Posts filed under ‘Regulatory’

On The Yankees and Four Other Things You Should Know

Image result for yankees 2017 beat clevelandHumor me this morning.

The Yankees became the seventh team to come back from a 2-0 deficit to win the first round of the baseball playoffs since the new format was put in place in 1995. This proves yet again that it’s a good thing I don’t live in Vegas because I would have given the Yankees about as much chance as coming back against the Cleveland Indians as Donald Trump does of getting into charm school. Here are some things that you should ponder as you start your credit union day.

To Raise Or Not To Raise, That Is The Question

The September minutes of the Federal Reserve’s policy making Open Markets Committee were released yesterday and they confirmed what we already know: The Fed is as confused as the rest of us about what exactly is going on with the economy and whether or not now is a good time to be raising interest rates.

It’s safe to say the economists at the Fed have run out of hands. On the one hand, unemployment was down to 4.2% in September, its lowest level since 2001. This would, make raising rates a no-brainer. On the other hand, inflation has remained well below the Fed’s 2% target. On the one hand, talk of massive tax cuts in a relatively strong economy would militate strongly in favor of preemptively raising rates, lest the Fed standby as policy makers throw stimulus gasoline onto the economic fire. On the other hand, if the Republicans have proven anything in the last several months it is that you can’t assume that they will get tax reform through Congress any time soon. All this leads to confusion as to whether or not the Fed will raise rates at least one more time before the end of the year. For what it’s worth, the market had a rally after the minutes were released, meaning that the conventional wisdom is that interest rates will remain low and the Wall Street rally will continue.

Trump To Move On Healthcare Reform

With or without Congress, there’s much that the Trump administration can do to dismantle the Affordable Care Act. If news reports are correct, as early as this morning the Trump administration will sign an executive order directing agencies to make it easier for Associations to offer healthcare plans. It appears that one of the goals is to make it easier for associational groups to offer healthcare plans across state lines and to opt out of providing minimum benefits mandated by the ACA.

A Sad Day For Soccer Moms

Yesterday, the United States failed to qualify for soccer’s World Cup for the first time since 1985. For a country as big as America, this is like being the only kid on the block not to get a date to their Senior Prom. But I have to admit I am somewhat pleased. For years yours truly has bit his tongue while well-meaning soccer moms and dads explain that with so many of their sons now on travel teams and trading in football helmets for soccer balls, it’s only a matter of time before America becomes a soccer power house.

News flash. Our most talented athletes don’t play soccer. There is a reason why the only position Americans are really good at is goalie. It’s because we have a sports culture that actually uses all four limbs and we always will. By the way, to put the American failure in perspective, Iceland, with a population of 325,000, not only qualified for the last World Cup but made it into the elimination round.

Is This Where The Next Banking Crisis Will Come From?

Interesting article in today’s news. The International Monetary Fund has taken the unusual step of publicly listing nine of the world’s largest international banks which it feels could be in financial trouble. The only American bank on the list is City Bank.

October 12, 2017 at 9:02 am Leave a comment

Where Do You Stand On Payday Lending?

Image result for payday lendingMore than any other mandate imposed by the CFPB, your opinion about what it accomplished yesterday by severely restricting the payday lending industry  depends on what you think the financial industry can and should do to help consumers.

If you fancy yourself a consumer protection advocate, yesterday’s announcement by the CFPB that the benign dictator of consumer finance has finalized regulations cracking down on payday lenders may very well be a high watermark.

If you are like your faithful blogger and would like to see a world without payday loans but are realistic enough to realize that this is never going to happen, yesterday marks the high point of the CFPB’s delusion that, with just the right amount of nudging, government can protect people from themselves;

And if you are a credit union person whose job it is to see how this regulation will impact your operations, you have a lot of reading to do but there appears to be some positive signs.

So what is a payday loan according to the CFPB? As described in the Bureau’s executive summary, payday loans are “Short-term loans that have terms of 45 days or less. Closed-end loans are covered short-term loans if the consumer is required to repay substantially the entire amount of the loan within 45 days of consummation. Open-end loans are covered short-term loans if the consumer is required to repay substantially the entire amount of any advance within 45 days of the advance.” In addition, longer term balloon payment loans are covered if “1) it is structured as a loan with multiple advances where paying the required minimum payments may not fully amortize the outstanding balance by a specified date or time; and 2) the amount of the final payment to repay the outstanding balance at such time could be more than twice the amount of other minimum payments under the plan.”

The core of the CFPB’s proposal is a requirement that payday lenders underwrite these loans in a way that demonstrates that a borrower has the ability to repay them. In order to accomplish this, lenders would have to obtain certain baseline documentation including a written statement of the consumer’s net income and the amount of payments required to meet the consumer’s major financial obligations.

Could a lender get around these new regulations with simple changes to make sure that their loans don’t meet payday lending criteria? For example, could they simply stipulate that your payday loans have to be paid in 46 as opposed to 45 days? Not if the CFPB has its way. One of the final provisions of the new regulation gives the CFPB the power to examine a lending program to determine if it is set up with the intent of evading payday loan requirements. In making this determination, the CFPB is giving itself the power not only to examine the terms of a given lending program but also “the actual substance of the lender’s action as well as other relevant facts and circumstances” to  determine whether the lender’s action was taken with the intent of evading the requirements. I’ll bet you right now that if the CFPB is sued over this regulation, its authority to exercise this power will be challenged on due process grounds.

The good news is that if your credit union makes less than 2,500 of these loans a year it can provide short term loans to its members provided it does not generate 10 percent of its receipts from such loans.  The CFPB clearly listened to CUS that pointed out that they sometimes make short term loans that actually help members. In addition,  NCUA’s PAL loans are also exempt.

Now for some commentary. This is the type of proposal that will warm the hearts of consumer advocates who are justifiably disturbed by the abusive practices of some payday lenders. But whether or not it will have any discernible benefit for the people inclined to get these loans remains to be seen. In an ideal world, Dorothy clicks her heels three times and returns to Kansas. And in an ideal world, no one would be desperate enough to need usurious loans and no lender would be willing to make a living off such loans. But the reality is that all the regulations in the world won’t change the fact that there will continue to be people in need of short-term loans and lenders willing to profit from their misfortune.

Over the Summer I read the book “Hillbilly Elegy” by J.D. Vance. Vance grew up dirt poor in rural Ohio and eventually became an Ivy League trained lawyer. He uses the book to explain why so many white working class Appalachians are disillusioned and willing to turn to radical political solutions. Vance had the opportunity to work for a state senator in Ohio during the time that the state was debating a bill to ban payday lenders. His observation about the well-intentioned but misguided views of the bill’s supporters is worth quoting. “To them payday lenders were predatory sharks, charging high interest rates on loans and exorbitant fees for cashed checks. The sooner they were snuffed out, the better. To me, payday lenders could solve important financial problems. My credit was awful thanks to a host of terrible financial decisions (some of which weren’t my fault, many of which were). So credit cards weren’t a possibility…The lesson? Powerful people sometimes do things to help people like me without really understanding people like me.”

 

October 6, 2017 at 9:32 am Leave a comment

Is A Housing Reform Showdown On The Horizon?

Image result for showdownYour faithful blogger is a little bleary-eyed and unshaven this morning, having stayed up until 12 o’clock to watch the Yankees beat the Twins to secure their rightful place in the Major League Baseball Playoffs. It was the latest example of how Major League Baseball has more and more in common with your local little league game as starting pitchers are quickly replaced with a parade of relievers. But I digress.

Fortunately, I don’t have to think that hard to find something interesting that you need to know about. I could talk about the testimony of departed Equifax CEO, Richard Smith, but his testimony created as many questions as it provided answers;  or I could comment on the testimony of Wells Fargo’s CEO, Tim Sloan who had to keep a straight face while Senator Elizabeth Warren stopped just short of calling for him to be publicly flogged, tarred and feathered. But I’ve decided that by far, the most significant testimony that came out of Washington yesterday has to do with Fannie and Freddie and the way we finance housing in this country.

Once upon a time, the economy was near collapse and Fannie Mae and Freddie Mac were insolvent. So, in 2008, Congress passed The Housing and Economic Recovery Act which made the Federal Housing Finance Administration the conservative of these institutions. In September of that year the FHFA gave the treasury preferred shares in these corporations in return for a capital injection of $200 billion for each GSE.

In 2012, the government got further involved in the housing market when the Treasury entered into agreement pursuant to which it was allowed to sweep the net profits of the GSE’s minus a capital buffer. This has been a very good deal for the government, but the gravy train may be coming to an end.

This buffer was set at $3 billion in 2012 and declined by $600 million increments thereafter. That means that come January 1, 2018, the GSE’s will no longer have the authority to operate with any buffer at all. At the same time, the government will still have the authority to sweep the GSE profits. As it stands right now, the only option for the GSE’s would be to draw on a line of credit.

Which brings us to yesterday’s hearing at which former Congressmen and current director of the FHFA, Mel Watt reiterated the need for Congress to either decide on how it wants to reform the GSE’s or allow Fannie and Freddie to have appropriate capital buffers. He went on to draw a line in the sand by suggesting that he has the authority in the absence of congressional action to withhold from the treasury, money necessary to ensure the maintenance of adequate buffers.

I lost hope a long time ago that Congress is capable of passing meaningful, constructive housing reform. But the current situation cannot continue indefinitely. Either Congress must accept that the GSE’s are here to stay or it has to decide once and for all what they want the government’s role to be in the housing industry. By doing nothing, it is effectively deciding that the GSE’s are here to stay. From a credit union perspective, this is a good thing.

October 4, 2017 at 9:10 am Leave a comment

Five Things You Need to Know This Friday

With apologies for the late start, here are five things you need to know:

Show Me the Money 

As you probably already know, at yesterday’s board meeting, the NCUA announced that it was closing down the Temporary Corporate Credit Union Stabilization Fund on October 1, 2017 The decision sets the stage for credit unions to see a rebate of between $600 million and $800 million in 2018.

Now for the bad news: NCUA is forging ahead with plans to raise the Normal Operating Level to 1.39%. Under federal law, NCUA can set the Normal Operating Level anywhere between 1.20 and 1.50 provided that any funds in excess of the NOL are returned to CUs.

In his statement, Chairman J. Mark McWatters broke down the 1.39 rationale this way

There are three key risks to the equity ratio for which the 1.39 percent normal operating level accounts. Specifically, the 1.39 percent level accounts for the following:

  • Four basis points to reflect the risk posed by the remaining obligations of the Corporate System Resolution Program;
  • Two basis points to reflect the projected decline in the equity ratio through 2018 that will occur even without a recession; and
  • 13 basis points of protection for risks to the equity ratio posed by insured credit unions.

GOP Tax Plan Takes Dead-Aim at NY

 Credit unions in states with high local and state taxes—I’m talking to you New York, New Jersey and Connecticut—have more to more to worry about then protecting the credit union tax exemption as Congress debates tax reform. The tax cut blueprint announced by GOP leadership earlier this week ends the deductibility for state and local taxes. In addition, by doubling the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers, members will find it less attractive to itemize for the mortgage interest deduction. This could impact the mortgage businesses, particularly downstate.

By the way, contrary to popular belief, New York State gives a lot more money to the federal government than the federal government gives to New York State.

Advertising Relief

The Share Insurance Fund wasn’t the only thing on the minds of the NCUA yesterday. It also released proposed regulations amending signage requirements. OK, this might not be the most exciting thing in the world, but it does affect what goes into your advertising disclosures.

Association Testifies On Data Breach Solutions  

 In the aftermath of the Equifax Data breach, the State Senate’s Consumer Protection Committee held a hearing to examine steps that could be taken to strengthen consumer data protections. The Association was among those groups invited to testify. Our key points were:

  • We need baseline security standards for all businesses that hold large amounts of consumer information.
  • The Legislature should not impose additional obligations on financial institutions such as credit unions, which have been taking steps to prevent identity theft for more than a decade.
  • Consumers and credit unions need the right to sue businesses for the direct and indirect costs of data breaches.
  • More needs to be done to enhance consumer education in schools.

Why Dentists Are the Best Marketers In The World

 The brilliance of the dental industry is that it has figured out a way to have parents pay thousands of dollars for the right to inflict medieval treatments on their children that would make an inquisitor squirm. My eight year-old recently got an expander, which, as far as I can tell, is the equivalent of sticking a pair of pliers in your kid’s mouth for a couple of years and seeing what happens.

On that note, have a nice weekend.

September 29, 2017 at 11:15 am Leave a comment

NY Gets Ready To Ramp Up Enforcement Of It’s Marquee Regulations

New York’s Department of Financial Services is signaling that it is getting ready to ramp up enforcement of two high-profile regulations.

Last Wednesday, it announced that it was launching a series of information sessions to tell local governments about New York’s law requiring banks and credit unions above certain thresholds to maintain vacant and abandoned property. This announcement was coupled with a new guidance reminding impacted mortgagees of their basic obligations, such as that they are responsible for securing boarded windows or doors that are loose or forced open. In addition, mortgagees are required to register vacant or abandoned property to the department. They were also reminded of the obligation lenders have to report abandoned property to the state. §1308 (c) of the Zombie Property Law gives municipalities the right to enforce this law. Don’t be surprised if you begin to have more discussions with your local officials.

Remember that the obligation to maintain property under §1308 only applies to mortgagees which reach thresholds further described in this blog. This is distinct from the obligation to report vacant or abandoned property.

New York’s second major regulation imposes cyber security requirements. As readers of this blog will know, this regulation imposes baseline data security protocols on covered institutions. It applies to “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the Banking Law, the Insurance Law or the Financial Services Law.” Institutions covered by the regulation, such as a credit union mortgage CUSO or a state chartered credit union have to register with the state by using this link, the portal is on the upper right hand side and the Q and A’s provide some guidance: http://www.dfs.ny.gov/about/cybersecurity.htm.

I know originators have started to receive notices that they must comply with Part 500’s registration requirements by September 27th. The good news is that individuals who work for businesses subject to Part 500 are exempt from these requirements provided that the institution for which they work is properly registered with the state and has received permission to register on behalf of its employees. The bad news is that unless they work for an institution that has 50 or more employees, each individual still must indicate to the state that he or she is exempt from the regulation’s requirements by filing a notice of exemption.

 

 

September 26, 2017 at 9:36 am Leave a comment

RIP To The Twist

At the conclusion of yesterday’s Federal Open Market Committee, Chairman Yellen confirmed what had been speculated about for weeks now: The Federal Reserve will start unloading the treasury bonds and mortgage back securities it has purchased to keep interest rates low. No one knows for sure what impact this will have on interest rates, but it is certainly something that lenders should be paying attention to.

Since 2011, the Federal Reserve has aggressively brought a combination of mortgage-backed securities and treasury bonds, utilizing a strategy called Quantitative Easing. The idea is that by supporting the price of treasuries and mortgage securities, the Federal Reserve could keep interest rates from growing higher. In 2014, it stopped buying additional securities but it continued to rollover its existing portfolio. It now has a balance sheet of $4.5 trillion which, according to Bloomberg, represents a quarter of the country’s gross domestic product. From the start, the program has been controversial.

Critics had two primary concerns: First, they argued that by keeping interest rates artificially low, the Federal Reserve was effectively subsidizing large banks and companies that had the ability to capitalize on low rates. They argued that the program penalized small lenders such as community banks and credit union that are more dependent on interest rates than are the behemoth lending institutions. Secondly, critics argued that the Federal Reserve would not be able to reintroduce these purchases into the market place without causing economic disruption. It’s that second proposition that is now being tested.

Under the Fed’s approach, it will gradually shrink its balance sheet by not reinvesting in securities once they mature. The Fed will cap the size of its balance sheet reduction in the hope of minimizing the impact of this buy-down.

No one knows for sure what exactly the impact of this unwinding will be, but at the very least, it should create some upward pressure on interest rates. Given the start of this grand experiment as well as continued uncertainty about the direction of the economy, now is one of the key times for your credit union to be keeping a close watch on how sensitive your credit union is to sudden changes in interest rates.

CFPB Releases Important HMDA Regulations

I have not yet had time to read these babies, but I wanted to give you a heads-up that our good friends at the CFPB released two important regulations related to HMDA yesterday. A final regulation harmonizes the requirements of the Equal Credit Opportunity Act, which forbid lenders from taking an applicant’s race into account when making lending decisions with the mandates of HMDA which require lenders to obtain information about a lender’s race and ethnicity.

The new HMDA regulations will not only result in the collection of much more information about applicants, but also will result in much more of this information being readily available to the general public starting in 2019. Yesterday, the CFPB released a proposed guidance and is seeking feedback on how to balance greater transparency with the need to protect consumer privacy.

September 21, 2017 at 9:01 am Leave a comment

Three Things You Need To Know About The Equifax Data Breach

New York’s Department of Financial Services has moved aggressively to regulate credit reporting agencies in the wake of the Equifax data breach fiasco.

It has proposed regulations that would extend its “first in the nation” cyber security regulations to credit reporting agencies. Specifically, the regulations would apply to every credit reporting agency that prepares a credit report on one or more New York consumers. The CRAs would have until February 1, 2018 to register with the state.

I’m curious to see how the CRAs respond to this development. On the one hand, they can argue that New York’s attempt to directly regulate them is preempted by Federal law. On the other hand, these are practices the CRAs should already have implemented. Furthermore, this is not exactly a good time for the CRAs to be arguing against baseline data protection requirements.

Yesterday afternoon, the DFS also issued guidance suggesting steps that both Federal and State chartered institutions should take in response to the breach. The most intriguing part of the guidance is the Department’s suggestion that if your credit union has an agreement with Equifax, it should “ensure that the terms of the arrangement receive a very high level of review and attention to determine any potential risk associated with the continued provision of data” to Equifax. This excellent suggestion is a reminder that the credit reporting agencies to which you provide information, are third-party vendors. Like all other vendors, you have an obligation to ensure that they are doing their job properly and to reassess your relationship with them if they are not.

Finally, KrebsOnSecurity is reporting that confidential notices sent out by VISA and MasterCard to financial institutions across the country “appear to suggest” that the Equifax hack may have started as early as November 2016. According to Equifax however, all the credit card information was stolen at the same time. KrebsOnSecurity is also reporting that the breach was the result of a vulnerability in a popular open source software package called Apache Struts.

Where Did My Branch Go?

If you think bank branches are disappearing, you are correct. In this interesting article, in yesterday’s WSJ, the paper is reporting that in recent years Bank of America has gotten rid of approximately 1,600 branches. It estimates that the reductions are the equivalent of shutting down all the City Group and Capital One Financial outlets in the U.S.

What’s troubling, but by no means surprising, is that the reductions have targeted rural areas and areas not located near major metropolitan areas. For example, Bank of America no longer has branches in and around Utica, New York, where it had 12 as late as 2009.

 

 

September 19, 2017 at 8:41 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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