Posts filed under ‘Regulatory’

More Regs On the Way

All’s quiet on the Western Front today, but there’s plenty of proposed regulations on the horizon that will keep your vendor on speed-dial and make small financial institutions wonder how they are supposed to generate income.

The Bureau that Never Sleeps (CFPB) published its semiannual list of rule-making priorities in a blog Wednesday.  I won’t go over the whole list, as you can read it yourself, but I will point out a couple of areas that could really have an impact on your credit union’s operations. 

The Bureau is still in the process of determining what additional regulations are needed for overdraft services for checking accounts.  Depending on how this is drafted, this could be the one that requires your credit union to make the most significant changes.  For instance, imagine if the CFPB proposes capping overdraft fees, requires additional opt it protection for members to access overdraft services, and mandates the order in which checks must be processed. 

Another area it is considering regulating is one that hasn’t gotten a lot of attention in credit union land:  debt collection.  Most debt collection regulations currently apply to third party collectors.  I wouldn’t be surprised to see the Bureau impose more debt collection requirements directly onto banks and credit unions.  Even if they don’t, debt collection is fast becoming a regulatory land mine and its increased complexity will impact all lenders.

That’s all folks.  Have a nice weekend.

May 20, 2016 at 8:10 am Leave a comment

Regulators Stress Account Reconciliation

This one goes into the “don’t shoot the messenger” category, particularly when the messenger is in a good mood because it sounds as if some warm weather is coming.

Yesterday evening, the NCUA joined with the other merry band of financial regulators to issue a joint edict, I mean “guidance” detailing the responsibility of financial institutions to properly reconcile account discrepancies.  They pointed out that the failure to do so could constitute a violation of federal regulations as well as a deceptive practice.

What are they talking about? Take me for instance.  I am a bank teller’s worst nightmare. The Rosetta Stone is easier to read than my handwriting.  In the Middle Ages, before direct deposit took off, I used to deposit my meager starting salary  at a branch down the block from my apartment in Washington. I used to dutifully fill out the deposit slip, place it in an envelope with the check, and either deposit it with a teller or at the ATM.  If I deposited more than one check, it wasn’t uncommon for me to round off the deposit.  I didn’t think fifty cents was such a big deal   As time went by, however, I got so many notices from the branch that this sweet teller I used to deal with occasionally became increasingly frustrated and unfriendly.  She eventually explained to me, albeit in much nicer terms, that, my shoddy deposit slips never added up and those were messing up the computer system.  I was a little surprised, and in all honesty a little flattered, to find out that my  salary could inconvenience such a big bank, although I didn’t tell her that as I could tell she wasn’t amused.  After all, it wasn’t a big deal to expect customers to accurately record deposits.  Can’t members be held accountable for accurately recording their own deposits?

If only this guidance was around when I was depositing my checks, I could have explained to the exasperated teller that “in some instances, financial institutions do not research or correct all variances between the dollar value of items deposited to the customer’s account and the dollar amount that is credited to that account, resulting in the customer not receiving the full amount of the actual deposit.” Regulators expect them “to have deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.”

Why are regulators coming out with this edict now as opposed to several decades ago when I could have indignantly responded to my exasperated teller? Pure speculation on my part, but I bet some class action lawyers or AGs  are considering  lawsuits claiming that banks are saving money by not trying hard enough to reconcile deposits.

Payday Lending Reg Coming in June

On June 2, the CFPB is expected to formally issue a proposal to regulate payday loans. The Bureau That Never Sleeps has scheduled a field hearing in the “Show Me” state on small dollar loans. As The American Banker points out, the CFPB typically uses these events to unveil new regulations.  (Of course,   the fact that the Bureau has already decided what it is going to do before it holds these hearings makes them more like Chinese show trials than hearings, but I digress).

The big question is how the regulation will impact the ability of credit unions to offer payday loan alternatives that are currently sanctioned and encouraged by the NCUA.  Inquiring minds also want to know how the CFPB is going to balance enhanced regulation against the demonstrable demand for these loans.  Too tough an approach will cripple the payday lending industry; too light an approach will send the usual suspects in the Consumer Advocate class howling that the Bureau has gone soft.


May 19, 2016 at 9:23 am Leave a comment

DOL Finalizes Major Revisions to Overtime Rules

It’s alive! The U.S. Department of Labor finalized regulations increasing the minimum salary level for an employee to be exempt from overtime pay requirements from $455 a week to $913 a week. This means that when the regulations become effective in December, unless your supervisors make at least that amount, they must be paid the overtime rate of time and one-half for each hour they work over 40.

In addition, under current law there was an exception from  overtime pay for highly compensated employees (HCE) who make at least $100,000 annually but whose duties don’t qualify them for exempt classification. This regulation increases the HCE threshold to $134,000. Check with your HR person on this one as there are exceptions that apply to certain professions.

The minimum salary threshold will be updated every three years beginning in 2020. It will be adjusted so that it is equal to the 40th percentile of full-time salaries for workers in the lowest wage region (which is currently the South). As originally proposed, the exempt employee threshold would have been adjusted annually to equal the 40th percentile of full-time salaried workers nationally. This would have resulted in a threshold of over $50,000, which is the number I used in a recent blog. Nevertheless, if and when this regulation becomes effective, it will mark the first time that the exempt employee threshold is automatically updated on a periodic basis.

Why do I say “if and when this regulation becomes effective?” I’ve always thought that this regulation was, in part, politically motivated. I strongly suspect that it will become a major campaign issue with the Donald pledging to annul the regulation and Hillary pledging to ensure that it goes forward untouched.

But with the regulation now finalized, you must find out, if you don’t already know, how many of your currently exempt employees make less than this threshold, how much overtime they work, and if it makes more sense to bump their salaries so that you may continue to classify them as exempt employees, pay them overtime or make sure they don’t work more than 40 hours a week.

Incidentally, there is some good news in all this. Up to 10% of the standard salary level can come from non-discretionary bonuses, incentive payments and commissions, provided they are paid at least quarterly. Furthermore, the final regulation makes no changes to the way in which employers classify exempt and non-exempt employees based on the duties they perform. Many of us were concerned that the Department would institute a rigid test under which employers would have to document that a supervisor spends at least 50% of her time carrying out supervisory responsibilities. This would have harmed many small credit unions.

Finally, when you are done reading this blog, it’s time to reach out to your HR professional so that you can understand precisely how this regulation will impact your credit union. On that note, get to work and enjoy your day.

May 18, 2016 at 8:21 am Leave a comment

Two Things Your HR Person Should Be Thinking About

Credit unions are not just financial institutions; they are small businesses.  This means, of course, that even regulations that have nothing to do with banking can pose challenges to their bottom line.  While we can’t prevent the federal government from churning out mandates, the more we can plan ahead, the more we can mitigate compliance expenses.

What triggered this didactic diatribe?  Most importantly, the U.S. Department of Labor will be finalizing regulations this year that will increase the minimum salary level for employees to be considered exempt from $455 a week to $970 a week, which equals at least $50,440 annually.  This is a big deal for credit unions as it is for all businesses.  For example, if you currently have an exempt supervisor who makes $44,000 a year, you will have to decide whether to 1) increase his wage; 2) pay overtime or 3) limit overtime.  These types of decisions take time, so my first point in writing this blog this morning is to remind you that if you haven’t started reviewing how your costs may be affected by this regulation, you should.

The second point of this blog is to point out just how out of touch federal regulators can sometimes be with reality.  During a hearing of the Senate Committee on Small Business and Entrepreneurship last week, I assumed I had simply misunderstood the testimony of D. McCutchen, who pointed out that the DOL estimates that it will only take businesses about one hour of a midlevel employee’s time to familiarize themselves with these regulations.  Sure enough, you can find that estimate in the preamble to the proposed regulations under the Department’s assessment of regulatory familiarization costs.

As up and coming Republican U.S. Senator Tim Scott of South Carolina explained, this analysis was “hogwash.”  It also makes me wonder yet again how many of the regulators overseeing workplace conduct in this country have actually ever had a job in the private sector.

Bathroom Access For Transgender Employees Under Federal Law

Given the amount of attention the federal government guidance on the use of facilities by transgendered students received last week, I figured now is a good time to point out that the EEOC recently released a fact sheet on bathroom access rights for transgender employees.  The fact sheet, among other things, reminds employers that:

“Gender-based stereotypes, perceptions, or comfort level must not interfere with the ability of any employee to work free from discrimination, including harassment. As the Commission observed in Lusardi:  “[S]upervisory or co-worker confusion or anxiety cannot justify discriminatory terms and conditions of employment.  Title VII prohibits discrimination based on sex whether motivated by hostility, by a desire to protect people of a certain gender, by gender stereotypes, or by the desire to accommodate other people’s prejudices or discomfort.”

May 16, 2016 at 8:49 am Leave a comment

Do You Know Who Your Beneficial Owner Is?

We all know that when you open an account, you have an obligation to identify the account holder and understand enough about that person so that you can identify suspicious activity.  For several years now, FinCEN has expressed concern that financial institutions don’t do enough to identify who really owns and benefits from accounts for businesses and certain kinds of trusts.  So, earlier this week it published final regulations that will require financial institutions to identify the beneficial owners of certain types of accounts, as well as the individuals who control them.

The general idea of the regulation is that when a financial institution opens an account for a corporation or LLC, as part of its customer identification procedures it must identify the beneficial owner(s) of the business – those who own at least a 25% stake – as well as a single individual who exercises legal control of the entity, such as an executive officer or senior manager.

Don’t panic.  The regulation comes with a form that can be used to gather the information from the person opening the account and you can generally rely on that person to provide the information.  In other words FInCen’s goal is not to require that every financial institution have a staff responsible for verifying a company’s structure.  Plus these requirements only apply to accounts for so-called “legal entities.”  Legal entity customers are defined as “a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.”

In addition, there are numerous exceptions to this definition outlined in the regulation and its preamble.  For instance, the preamble explained that accounts opened for unincorporated associations do not qualify as legal entities.  Generally, most trusts do not have to be filed with the state and therefore are also not covered by this regulation.  As for those of you with Interest On Lawyer Trust Accounts (IOLTA), which you only recently were authorized to offer, the preamble explains that your requirements under this regulation are satisfied so long as you perform customer due diligence on the intermediary (i.e. the lawyer opening the account).

None of this is to minimize the importance of this new requirement.  This new regulation will require new policies and procedures.  In addition, there may well be scenarios under which the amount of cash being funneled between a beneficial owner and a corporation necessitate the filing of a Suspicious Activity Report (SAR).  The rule takes effect in July, but compliance is not required until 2018.

Some Good News

In a speech yesterday, newly installed NCUA Board Chairman Rick Metsger committed to thoroughly reviewing the agency’s current exam cycle.  As a first step, he announced that NCUA would be eliminating the requirement that credit unions with $250 million or more in assets be examined each calendar year.  In a press release, he described this mandate as neither effective nor efficient.

In the finest tradition of newscasters everywhere, who always end Friday newscasts on a happy note, I’m signing off.  Have a great weekend.

May 13, 2016 at 9:02 am Leave a comment

Key NYS Legislation Starts to Move

Albany is getting down to its post-budget business, especially now that the seat vacated by former Senate Majority Leader Dean Skelos has been won by Democrat Todd Kaminsky.  This week’s Senate Banks Committee agenda includes legislation important to credit unions.

Most importantly, legislation sponsored by Senator Savino (S.7183) would clarify when a mortgage is considered consummated under New York State Law.  Under the TRID regulations, closing disclosures must be received by a homebuyer at least three business days before a mortgage loan is consummated.  Currently, there is no statutory definition of consummation and there is case law that suggests that consummation actually occurs at the time that the credit union or bank sends a commitment letter to a mortgage applicant.  The bill clarifies that for purpose of compliance with federal law, consummation occurs when a mortgage applicant signs a promissory note and mortgage.  Here is a previous blog I’ve done on the topic.

A second bill on the Committee’s agenda, S.7434, mandates the creation of a state-wide data base of vacant foreclosed property.  Under this bill, when a bank or credit union obtains a judgement of foreclosure on residential property that is or has become vacant or has been abandoned, the mortgagee is required to provide notice of the vacancy to the Department of Financial Services within ten days.  The Attorney General (AG) and municipalities would have access to the database and the hope is that it will make it easier to hold mortgagees responsible for maintaining the property.  The AG will have the authority to fine institutions that violate this section.  Unlike a proposal previously put forward by the Attorney General, this bill does not seek to impose responsibilities on financial institutions for vacated property on which they have not obtained a judgement of foreclosure.

CFPB Unveils Class Action Protection Proposal

At a New Mexico field hearing yesterday, the CFPB formally unveiled a proposal that would prohibit banks and credit unions from including arbitration clauses in account agreements that prohibit consumers from joining class action lawsuits.  The CFPB is taking this step pursuant to the Dodd-Frank Act which mandated that it study the use pre-dispute arbitration clauses and make regulatory changes where appropriate.

This is a big deal for many industries that have turned to arbitration clauses as a means of controlling liability risks.  It is not clear to me how many credit unions use arbitration clauses, but at the hearing yesterday it was suggested that the use is growing in the industry, particularly by larger credit unions.  If you would like to know my personal opinion of the CFPB’s proposal, here is a blog I did on arbitration clauses earlier this week for CU Insight (how’s that for a shameless plug, I figure if I take the time to write this stuff, I might as well encourage people to read it).

Bankruptcy Cliffhanger

Here is a question for you to ponder over the weekend.  Can a bankruptcy court overseeing a Chapter 13 reorganization vest legal title in residential property in a bank or credit union over the objection of a bank or credit union holding the mortgage on which it has not yet foreclosed?  Or, put another way, you know that abandoned piece of property that simply isn’t worth foreclosing?  Can you be made to take legal title?  I’ll be providing the answer to this question next week.  I am sure you can’t wait, but enjoy your weekend nevertheless.


May 6, 2016 at 8:58 am Leave a comment

NCUA To Hit Regulatory Pause Button

President Obama may have named Rick Metsger Chairman of NCUA’s Board(  but Board member J. Mark McWatters  has  served notice that he is ready willing and able to play a decisive role in blocking regulations as long as he remains with NCUA.

The transition to a two member board provides the NCUA an opportunity “to avoid heavy handedness” and tailor rules to outliers  he explained in a column explaining his  in NCUA’s May newsletter. (  In  other venues he has been even blunter,  explaining in a speech before the National Association of Credit Union Service Organizations  that Matz’s departure presents an opportunity to hit the ” pause button” on new regulations.  At the same time,  McWatters has indicated an interest in instituting an 18 month exam cycle.  Chairman Metsger has also consistently demonstrated an interest in  mandate relief.  The exam cycle might be an area of common ground.

Much of this comes as welcomed news to credit unions, even if the truly onerous regulations are coming from the CFPB these days.  But remember, there are some things that credit unions want done.  For example, NCUA still hasn’t finalized regulations making fields of membership for federal credit unions more flexible.    And the guidance to accompany NCUA’s new MBL framework is something the industry will need time to understand and implement.

Remember too that this regulatory hiatus may continue for quite some time. We are in an election year and I don’t see anyone in a rush to replace Matz .This means that  if and when McWatters gets to move over to  the Export-Import Bank Chairman Metsger could be a very lonely man.

What happens if there is something that really has to be done? Only the shadow knows

May 5, 2016 at 9:13 am Leave a comment

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Authored By:

Henry Meier, Esq., Deputy 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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