Posts filed under ‘Regulatory’

Is the NCUA Constitutional?

The inspiration for today’s sensationalistic headline comes from this article in the CU Times, which is reporting that Donald Trump has selected Neomi Rao to head  the White House Office of Information and Regulatory Affairs, within the Office of Management and Budget. Don’t get me wrong, the NCUA isn’t going anywhere anytime soon, but as Jonathon Adler commented in the Washington Post this may be the most important position you have not heard of. In this role she will be able to put thumbs up or thumbs down on every regulation which must be approved by the White House.

Rao’s nomination warms the heart of conservative legal geeks, such as myself. She is the founding director of George Mason’s Center for the Study of The Administrative State and she has not been afraid to argue that independent agencies are unconstitutional regardless of how they are structured. If she is right this means that even the NCUA is unconstitutional.

As I explained to a group of credit union folks last night at the Southern Tier Chapter dinner, while I am pessimistic about seeing major regulatory reforms passed by congress anytime soon, love him or hate him we have already seen a major shift in regulatory priorities under President Trump, and this shift  will only gain momentum as the terms of directors of independent agencies expire. Remember that Richard Codray’s term ends in July 2018.

Ideas matter. Cass Sunstein held this position in the opening days of the Obama Administration and his view that regulations could be used to nudge consumers to make the right choices continues to be hugely influential. The selection of Ms. Rao  mean’s that those of us who believe that the existing regulatory system bears little resemblance to powers actually authorized under the constitution are no longer simply obscure bloggers in need of an additional cup of coffee.

Hensarling Talks Up CHOICE 2.0

Confirming what we had already heard from CUNA, the House Financial Services committee publicly announced yesterday that it would be introducing the second version of Chairman Hensarling’s Regulatory Reform Proposal by the end of the month

CHOICE 2.0 is not in bill form yet, but is likely to include substantial mandate relief including measures to scale back the powers of the CFPB. While this is of course positive news, in comments last week Senate Banking Committee Chairman Mike Crapo indicated that major legislation dealing with regulatory reform is unlikely to become law anytime soon.

On that note enjoy your day!

 

 

April 12, 2017 at 9:14 am Leave a comment

Dimon Unveils Top Priorities for Regulatory Relief

JP Morgan Chase’s CEO Jaime Dimon used his first annual letter to shareholders since Donald Trump took office to outline a series of regulatory reforms he says will make more home loans available for first time home buyers and those with less than pristine credit. 

Intriguingly, two of the proposals I like could be accomplished without legislation assuming that a more free-market oriented Director of the CFPB will eventually be taking the reins.  According to Dimon, post-banking crisis regulatory reforms have resulted in a “complex, highly risky and unpredictable operating environment that exposes lenders and servicers to disproportionate legal liability and materially increases operational risks and costs.”  The result:  more expensive mortgages and fewer mortgage loans for those without strong credit.

While his description of the ailment didn’t surprise me, his cure did.  He wants to see greater use of FHA mortgages as a means of providing credit for first time and moderate income home buyers.  But this should be coupled with re-examination of government litigation seeking to make mortgage lenders repurchase mortgages that allegedly don’t meet FHA standards.  Specifically, he is calling on the FHA to publicly commit to using the False Claims Act to sue lenders solely for intentional fraud rather than immaterial or unintentional errors. 

A second change urged by Dimon would be for the GSEs, Treasury Department and the CFPB to work toward creating a single national regulatory framework for mortgage servicing.   He points out that, as of 2015, it costs on average more than $2,000 a year to service a mortgage in default and that the cost of servicing a performing mortgage is $181, annually.  A uniform system with uniform rules would go a long way to keeping costs from continuing to sky-rocket.  The problem with this approach is that, for it to be truly effective, Congress would have to pass laws strengthening federal pre-emption of state lending law or states like New York would have to voluntarily agree to go along with these standards.  Both of these scenarios are highly unlikely.   

April 5, 2017 at 8:38 am Leave a comment

Wells Fargo In The News for All The Wrong Reasons- Again

Wells Fargo continues to be the gift that keeps on giving, for consumer advocates anxious to argue why we are all better off with the CFPB.

Yesterday, The Occupational Safety and Health Administration (OSHA) ordered the bank to pay $5.4 million in back wages to an employee they fired in 2010, after reporting suspected incidents of mail and wire fraud by “bankers” under his supervision.

Although a written decision didn’t accompany this news there is wide-spread speculation that the whistle blower was disciplined for reporting instances related to the opening of phony accounts without customer permission. Remember, the CFPB was the regulator that discovered and fined Wells Fargo for this misconduct.

Incidentally, if you’re wondering why OSHA is fining Wells Fargo, it’s because it was given the authority to enforce Sarbanes-Oxley’s whistle blower protections provisions. Go figure.

The Sarbanes-Oxley Act makes it illegal for a publically traded company to discharge, suspend, threaten, harass, or discriminate against any employee who provides information to assist in the investigation of a violation of certain Federal Laws (18 USC 1514A). The bank has the option of appealing OSHA’s fine. It should quit while it’s behind; but somehow I don’t think that is going to happen.

Of course, the fact that Wells Fargo has engaged in misconduct discovered by the CFPB doesn’t make the CFPB’s structure anymore constitutional or prudent. But try telling that to the Elizabeth Warren’s of the world.

 

New York Extends Budget till May 31

In what is new ground for the Cuomo Administration the legislature and the Governor have agreed to a temporary budget extending until May 31, while they continue to work on a budget plan for the 2017-2018 fiscal year. This sure does have a back to the future feel to it.

April 4, 2017 at 9:24 am Leave a comment

Get Ready for Paid Family Leave

Although efforts to repeal and replace the Affordable Care Act are getting all the attention, as New York employers, credit unions have much more immediate concerns.  The State is now accepting comments on proposed regulations implementing paid family leave. 

Beginning January 1, 2018 the state will start phasing in the new mandate under which employees will be eligible to receive some pay during the time they are away from their job in order to bond with a child, care for a close relative who has a serious health condition, or help care for family of someone who is called to active duty.  For example, starting in 2018, an eligible employee would receive 50% of their salary for a maximum of 8 weeks during a 52 week period.  When it is fully phased in by 2021, employees could receive up to 12 weeks of paid family leave in an amount equal to 67% of their salary.  However, the payment benefits are capped to a percentage of the State’s average weekly wage.  To be eligible, an employee must have been with a covered employer full time for 26 weeks or part time for 175 days.  Covered employers are those covered by the Workers Compensation Law.

If all goes according to plan, employees will pay for the expanded benefit through payroll deductions analogous to contributions that support the Workers Compensation Fund.  I have my doubts, but the time for questioning the wisdom of the proposal is over and the time for getting your HR person focused on compliance has begun.

As with all complicated regulations, the devil is always in the details, particularly when we are dealing with an area of law that interacts with existing federal mandates.  Please feel free to reach out to the Association if you spot something that needs clarification.  By the way, my kids just got their second consecutive snow day.  I understand completely why states like North Carolina and Georgia get crippled by snow storms but something is wrong when upstate New York can’t handle a two-footer.  Are we becoming a state of wimps?

March 15, 2017 at 8:27 am Leave a comment

Reach Out and Touch Someone At Your Own Risk

The long reach of the Telephone Consumer Protection Act of 1991 was highlighted last week by two Congressional hearings and a joint letter issued by our trade Associations and the bankers strongly opposing a petition to make this onerous law even more difficult to comply with. Believe it or not, this may be the single biggest compliance issue your credit union should be monitoring.  If you don’t think your credit union is impacted by the TCPA, you’re likely wrong.

The TCPA and its regulations prohibit any call to a land line or cell phone that uses an automatic dialing system, artificial or pre-recorded voice that is made without the prior express consent of the called party. According to the FCC, which administers the law, this prohibition now applies to texts.  The key to understanding the TCPA’s reach is to understand that it applies to calls made by your employees with    equipment with the capacity “to store or produce telephone numbers to be called using a random sequential number generator” and the ability to dial such numbers.  Arguably, the only phone that doesn’t meet this definition is that roto dialer wasting away in the back of your garage.  The fact that you don’t autodial your members or bombard them with prerecorded messages is irrelevant.

Traditionally, businesses such as banks and creditors could demonstrate that a member implied consent to receive calls by, for example, including their phone number on a credit application. (See In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 F.C.C. Rcd. 559, 559 (2008)).  Remember that the implied consent standard does not apply to advertisements or telemarketing.

Why has this statute become such a big issue?  Combine this level of nuanced compliance requirements with restrictions on text messages sent to an ever growing number of smart phones and you have a classic legal speed trap.  There were a mere 14 TCPA lawsuits in 2008.  This increased to more than 1,900 in 2014 followed by a 32% increase of such lawsuits to a total of 4,860, including 30 with settlements of over a million dollars.  No wonder then, as pointed out in the joint letter, the expansive definition of auto dialer has even led credit unions and other financial institutions to stop texting messages to members who previously received them.  

While some of this may ultimately be an overreaction, the issue gets even more complicated now that a petition has been filed with the FCC, which would have the effect of making it more difficult to prove that a member has consented to receive TCPA communications.  Specifically, petitioners are requesting that the FCC issue a rule requiring that all calls subject to the TCPA only be authorized with express consent from the receiving party.  The fact that a member has previously put his number on that credit application would no longer constitute consent.     

This proposal would be great for trial lawyers, but lousy for consumers for whom the cell phone has become an electronic appendage, and financial institutions which, as pointed out in the joint comment letter, often have to make live contact with members to comply with federal law.  By the way, the implied consent standards just apply to informational, as opposed to marketing, phone calls.

The good news is that the FCC is poised to take a decisive shift away from many of its more onerous interpretations, now that the Trump Administration can appoint the head of the commission.  Still, this is yet another example of how regulations have over taken the statutes that they are intended to implement.  It is time for Congress to revisit the TCPA.  The problem is that a statute was written when there was an estimated 8 million Americans using cell phones.  Today the number of cell phones exceeds the US population, with many adults having more than one cell phone.

 

March 14, 2017 at 9:24 am Leave a comment

What’s Next for Melrose?

Late Friday afternoon, New York’s Department of Financial Services (DFS) announced that it was placing $1.78 billion Melrose Credit Union into conservatorship and appointing NCUA as Conservator.  Melrose is the second state-chartered credit union specializing in making taxi medallion loans to be placed into conservatorship.  Montauk Credit Union was taken over by the DFS with NCUA acting as Conservator in 2015.  While the ultimate outcome of Melrose’s situation remains uncertain, here are some key points to keep in mind. 

Melrose is continuing as a functioning credit union.  The regulatory purpose of a conservatorship is to give regulators the authority to take over management of an institution and resolve “immediate problem areas and document[s]. . .prospects for the credit union’s future.”  See Examiner’s Guide Section 29-14.

In making the announcement, neither DFS not NCUA would put a timeframe on how long the conservatorship would last.  But, according to NCUA’s Examiner’s Guide, NCUA aims to have conservatorships completed within two years whenever possible.

NCUA and DFS now have broad powers to address the issues confronting Melrose.  For example, if the best option is a merger, NCUA’s Chartering and Field of Membership Manual stipulates that an emergency merger can be approved without regard to field of membership constraints.  NCUA would be primarily concerned that any merger into a continuing credit union, if possible given Melrose’s size, took into consideration the financial strength and management ability of the continuing credit union.  We saw this approach play out when Bethpage took over Montauk. 

Like Montauk, Melrose is one of the only remaining open charter credit unions in the State.  As explained in this 2002 Legal Opinion Letter, credit unions granted such powers prior to a 1929 revision of state law have the authority to permit membership without regard to common bond requirements.  When Bethpage acquired Montauk, it acquired Montauk’s open charter.

No doubt the banking industry will seize on Melrose’s troubles as an example of problems with the industry writ large.  But Melrose’s problems are nothing more or less than the lightening quick speed with which technology is now making business models obsolete.  As recently as 2014, medallions sold for over $1 million.  Today, the price has fallen dramatically.  The cause of this decline in New York Medallions is a San Francisco based computer company, Uber, which wasn’t even formed until 2009. 

 

February 13, 2017 at 7:30 am 1 comment

Is it illegal to deny student loans to DACA students?

perez

Is it a violation of federal law to deny someone a student loan based on their status as a Dreamer? That is the central question posed by a class action lawsuit brought byCalifornia college  students who claim that Wells Fargo denied them student loans in violation of both, Federal and California Law. The lawsuit has the potential of putting financial institutions front- and- center in the debate over the protections the country affords to immigrants.

In June 2012, President Obama’s Department of Homeland Security announced that it would no longer deport young immigrants who had lived in this country for most of their lives, but whose parents were here illegally, and who themselves had never obtained legal status. Under the Deferred Action for Childhood Arrivals (DACA), eligible individuals receive a renewable two year authorization granted by the federal government to stay in the country. Eligible individuals receive a work permit and obtain employment authorization documentation, which entitles them to legally look for work.

The lawsuit was brought by Mitzie Perez, she claims that in August of 2016 she applied for a student loan online. While completing the application she indicated that she was neither a US citizen or a permanent resident. She was immediately denied the loan. Curious as to why she was denied, when she completed the same application a second time, she indicated she was a permanent resident, she was told that “based on the citizenship status you provided, a US Citizen Co-signer will be required for this application”. Should would be able to obtain a co-signer.

She claims the bank violated 42USCA Section 1981. This law provides that “All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens…” She also argues that because of the documentation she is able to provide the bank under DACA, Wells Fargo can provide her a loan without violating the Customer Identification Procedure requirements of the Bank Secrecy Act.

Leaving aside the emotional pull of the argument, the responsibility of financial institutions towards persons who are not permanent legal aliens is ambiguous. Regulation B, which implements the Equal Credit Opportunity Act, makes it illegal to discriminate against an applicant on a prohibited bases, including the applicants’ national origin. Here is where it gets tricky; the commentary accompanying this prohibition explains that while “A creditor may not refuse to grant credit because an applicant comes from a particular country.” A financial institution “may take the applicant’s immigration status into account. A creditor may also take into account any applicable law, regulation, or executive order restricting dealings with citizens (or the government) of a particular country or imposing limitations regarding credit extended for their use.” (12 C.F.R. § Pt. 1002, Supp. I).

Wells Fargo is in a tough spot. On the one hand, I agree with those who argue that there is something distinctly un-American about throwing DACA individuals out of the country. Many of them have spent almost their entire lives growing up as Americans. That being said, the law is the law and just as President Obama extended legal protections with an Executive order in 2012, President Trump could eliminate their legal status with the stroke of a pen. Financial institutions not only have the right but the legal obligation to consider this possibility when deciding whether or not to extend loans to students like Ms. Perez. What decisions they should make based on this information is a much tougher call. This case underscores why congress needs to craft common sense immigration reform.

February 2, 2017 at 9:25 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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