Posts filed under ‘Regulatory’

Congratulations…I Guess

My wife accuses me of being a beater of dead horses. That’s not true all the time but…

Yesterday, the NCUA announced that it was officially closing down the temporary Corporate Stabilization Fund and setting the normal operating level for the Share Insurance Fund at 1.39%. The bottom line is that if all goes as planned, credit unions will receive what Board member Metzger gushingly referred to as a “historic rebate of more than $736 Million” in the 3rd Quarter of 2018. Here is a temporary rule describing how the funds will be distributed on a pro-rata basis.

Here are some of the Board member quotes which help explain why I am in the minority of those who feel that credit unions should be very cautious in planning how to spend their largess. As explained by Chairman J. Mark McWatters, “While we currently project surplus equity, I want to be clear that the equity ratio could decline between now and the end of the calendar year if additional reserves for credit union failures are needed or if other unexpected developments occur that would significantly affect the equity ratio. This could reduce or eliminate the actual distributions that would be paid. However, to the extent actual performance of the Share Insurance Fund permits, the multi-year process of distributing surplus funds to insured credit unions would therefore begin in 2018.”

Chairman Metsger, at least in his written statement, was much less reserved and sounded very much like a politician taking a victory lap before he heads off into the credit union sunset.

What Chairman Metsger was referring to is that, according to at least one hypothetical presented by NCUA at yesterday’s Board meeting, if the Stabilization Fund was not closed in 2017 and the Stabilization Fund merged into it, the Insurance Fund operating level would have been as low as 1.18%. Remember that the Insurance Fund can be no lower than 1.20%. In other words, credit unions would have had to pay a premium to ensure that the Insurance Fund stays at the normal operating level.

So here is my point. While credit unions deserve a tremendous amount of credit for hard work and sacrifices they made in paying for the corporate meltdown, and I have consistently said that NCUA did a phenomenal job in aggressively pursuing novel litigation against the world’s largest investment banks, there are still plenty of warning signs out there. We have the medallion situation and an overheated economy which, by historic standards is nearing the end of its expansion. I hope we don’t look back a year or two from now and realize that the money being returned to credit unions today could have been put to better use hedging against these uncertainties.

More BS (A)

Here we go again. Financial regulators in the Department of Justice made big headlines yesterday by announcing a $185 million civil penalty to be imposed against US Bank for “willful violations” of the Bank Secrecy Act. Take a look at what the bank did. It intentionally choice to break the law in a way that was so blatant that a compliance specialist a week out of CUNA Compliance School would have known something fishy was going on. To be crystal clear, if a credit union or small community bank for that matter did what this bank did, it would be out of business and its CEO would be retaining a white-collar defense lawyer. In contrast, in the too big to prosecute world in which we live, executives get to write a check, do a mea culpa and go about their day. This is utter garbage.

On that happy note, enjoy the long weekend.

February 16, 2018 at 9:12 am 1 comment

Will Medallion Losses Impact Potential Payout?

This one goes into the ‘don’t shoot the messenger’ category. NCUA’s agenda for this Thursday includes a discussion of its decision to merge the Corporate Stabilization Fund into the traditional Share Insurance Fund. When NCUA announced that it was deciding to do this last year, it was estimated that between $600 and $800 Million dollars could be available for return to individual credit unions.

Now for the part where I don’t want you to get too angry with me: NCUA made this announcement just as the value of medallion loans was sinking lower and lower. Clearly we are reaching a point where this could have a direct impact on the Share Insurance Fund. Most notably, the recently released 4th Quarter performance reports indicated that Melrose Credit Union’s net worth to total assets had tumbled to a   -13.79 in December from -5.10 in September.

In a worst case scenario, medallion losses could wipe out any windfall otherwise recognized from folding the Corporate Stabilization Fund into the Share Insurance Fund. One of the things I’ll be listening for at Thursday’s meeting is the extent to which NCUA has already taken these potential costs into account in debating what the appropriate premium for credit unions should be and what the appropriate size of any rebate should be as well.

More ADA Lawsuits

I don’t want credit unions to think that they are the only ones being subjected to ADA website lawsuits. Here is some information about two of the most recent ones I have spotted. In Gathers et al v. 1-800-FLOWERS.com, Inc. a Federal District Court Judge in Massachusetts recently denied the company’s request to have its ADA lawsuit dismissed. A second case is Kiler v. Rag & Bone Holdings, LLC. I haven’t had a chance to read the complaint yet but according to Law360, the lawsuit is bringing claims not only under the Federal ADA but New York State law as well. This could be an important development…

Speaking of websites, it is being reported that the NCUA is beginning to conduct website audits as part of examinations. If you’ve been subject to one of these, the Association would love to hear about it so that your pain can benefit others. On that note, kumbaya and enjoy your day.

February 13, 2018 at 9:28 am Leave a comment

Trump Administration Sends Mixed Signals On Marijuana Banking

The legal status of marijuana banking got even more hazy on Tuesday.

Remember when last I blogged about this issue Attorney General Sessions had just rescinded a Justice Department guidance issued by the Obama Administration in which the conditions under which federal prosecutors would not prosecute marijuana businesses in states where it was legal were outlined. FinCen followed with guidance explaining how financial institutions could comply with the Bank Secrecy Act and provide baking services for marijuana businesses.

But right after California implemented its legal marijuana program, the Justice Department announced that it was rescinding its earlier guidance.

On Tuesday speaking before the House Financial Services Committee, Treasury Secretary Steven Mnuchin testified that, In the aftermath of the Justice Department’s decision, the Treasury Department is reviewing FinCen’s guidance outlining the application of the BSA. The Treasury Secretary assured the Committee that no one wants to see a Justice Department crackdown resulting in bags of cash being used to transfer marijuana profits.  He also stressed in later testimony that the Treasury Department has not rescinded the FinCen’s memos and doesn’t want to do so until it has a reasonable alternative.

Meanwhile, the Federal Reserve Bank of Kansas sent a letter to Fourth Corner Credit Union in Colorado laying out the conditions under which it will be able to access the Federal Reserve System.  This is a huge development.  Joined by the NCUA, the bank had previously blocked The credit union’s access to the Federal Reserve. A subsequent lawsuit went all the way up to the Court of Appeals for the 10th circuit.

So where does this leave us? On the one hand the Treasury Department fully wants to allow financial Institutions to provide banking services in states where marijuana is legal. On the other hand, the Justice Department, which ultimately has responsibility for enforcing federal law, clearly has people In high places who are opposed to legalization. On the bright side, it appears that the issue has finally been joined and that we should get a resolution from the Trump Administration sooner rather than later.

 

February 9, 2018 at 7:48 am Leave a comment

The Military Lending Act May Apply To That Car Loan After All

Image result for north korean president

We have the greatest military in the world but judging by the way the DOD has gone about implementing the Military Lending Act it is safe to say that if the military was as bad at defending us as they are at promulgating consumer protection regulations, the United States would be a protectorate of a united Korea under the leadership of great leader Kim Jong-un.

If you think I’m being too tough then perhaps you haven’t been paying attention to the latest developments. The Military Lending Act was passed by Congress in 2007 in response to wide-spread reports of abusive loan practices towards our military personnel such as pay-day loans. The basic idea is that when consumer credit is extended to a member of the military or their relatives, they are to be given additional protections. Most importantly, the Military Lending Act mandates that covered products are subject to a Military APR (MAPR) which caps the amount of interest that can be charged at 36%. Since the original regulations applied to a narrow group of products, they didn’t get all that much attention.

But then in 2015 the Department of Defense extended the coverage of regulation to most consumer loan products and placed an affirmative obligation on institutions to identify covered individuals. This was bad but at least the final regulations did not apply to car loans. Unfortunately on December 14th, the DOD gave compliance people everywhere an early Christmas present when it issued an updated Q&A in which it explained that automobile purchases generally are not considered consumer credit for purposes of the Act, but “The answer will depend on what the credit beyond the purchase price of the motor vehicle or personal property is used to finance. Generally, financing costs related to the object securing the credit will not disqualify the transaction from the exceptions, but financing credit-related costs will disqualify the transaction from the exceptions.”

In other words, if you have the audacity to offer GAP insurance to your military members you must comply with the Military Lending Act when making car loans. Try explaining that one to your software vendor.

Yesterday CUNA joined other associations in calling for the DOD to withdraw this ridiculous interpretation which contradicts the DOD’s earlier decision that car loans are not consumer credit products for purposes of the Military Lending Act. I wish I could give you more helpful advice than this but just remember that everyone is in the same boat.

DeFrancisco Runs For Governor

Quick witted, long serving Republican Senator John DeFrancisco announced on Tuesday that he would run for Governor against incumbent Andrew Cuomo. DeFrancisco joins Brian Kolb, the Republican minority leader in the Democrat-dominated Assembly, and Joel Giambra, the former Erie County executive. Here’s a good bit of trivia for you: When’s the last time a Republican won state-wide office in New York? 2002.

My Good As Gold Super Bowl Prediction

Well it’s that moment you’ve all been waiting for when I give you my Super Bowl prediction. My predictions are so good that you can actually use them as collateral under NCUA regulations. New England 27, the Eagles 14. Brady cements his legacy as the greatest quarterback of all time and after some early success, the Eagles are unable to move the ball against the Patriots. At least we can all watch bits and pieces of that ridiculous Tom Brady video.

 

February 2, 2018 at 8:55 am Leave a comment

Three Things You Should Ponder As You Start Your Credit Union Day

When It Comes To ADA lawsuits, is the best defense a good offense?

The ever informative CUtoday features an article this morning quoting Becky Landis, CEO of State Highway Patrol FCU in which she argues that the only way credit unions can stop “frivolous” ADA website lawsuits is to litigate. “Yes, you could say that it might be cheaper and less costly for the credit union to roll over and settle, but am I really doing justice to my membership by doing that?”

Great question and I know that it’s one that many credit unions are wrestling with these days. There is certainly a time and place to push back against these lawsuits but just remember that not all of them frivolous. They are annoying, obnoxious and arguably of little utility but a good faith argument can be made that the ADA applies to your website. The real question is, in circumstances where your website is ADA compliant or will be in the near future, should you hand out settlement money just to avoid litigation? There are some great legal issues that have to be litigated if the industry is going to get clarification as to what does and does not constitute as ADA compliance.

DFS Issues Cybersecurity Reminder

New York’s Department of Financial Services issued a reminder earlier this week that institutions subject to its cybersecurity regulations have until February 15th to certify that they are compliant with this regulation. In addition, for those of you subject to DFS Audits, the department announced that proof of your cybersecurity compliance will be one of the issues addressed in those “first day letters” you receive prior to an examination.

Interestingly, a federal credit union that provides mortgages received this notice from the DFS. If other federal credit unions have received a similar notice, please let the Association know.

A Kinder, Gentler CFPB

The amazing makeover of the CFPB continued yesterday. In an op-ed piece in the WSJ, Acting Director Mick Mulvaney says the following: “The CFPB has a new mission: We will exercise, with humility and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate. But we go no further. The days of aggressively “pushing the envelope” are over.”

By the way, with his strict adherence to the plain reading of statutes and advocacy of limited government, Mulvaney sounds very much like NCUA’s Chairman J. Mark McWatters, who is widely rumored to be a top candidate to take over the Bureau.

 

 

January 24, 2018 at 8:27 am Leave a comment

Here’s What You Really Need To Know

Just like my favorite rapper, T.I. –I’m back baby and better than ever!

If you’re anything like yours truly, you’ve been thinking more about a perfectly cooked roast with creamed spinach than you have about the increasingly bizarre intersection of politics policy and regulation. There’s been some real doozies over the last week and a half so here’s some quick hits on what you missed:

HMDA

Acting CFPB Director Mick Mulvaney is continuing to move quickly to make a decisive imprint on the CFPB. On December 31st, he announced that the Bureau did not intend to require institutions to resubmit data or assess penalties with respect to information collected in 2018 and reported in 2019 under the Home Mortgage Disclosure Act. In addition, we can expect proposed amendments to the CFPB’s regulations which greatly expanded the amount of data mortgage lenders have to collect starting yesterday.

Keep in mind folks that several of the additional data points collected under HMDA are mandated by the Dodd-Frank Act. In other words, you should still be executing your new and improved HMDA collection activities.

Pre-paid Cards

The Bureau announced that it was delaying the effective date of the pre-paid card rule and that we should expect further amendments to the proposal soon.

Just What Is the Bureau’s Mission Anyway?

The Elizabeth Warren/Bernie Sanders wing of the blogosphere went apoplectic over news that the CFPB had changed its mission to combatting burdensome regulation. Perhaps they should have taken the time to read the Dodd-Frank Act which provides that one of the Bureau’s primary objectives is in fact to do away with regulations that are “outdated, unnecessary, or unduly burdensome.” Wouldn’t it be nice if someday we could have a Bureau that both protects consumers and eliminates unnecessary regulations? But that’s the spiked egg nog talking. By the way, I prefer to put bourbon in mine.

Taxes

This one was hard to miss. The final tax bill caps the Federal deduction for State and Local taxes at $10,000 which explains why downstate Suburban  and Mid-Hudson  Republicans voted against the bill. Much confusion was created after Governor Cuomo issued an Executive Order allowing localities to accept 2018 taxes in 2017 as a way of avoiding the increased tax hit. The DFS even issued a notice last week encouraging banks and credit unions “that include property taxes in an owner’s monthly mortgage bill or otherwise pay property taxes on behalf of owners.” I’m not quite sure how that would work as many of these taxes haven’t been assessed yet. The IRS responded with this memo putting people on notice clarifying the very limited circumstances under which property taxes can be prepaid. You can expect to hear plenty about the tax legislation in the Governor’s State of the State Address tomorrow.

Fiduciary Rule

New York’s Department of Financial Services has proposed regulation that would impose an enhanced fiduciary obligation on sellers of life insurance and annuities. The Trump Administration’s Department of Labor has delayed similar regulations from taking effect on the Federal level and the DFS is moving to fill the perceived gap. This is yet another example of how states like New York will attempt to counter balance the regulatory actions of the Trump Administration. There’s a 60 day comment period.

Important Effective Dates

The first day of the year is always an important one since many new laws take effect. Here are some of the bigger ones:

Paid Family Leave is now in effect. I hope everyone has been preparing for this one.

Minimum Wage Increase: Remember that this could also impact the amount of money you can freeze when you get a levy or restraint notice on a member’s account.

Finally, an adjustment to the New York State’s Exempt Employee salary level threshold is now law.

January 2, 2018 at 9:29 am 1 comment

Is The IRS Clogging The Mortgage Drain?

Image result for clogged drainThe Senate and House aren’t quite done cramming tax reform through the legislative process but the IRS apparently can’t wait to start using the tax system to impact mortgage lending. Here is what I’m talking about:

If your credit union makes mortgage loans, chances are you have used the IRS’s Income Verification Express System (IVES). The system is an online portal that allows mortgage lenders to quickly access a mortgage applicant’s core tax information including a W2 and Form 990. Typically the IRS responds to requests within two days.

However, since December 8th, mortgage industry groups have complained that the system has slowed down to the point where people aren’t going to get their mortgages approved as quickly as they otherwise would. The American Banker is reporting that groups representing a broad range of mortgage lenders expressed their concerns to the IRS and that at a conference call on Monday the IRS explained that it was aware of these concerns and working quickly to resolve the glitches. The system has undergone a series of changes in recent years as the IRS sought to strengthen data security protections.

CFPB Withdraws Debt Collector Survey Request

The CFPB, with Acting Director Mick Mulvaney at the helm, has informed the Office of Management and Budget overseen by Mick Mulvaney that it is withdrawing its plans to undertake an online survey of debt collection practices. Here is the notice.

This news melts my cynical heart (I can’t help myself. I recently watched the original Grinch, which is the only Grinch worth watching. But I digress.) The CFPB has never been all that convinced that existing debt collection laws and regulations, which generally apply to third-party debt collectors, go far enough to protect consumers who don’t, can’t or won’t pay off those pesky bills they owe. The Bureau is clearly studying making lenders subject to stricter debt collection protocols. It’s the type of potential proposal that would be hanging over the industry in a CFPB run by Cordray appointees that has about as much chance of moving forward under Mick Mulvaney as President Trump does of underselling the tax bill when he signs it into law later today. My guess is that the President will call it the single greatest step for economic growth that this country has made since the founding of the Republic.

December 20, 2017 at 9:16 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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