Posts filed under ‘Regulatory’

New York Proposes Disclosure Regulations For Small Business Financing

New York’s Department of Financial Services yesterday issued proposed regulations outlining disclosure requirements for non-bank entities that provide financing of up to $2.5M for businesses. The regulations are the final step in a two year effort by the Legislature designed in part to regulate the activities of third-party lending platforms.

The legislation generally mandates that providers of commercial credit provide TILA like disclosures when offering commercial financing. It applies to a broad range of financing activity including factoring as well as traditional open-ended lines of credit and close-end loans. The mandated disclosure requirements must be provided by the Providers of these loans. So the key to understanding its reach starts with understanding what a Provider is. The legislation defines a Provider as:

“…a person who extends a specific offer of commercial financing to a recipient. Unless otherwise exempt, “provider” also includes a person who solicits and presents specific offers of commercial financing on behalf of a third party. For the avoidance of doubt the extension of a specific offer or provision of disclosures for a commercial financing, in and of itself, shall not be construed to mean that a provider is originating, making, funding or providing  commercial  financing.”

Crucially, for our purposes, the legislation specifically excludes credit unions and banks from the definition of a Provider. Nevertheless, those credit unions that work with lending platforms will see the impact of this new requirement. Many credit unions are already working with internet based platforms that connect businesses and lenders but don’t actually make loans. As explained in this analysis of the bill in the Banking Law journal ”even if the entity that makes a commercial loan or other commercial financing transaction is exempt from the New York Law’s requirements, a typical online lending platform would still have to comply. As such, fintech companies operating commercial lending platforms are required to comply with the new law even if they rely on a bank partner arrangement and the bank is exempt”.

We will be reading the proposed regulations in the coming days, to make sure that they don’t impose any additional requirements on credit unions and we will keep you posted on what we find.

September 22, 2021 at 9:33 am Leave a comment

Four Things You Need To Know To Start Your Credit Union Day

For the first time in a while, I am overflowing with news you need to know to start your credit union day. As long time readers know, what follows is a series of quick hits, any one of which would be worthy of its own blog on a quieter day.

Treasury Pushes For Expanded Reporting Responsibilities

Anyone who thought we were out of the woods after the House Ways and Means Committee approved a plan to pay for a $3.5 trillion spending package that did not include increased reporting requirements for banks and credit unions is mistaken. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig have written letters urging Congress to include the proposal in the final budget package.

With the caveat that there has been no language officially proposed, the idea under consideration would mandate that financial institutions report gross report flows of income in and out of accounts that exceed $600.

Clearly this would impose an onerous new mandate on credit unions and alienate more than a few members. Stay tuned for more information from the Association.

How Was Your Examination Service?

The NCUA announced yesterday that federal credit unions will be asked to submit a post examination survey that will be administered by the NCUAs Ombudsman’s office as part of a pilot program.

If you have fantasies about using the survey to vent after a rough examination, you will be disappointed. The letter explains that “examination disagreements or reports of waste, fraud, or abuse should not be reported through the survey response.” At the risk of being branded a heretic, the industry spends way too much time obsessing over the examination process.  After all, disagreements are inevitable and it’s actually a sign the system is working.

FHFA Makes It Easier To Finance Investment Property

The Federal Housing Finance Administration and Treasury announced that they were suspending certain agreements entered into this past January which placed caps on the number of investment property mortgages that Fannie Mae and Freddie Mac could purchase. This is the latest in a series of moves by the new leadership at the FHFA to use the GSEs to more aggressively provide aid for homebuyers.

Acting Director Thomson discussed the changes at NAFCUs Congressional Caucus. In a closely related development, the FHFA is also proposing changes to the capital requirements for the GSEs.

Let The Redistricting Games Begin

Yesterday marked the first formal step in the once-a-decade political blood sport that is redistricting. By the time the process is complete, the Legislature will have approved new Congressional and Legislative Districts that will shape the direction of politics and policy for decades to come. This morning’s Times Union is reporting that the bipartisan commission designed to propose the initial redistricting plan has instead proposed two separate plans. One supported by Republicans, the other by Democrats. It boldly predicted that a partisan stalemate looms in New York redistricting, which is tantamount to Claude Rains’ character Captain Renault claiming to be shocked that gambling is taking place in a casino. 

September 16, 2021 at 10:14 am Leave a comment

Can Big Data Increase Home Ownership?

Good Morning, folks. The summer slumber is over and in case you missed it, the regulatory development that most intrigues me is Fannie Mae’s announcement that in a little more than a week from now it will start using a mortgage applicants’ history of consistently making rent payments to qualify first time home buyers for a mortgage.

Under the guidelines announced by the GSE on August 30th, borrowers must be able to document their rent payment history for the last 12 months. Acceptable documentation includes cancelled checks, bank statements, copies of money orders or other reasonable methods to document the timely payment of rent.

So why does this announcement intrigue me so much? One of the key emerging issues percolating in the Fintech/ banking industry is the extent to which the increasing availability of non-traditional data can and should be used to qualify lenders. A second key issue is what role the conserved GSE’s should play in the housing market?  This announcement has implications for both of these issues.

In announcing the use of the new criteria, Hugh Frater, Fannie Mae’s CEO, opined that this step would help address housing inequalities by making more African Americans eligible for home ownership. According to Frater approximately 20% of the US population has little or no credit history and the use of rent payment history is a safe and sound way of helping to address this issue. After all, as I have been told by many credit union underwriters, there are often members who are good lending risks even though their credit scores would indicate otherwise.

It remains to be seen just how positive an impact this expanded use of data will have. For example, should a member’s non-payment of rent be counted against her?

Furthermore, anytime new data is used to qualify borrowers there are of course new challenges to the application of fair lending laws. I hope that Fannie Mae keeps us updated on the impact that this change is having on the housing market.

September 7, 2021 at 9:23 am Leave a comment

The Day After Tomorrow is Here, Now What?

Wednesday’s dramatic and tragic flash floods in the New York City Metropolitan area are the latest example that man-made climate change is here and will continue to impact the business climate in which credit unions operate. If I had told you a week ago that New York State had to start preparing for the consequences of hurricanes slamming into the Gulf Coast you would have told me to go look at a map. This morning businesses and policy makers would be nuts not too.

In 2018 the Union of Concerned Scientists issued a report in which it claimed that more than 300,000 of today’s coastal homes with a market value of about $117.5 billion were at risk of “chronic inundation by flooding” by the year 2045. They pointed out that this could impact the value of homes underwritten for 30 year mortgages.  After Wednesday night’s storm, I’m wondering if they underestimated the problem; perhaps we should also be concerned about the value of 15 year mortgages?

Even as we are hopefully done debating whether or not climate change is a real and growing problem, the tough part is deciding what to do about it. Contrary to popular belief, confronting climate change will require large disruptions to certain parts of the economy and a huge amount of investment. Simply put, dreams of a green economy won’t come fast enough for the coal miner in West Virginia and we need massive investments in our energy infrastructure in order to reconfigure our energy system.

So what does all this have to do with credit unions?  Most importantly, we need to engage with policymakers and regulators using certain key principles as our guide posts.  For example, even as no one questions the need to address climate change, there has to be a recognition that costs and benefits should be taken into account.  Secondly, as institutions dedicated to helping persons of modest means we are uniquely positioned to warn against proposals which disproportionately impact poorer individuals.  Thirdly, we should point out that this is a national problem for which we need national solutions.

What would be the tangible consequences of these principles?  We need to make sure that common sense distinctions are made between banks which provide lines of credit to energy companies and credit unions struggling to make cost effective loans to small businesses. This is not the time for one size fits all mandates which weigh down the economy while providing no real benefit.

Secondly, as an industry dedicated to helping persons of modest needs, we have to be willing to point out that improperly implemented climate change policies can have a disproportionately negative impact on the poor and underserved communities. For example, the wealthier you are the more you can afford paying higher premiums for flood insurance.

Finally, with the usual caveat that I speak for no one but myself when I write this blog, as an industry, credit unions should be in favor of dramatic infrastructure investments on a national scale which expedite infrastructure improvements needed in response to climate change while minimizing the need for additional mandates on small lenders. On that note, enjoy your weekend.

September 3, 2021 at 10:01 am 1 comment

New Governor Moves Quickly To Extend Foreclosure Protections

Good morning, Folks. New York Governor Hochul convened an Extraordinary Session yesterday in which the legislature extended foreclosure and eviction protections for individuals claiming COVID related hardships until January 15th of next year. The measures impact both state and federally chartered credit unions that start foreclosure actions against delinquent homeowners and businesses.

Notice that I did not say that the legislation simply extends New York’s eviction and foreclosure ban. In response to recent rulings by the Supreme Court, landlords and lenders now have the ability to challenge an individual’s assertion that they are delinquent because of a COVID related hardship. The hardship exception applies to mortgages that are held by state or federally chartered credit unions. It does not apply to mortgages held by GSE’s.

We will have to see how this new framework is implemented. But if your credit union is interested in pursuing this option it should start identifying cases where this new exception might be applicable.

Guidance Issued On Lending To Same-sex Couples

In another important move, the Department of Financial Services issued guidance detailing steps lenders should take to prevent lending bias when making loans to same-sex couples. DFS has been working on the guidance for weeks. I will be providing more information about its specifics in a future blog. This guidance just applies to state chartered entities and licensed institutions such as state chartered credit unions and mortgage CUSO’s.

Hochul Nominates New DFS Superintendent

The above guidance was issued the same day that the Governor announced that she had chosen Adrienne Harris to lead New York’s Department of Financial Services. Harris replaces Linda Lacewell who resigned when Governor Cuomo left office.

Judging by her resume, Harris, a Columbia law school graduate, has a broad range of experience. She has served as an economic advisor during the Obama administration and as an adviser to Fintechs.

New York State’s Superintendent has historically been among the highest profile state regulators in the country. She not only oversees the banking industry but the insurance industry as well.

September 2, 2021 at 9:33 am Leave a comment

When It Comes to Protecting Your Data, How Well Do You Really Know Your Members?

When the Federal Financial Institutions Examination Council (FFIEC) issues guidance, all financial institutions should pay attention, irrespective of their size and risk profile. After all, the Council represents the combined wisdom, or at least the consensus of financial regulators, including the NCUA, on the issues of most pressing concern. Conversely, it is my ever so humble opinion that these documents are often written in such vague terms with so many qualifiers that they lack the clarity needed to make them truly useful documents.

With this caveat, I present to you a guidance, Authentication and Access to Financial Institution Services and Systems, issued by the FFIEC on August 11th in which it highlights the need for financial institutions to take a holistic approach to protecting unauthorized access to information by third parties. Specifically, this guidance “sets forth risk management principles and practices that can support a financial institution’s authentication of (a) users accessing financial institution information systems, including employees, board members, third parties, service accounts, applications, and devices (collectively, users) and (b) consumer and business customers.”

Whereas a decade ago your red flag risk assessment was primarily concerned with how to prevent unauthorized third parties from accessing your system, in today’s environment you’ll also face threats from within.  Your Board member, negligent customer and of course, your Luddite employee pose as great a potential threat as the most sophisticated hacker.  As a result, these threats should be considered as part of your ongoing risk assessments. Furthermore, layered security protections, which make individuals provide authentication more than once when inside a platform may inconvenience your members and employees but at the very least this inconvenience should be weighed against the need to protect the data on your system.

Remember, you should pay attention to this guidance for both legal and compliance reasons. Legally, these guidelines provide a concise source for courts to use in assessing whether a vendor or financial institution is taking reasonable measures to protect member information (see for example Shames-Yeakel v. Citizens Financial Bank; Bessemer System Federal Credit Union v. Fiserv Solutions, LLC). From a compliance standpoint, you have an obligation to make sure your credit union is periodically assessing and updating its cyber threat assessments. 12 CFR 748 Appendix A

On that note, enjoy your day.

August 30, 2021 at 9:47 am Leave a comment

What FDA’s Vaccination Approval Means For Your Credit Union

The announcement yesterday that the FDA has given final approval to the Pfizer COVID-19 vaccine puts employers at the center of the debate about how to respond to the continuing COVID-19 health crisis.

The FDA’s decision provides further clarity regarding the rights of employers to mandate that employees get vaccinated as a condition of employment. Before yesterday’s announcement, vaccination opponents had argued, without legal success, that the emergency process used to initially approve the COVID-19 vaccine meant that individuals could not be forced to get vaccinated as a matter of federal law.

Now that argument is irrelevant. Within minutes of the announcement several employers announced that vaccinations would now be mandatory for their employees. Federal guidance already authorizes vaccine mandates and the Supreme Court ruled more than 100 years ago that there is no constitutional right not to be vaccinated. The vaccine announcement also comes at a unique time for employers in New York State. We have a new Governor and in recent weeks the state has largely avoided imposing new statewide mandates. Once again, this means that as employers you have more flexibility than ever before.

Now don’t get me wrong, just because you can legally do something doesn’t mean it’s a smart thing to do. The goal should be to maximize the number of employees who are safe and vaccinated. Whether this goal is best accomplished with a carrot instead of a stick is a case-by-case decision. But now that the legalities have been dealt with, policies should be clarified. Time to get that HR attorney back on the phone.

August 24, 2021 at 9:21 am 1 comment

Juneteenth Clarified For Compliance Purposes

Yours truly has a busy day today. But I wanted to give you a heads up on an announcement that I almost missed when it first came out. As I’m sure many readers of this blog recall, when President Biden signed a bill proclaiming Juneteenth a national holiday. The bill took effect immediately. As a result, as drafted, June 17th could not count as a business day for certain RESPA and TRID disclosures required in the federal law. Many a lender spent a long couple days reconfiguring disclosures.

To its credit the CFPB has issued this interpretive guidance clarifying compliance issues for this period. Specifically, in its guidance the CFPB stipulates that “in the context of the 2021 Juneteenth Federal holiday and the affected closed-end rescission and TRID provisions, if the relevant time period began on or before June 17, 2021, then June 19, 2021 is a business day for purposes of the specific business day definition. If the relevant time period began after June 17, 2021, then June 19, 2021 is a Federal holiday for purposes of the specific business day definition.”

I would keep this guidance in the file, you know someone down the road is going to make an issue out of this. On that note, enjoy your weekend and I’ll be back on Monday.

August 13, 2021 at 9:08 am Leave a comment

End Of CDC Protections Puts Focus Back On NY State

Standing on tenuous legal ground (second entry), the Biden administration announced Saturday that the CDC would no longer be extending the national eviction moratorium beyond July 31st. The announcement means that, absent highly unlikely federal legislation extending the moratorium, the action returns to the state level. Most importantly, with or without the federal moratorium, New York State’s eviction and foreclosure moratorium on most properties remains in effect until August 31st.

These FAQ’s on New York’s Department of Financial Services’ website remind New Yorkers of their rights under state law. The bottom line is, with or without the changes to federal law, August 31st remains the key date for foreclosure and eviction purposes in New York State.

September 1st also remains the key date for mortgage servicers who have to comply with the CFPB’s nuanced regulations intended to provide delinquent homeowners additional notice of forbearance options which may be available to them.

Looking at the big picture, the CFPB remains concerned that nationwide the coming weeks will witness a huge surge of evictions and foreclosure proceedings. It has put servicers on notice that it will be keeping a close eye on their conduct and you can bet that state regulators will be taking a similar approach.

August 2, 2021 at 9:31 am Leave a comment

New York’s DFS Stresses the Need For Diversity In Corporate Governance

New York’s Department of Financial Services released an Industry Letter yesterday stressing that the Department expects both depository and non-depository institutions to take concrete steps to increase diversity within their governance structures.  The guidance applies to state chartered banks and to state-licensed institutions, which include CUSOs formed by federally-chartered institutions. 

“While the public statements from Regulated Banking Institutions and Regulated Non-Depository Financial Institutions in support of DEI (Diversity, Equity and Inclusion) initiatives are significant and necessary, it is time to act on those words and make good on good intentions to begin to achieve real change. This industry letter is aimed at supporting existing DEI efforts while outlining DFS’s expectation that New York-regulated financial institutions make the diversity of their leadership a business priority and a fundamental component of their corporate governance.”

Although the letter does not include specific mandates, the Superintendent points out that under Section 37 of the New York Banking Law, she has the authority to mandate that regulated institutions report to the Department on steps taken to address DEI.

On that note, enjoy your weekend!

July 30, 2021 at 9:10 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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