,200 a month, for a return of approximately 7% annually. They are effectively betting that the medallions have hit their floor.

The medallions that sold for $250,000 were purchased by buyers who already own the loans and offered them at a price they knew no one would meet in order to maintain control of their assets.

It’s Only Money

Last but not least, New York State’s Attorney General Barbara D. Underwood announced a $100 million settlement to settle claims brought against it by 42 states resulting from its manipulation of LIBOR. “Our office has zero tolerance for fraudulent or manipulative conduct that undermines our financial markets,” said Attorney General Underwood. “Financial institutions have a basic responsibility to play by the rules – and we will continue to hold those accountable who don’t.”

June 18, 2018 at 9:06 am Leave a comment

MBL Regulation Finalized

In the first tangible sign of the impact that the passage of S. 2155 is having for both state and federal credit unions, the NCUA on Thursday finalized regulations clarifying that mortgage loans non-owner occupied 1-4 family homes are no longer considered Member Business Loans. This is good news for credit unions concerned about going up against the MBL lending cap and also good news for smaller credit unions that can now lend money for second homes without triggering MBL obligations.

As the explained in the preamble to the regulation: the MBL definition “now excludes all extensions of credit that are fully secured by a lien on a 1- to 4- family dwelling regardless of the borrower’s occupancy status. Because these kinds of loans are no longer considered MBLs, they do not count towards the aggregate MBL cap imposed on each federally insured credit union by the FCU Act.”

The regulation is also noteworthy because the NCUA used an exception to the traditional notice and comment period requirements to make the changes. I had no idea before I read this regulation that the Administrative Procedure Act permits agencies to skip notice and comment periods when proposing a regulation is “impracticable, unnecessary, or contrary to the public interest pursuant to the Administrative Procedure Act (APA). Who knew? Perhaps other agencies will use this power to quickly amend regulations which are now inconsistent with the law.

More Municipal Fallout

Also last week the NCUA issued a public notice prohibiting Municipal Credit Union CEO Kam Wong from working in the credit union industry following federal charges that he embezzled millions of dollars from the credit union.

June 4, 2018 at 7:59 am Leave a comment

Handle With Care: New Protections For Financial Institutions that Report Suspected Elder Abuse

One of the many provisions tucked away in S.2155, which was signed into law on May 24, was one providing protections to credit unions and other financial institutions when certain employees act in good faith and reasonable care to report suspected financial exploitations of a person at least 65 years old to law enforcement or selected agencies. While the statute is important, particularly in states like New York, which has among the narrowest of protections for financial institutions reporting suspected elder abuse, implementation is trickier than one might suspect. Read §303 carefully and make sure you put the proper procedures in place.

What has me a little nervous is that for an individual to be given immunity from a lawsuit after reporting a suspected abuse, such individual must serve as a supervisor, a compliance officer or in a “legal function” (which, by the way, includes a BSA officer). The person must make the disclosure in good faith and with reasonable care. This means that only specific individuals can report suspected elder abuse. In other words, if your credit union decides to implement this framework, it is absolutely crucial that frontline staff in particular understand that they cannot, no matter how well-intended they may be, report suspected elder abuse. Instead, they must know what individuals to report suspected abuse to.

Similarly, financial institutions shall only be protected against liability if the supervisor, compliance officer or persons serving in a legal function who make the report has received the necessary training.

And what is the necessary training? Interestingly, the training material shall be maintained and made available by the agency with examination authority over the institution. In plain English, that means NCUA has to get to work. This training has to be provided not later than one year after a person becomes employed by the credit union. The credit union would be responsible for maintaining records of training.

Is the law better than nothing? Absolutely. But there are plenty of potential loopholes and trip wires to deal with.

I’m cynical. I believe this is one area where a good deed will not go unpunished and your credit union will find itself on the opposite end of a lawsuit if it does the right thing and reports a suspected elder abuse enough times.

 

May 31, 2018 at 11:14 am Leave a comment

Time To Regulate Online Lenders?

The New York State Department of Financial Services has been seeking comments from industry stake holders on the implications of online lending for the purposes of submitting a report on its  Legislature. Reports typically end up collecting dust on the second floor of the legislative library only  to be pulled out by staffers anxious for filler to put into a memo after someone comes up with the idea of reissuing the same kind of report years later. This time I think the DFS is on to something.

Online lending is the latest example of an innovative financial development that has the potential to help consumers but which , without more  oversight,  could very well result in triggering the next financial crisis or close to it. Credit unions have a stake in advocating for the appropriate regulation of this industry not only to prevent consumer harm but to ensure that online lending isn’t allowed to develop in a way that makes it impossible for credit unions to compete against this type of banking.

First, what is online lending? There’s not a precise definition. What I am talking about for purposes of this blog are virtual platforms such as Kabbage and Lending Club. These entities are not banks. Instead, they make their money by providing a central place where borrowers meet “lenders”. I put lenders in quotes because what actually happens is that the borrower posts the loan she is looking to get and lenders actually compete auction style for the loan. The winning bid is actually originated by a bank affiliated with the platform. The lender holds the note and the platform makes its money through fees and servicing of the loan.

To its supporters this innovative use of technology updates banking. For one thing, the internet now makes it possible to aggregate huge numbers of lenders and borrowers to an extent not possible in the days of simple brick-and-mortar financial institutions. It results in more competition for more loans; combine this with the use of big data analytics to assess an individual’s credit worthiness and what you have is a means to increase the number of people eligible to get reasonably priced loans. Its  is a win/win right? Not really.

For one thing, the regulatory framework under which these institutions operate is lacking in clarity. For example, the platform itself is subject to SEC regulation but not oversight by the OCC for example. Conversely, the OCC and other banking regulators such as the CFPB do have oversight over any affiliate bank originating online loans but the SEC has no oversight, or expertise for that matter, to oversee the originating banks.

Then there’s the simple issue of liquidity risk. Online lending has developed in a period of solid if not spectacular economic growth. We still don’t know what’s going to happen to these platforms during an economic downturn. For instance, is it really healthy for the economy for entities making loans that don’t have to have baseline loan loss provisions? In fact, this industry has many of the attributes of the mortgage securitization industry before the crash.

How does all this tie in with credit unions? Most importantly, regulators shouldn’t be in the business of standing by and letting one segment of an industry attract new business by not imposing basic safety and soundness requirements. This not only puts consumers at risk but also creates an uneven playing field in which the more prudently regulated and run the institution, the more difficulty it is going to have competing for members.

New York State should take a look at online lending but ultimately the Federal government must step in and create a unified regulatory structure that has jurisdiction over both online platforms and associated originators.

 

May 29, 2018 at 8:40 am Leave a comment

Six Things To Know Before You Start Your Summer Vacation

You can tell everyone’s getting ready for a long summer hibernation with the amount of stuff that came out yesterday. Here is a list of the big news:

  1. The Association’s very own Michael Lieberman just informed me  that the President not only pulled out of the North Korean Summit today but he signed S.2155. This means that I have to start looking at all those effective dates. You’ll be hearing more about this in the days to come.
  2. I was beginning to think this day would never come. The NCUA yesterday filed a Notice of Appeal seeking to reverse the district court decision holding that the NCUA did not have authority to automatically qualify credit unions to expand communities comprised of combined statistical areas up to 2.5 million members. The ruling also changed the definition of rural community in a way that the court says was an abuse of discretion. There’s no sense understating the importance of this appeal. NCUA’s ability to define what constitutes a local community for purposes of permitting credit unions to expand to meet member needs.
  3. NCUA is proposing regulations that would give credit unions authority to offer new types of payday loan alternatives. These would be in addition to the PAL loans which credit unions can already offer. Among the new features in the proposed PAL II (that’s NCUA’s term) are: permitting loan amounts of up to $2,000 and loan terms as long as a year. The NCUA isn’t the only regulator looking to thread the needle by encouraging lenders to make short-term loans but discouraging them from making payday loans. Just two days ago the OCC created a minor stir when it “encouraged” banks to make responsible short-term loans. Let’s face it, short-term loans are the financial equivalent of needle exchange programs: In an ideal world, you wouldn’t need them but allowing mainstream lending institutions to provide short-term loans is a responsible alternative to the worst excesses of payday lending.
  4. NCUA clarifies vacation payouts for liquidating credit unions. Hopefully this is a bit of information that will never be relevant to you. At its Board meeting yesterday, the NCUA also harmonized two conflicting regulations to clarify when CEO’s of credit unions being involuntarily liquidated are entitled to a payout of their vacation time. The new regulation clarifies that such payments will not constitute a prohibited golden parachute so long as it is provided for in the credit union’s handbook and is consistent with payments provided to all employees who meet the eligibility requirements.
  5. As I’ve explained in previous blogs, Chairmen McWatters has never been a fan of the risk based capital rule which takes effect in January 2019. So it is not surprising that he wrote a letter in support of legislation that would push back the effective date until 2021. Hopefully McWatters can be joined by a board member who is also willing to acknowledge that NCUA’s risk based capital rules were and remain a solution in search of a problem.
  6. Finally, just how much does the Trump administration dislike New York and California? Remember that the tax legislation caps at $10,000, the amount of money that can be deducted for the payment of state and local taxes. Two days ago, the IRS released this memo explaining that: “some state legislatures are considering or have adopted legislative proposals” that attempt to circumvent the property cap limit by re-categorizing property tax payments as other types of payments. The stated aim of both New York and California is to minimize the impact that the new federal tax law will have in high property tax areas such as Westchester and Long Island. The IRS goes on to explain that “Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

On that note, enjoy your summer. If past readership trends are any indication, many of you will be taking a break from the nitty-gritty of reality for the next couple of months. I will be joining you on occasion.

 

May 25, 2018 at 7:53 am 2 comments

3 Things To Know On Tuesday Morning

If you’re a recent visitor from another planet, you could be forgiven for thinking that the world is dominated by misogynists and would be predators so I’ve decided to lead with news, while not directly related to credit union land, shows that progress is in fact being made.

Yesterday, the New York Stock Exchange, the Capitol home of what the late great Tom Wolf described for the Masters of the Universe announced that it would be naming Stacey Cunningham as its first female President of its 226 year history. What would Sherman McCoy say?

Just how big of a deal is this? I believe symbolism matters and even though the NYSE isn’t quite what it used to be, this is still a big deal. This morning’s WSJ points out that when Cunningham started working for the Exchange as an intern in the early 90’s, the woman’s bathroom was a converted phone booth on the 7th floor. And when she started trading she was only one of 1,365 traders. True, the NYSE only accounts for 22% of trades these days but just as we continue to look for ways to improve corporate culture, we should also take the time to put these efforts in their proper context. On balance things have gotten a heck of a lot better for everyone.

Must See TV

Today is one of those must see TV days or must hear days for those of you with satellite radio. If all goes according to plan, the House of Representatives will be voting on S.2155, the Regulatory Relief bill that you have heard so much about. I’ll be talking about the specifics of this bill until you get sick of reading about it but today keep an ear out for how many Congressmen take the opportunity to praise not just banks but credit unions. Also, keep an eye on how many Democrats ultimately vote for the bill. Since there is a strong possibility that the Democrats will take control of the House next year, their attitude towards this bill will be an early indicator of just how radical a regulatory agenda a Democratic majority will push.

What’s Next for Payday Lending Rule?

That is the headline in this morning’s Law360 email blog now that the Senate has failed to muster enough votes to repeal the Cordray era regulation. There is still much the CFPB can do to obstruct implementation of this controversial regulation.

May 22, 2018 at 8:22 am Leave a comment

Municipal’s CEO Arrested

I have some shocking and disturbing news this morning. For those who haven’t already heard, Kam Wong, the CEO of Municipal Credit Union was arrested by federal prosecutors and charged with four counts stemming from the embezzlement of millions of dollars between 2013 and early 2018. If the allegations are true, Mr. Wong submitted hundreds of thousands of false claims for reimbursement and squandered millions of dollars of his ill-gotten gains on lottery tickets. It’s the type of story that could very well have implications for credit unions throughout the United States as regulators analyze how this could have happened.

This is one of those times I want to remind you that the opinions I express are mine and not necessarily those of the Association as a whole. The reality is that stories like this have become all too common. It’s about time for the industry to take a proactive look at its existing structures for detecting and mitigating fraud. Why? Aside from the reputational harm to the individual credit unions involved and the industry as a whole, there is the simple truth that good people do bad things all the time, a fact which is no doubt exacerbated when money is involved. As credit unions become more sophisticated, so too must their audit capabilities.

I have argued before that the existing framework for detecting illegal activity is simply not robust enough for the size and sophistication of this growing industry. The fact is that in many situations, supervisory committees, which ideally would be the entities that would spot this type of behavior, have atrophied. Credit unions that struggle to recruit new board members presumably have even more trouble finding persons to serve on these committees. Furthermore, what so many of these cases involving financial abuse have in common is a failure to execute robust internal audit functions.

How to solve this problem? The answer is not to pay board members. It is instead to mandate baseline qualifications for supervisory committee members and to authorize compensation for these members if it is necessary to attract qualified personnel. A second step is to strengthen board training and education.

Finally, we must all be more suspicious. Look at who is most likely to commit fraud. It is often the person who has been a trusted employee of the credit union for years. In other words, the people we rely on most are also the people who must be subject to heightened scrutiny.

This morning it would be convenient to think of this problem as a reflection on a single credit union, but the reality is that what happened at Municipal reflects larger systemic vulnerabilities. One more thing, I wish the articles about this case would also mention that there is no credit union that embodies more of the good that credit unions stand for than Municipal. It was founded more than 100 years ago to give municipal employees in New York City alternatives to loan sharks. Today, the vast majority of its board and staff is still infused with what credit unions stand for at their best.

May 9, 2018 at 7:48 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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