Taxi Task Force to NCUA: It’s Time To Get Involved

Hello folks.

On the train back to Albany yesterday during the unofficial National Football Hangover Day, I read this much anticipated report released by the New York City formed task force which recommends solutions to the NYC Taxi Medallion crisis.

The issues surrounding medallion loans have been analyzed so much now that it’s hard to come up with any radical new proposals. To me, the most important impact of the report is that it underscores that NCUA has to get actively involved in working with both NYC and the State Legislature if there is going to be any viable plan created to help drivers holding unaffordable medallion loans. After all, according to the Task Force, NCUA holds approximately $1 billion in Medallion Loans and, if it decides to offload this portfolio en masse, policy makers will lose any ability to play a role in the loan modification process.

As a result the Task Force believes

“… it is imperative that stakeholders work quickly to develop a practical option for medallion owner debt relief. Such relief may involve collaborating with the NCUA with respect to the portfolio of medallion loans it currently owns.”

 

Escrow Litigation Heats Up

I don’t want anyone to tell me that I did not warn them that the days of federally chartered credit unions not having to pay mortgage escrow interest may very well be coming to an end.

As I mentioned in this blog, there is currently litigation, modeled after similar lawsuits in California, alleging that Federally Chartered Banks are no longer exempt from New York’s law requiring mortgage escrow holders to pay interest. Although this litigation does not involve credit unions, the legal logic underpinning the exemption for federally chartered credit unions is virtually identical to that of banks.

On January 30th, lawyers for Bank of America urged a federal court in New York to fast track the appeal of similar litigation in New York. In a letter to the court, the bank noted that a proliferation of cases challenging the escrow exemption “underscore the need” for an expedited appeal.

What does all this mean for you federally charted credit unions that provide mortgages in New York?   While the issue is still being litigated, you should certainly be taking the time to plan for the likelihood of having to pay interest on those mortgage escrows.

February 4, 2020 at 9:56 am 1 comment

Why California’s Privacy Law doesn’t apply to your Credit Union

I’m more than a little surprised by how many credit unions outside of the great state of California are concerned that they have to comply with the California Consumer Privacy Act (CCPA). As states such as New York and California move to more aggressively assert their jurisdiction, and even international actors such as the European Union seek to expand the applicability of their laws, it’s important that credit unions look beyond the specific statute they are dealing with and understand the total legal framework in which they operate.

The CCPA is landmark legislation, which aims to give consumers control of their on-line information by, among other things, giving them the ability to make sure information is deleted and giving them greater control over which third parties have access to their data. It’s modeled after Europe’s GDPR. It’s a big deal for those businesses that have to comply with its mandates. But the reality is that the vast majority of credit unions outside of the great state of California are not subject to its requirements. This is not a question governed by California Law but by Article 14 of the U.S. Constitution.

For some background, §1798.140 of the CCPA provides that the law applies to entities that are “doing business” in California provided they meet certain thresholds. There is also an exemption for not-for-profit businesses but the way that term is defined it’s possible that these exemptions will not apply to credit unions when the regulations are finalized by the California Attorney General. Both CUNA and NAFCU have understandably asked for clarification as to how exactly California is going to define these terms.

But keep in mind that no matter how California seeks to interpret its own regulations, it is constrained in its ability to impose these far reaching requirements on out-of-state entities. As none other than RBG explained for the Supreme Court

A state court’s assertion of jurisdiction exposes defendants to the State’s coercive power, and is therefore subject to review for compatibility with the Fourteenth Amendment’s Due Process Clause. *919 International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (assertion of jurisdiction over out-of-state corporation must comply with **2851 “ ‘traditional notions of fair play and substantial justice’ Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 918–19, 131 S. Ct. 2846, 2850–51, 180 L. Ed. 2d 796 (2011)

This is not controversial. It is a bedrock legal principal embraced across the legal spectrum. This is why California Law stipulates that its state courts may exercise jurisdiction “on any basis not inconsistent with the constitution”. (Cal. Civ. Proc. Code § 410.10)

So how will you know if your credit union is doing business in California? This is a term of art, which means it will ultimately depend on the unique circumstances of each credit union’s operations. But as the Supreme Court has made clear, to establish that a company is doing business more has to be proven than the occasional, incidental and isolated contact with the state. This means that for your average credit union with specific fields of membership and concentrated almost exclusively within New York and maybe some neighboring states, California law will not apply. This will be true even if some of your members end up doing banking on the West Coast. The situation changes of course if your credit union actively engages in California. For example, if you have a field of membership that includes television actors, there is a good chance that your credit union engages in the type of continuous conduct from which a court could reasonably conclude that your credit union is doing business in the state.

Here is my suggestion; before your credit union starts complying with the CCPA, ask an attorney to do an analysis as to whether or not it actually does business in the state. Chances are this will be money well spent.

January 31, 2020 at 10:31 am Leave a comment

Why Robocall Crackdown Is Hurting Your Credit Union

Contrary to popular belief the biggest obsession in DC right now isn’t the impeachment trial; it’s auto dialing. While it’s hearting to see that the Democrats and Republicans can agree to something, the result of this bi-partisan obsession is that it’s trickier for your credit union to legally communicate with its members than it should be.

First we have yet another decision– Glasser v. Hilton Grand Vacations Co., LLC, No. 18-14499 (11th Cir. 2020)- interpreting what an auto dialer is for purposes of the Telephone Communications Protections Act. Remember, whether or not your credit union is subject to the TCPA is totally dependent on whether or not it is using an auto-dialer when it reaches out and touches someone. Law 360 is reporting that the 11th Circuit refused to allow an individual to go forward with this class action lawsuit claiming a violation of the TCPA.

The case got my attention because the court agreed with an earlier decision by the Court of Appeals for the D.C. Circuit which I have blogged about – ACA International v. Federal Communications Commission- which rejected an expansive interpretation of auto-dialer championed by our friends on the West Coast. The split between the circuits increases the likelihood that the Supreme Court will have to decide how to interpret the TCPA.

Of course, the more logical step would be for Congress to amend the TCPA to make sure that it outlaws abusive telemarketing as opposed to acting as a tripwire for class action lawsuits. But the odds of anyone in Congress voting for a bill which could be attacked as weakening the TCPA are about as good as Donald Trump being removed from office by the Senate.

All this is happening against the backdrop of heightened regulatory vigilance of auto dialers. For example, the DOJ is seeking to shut down two auto dialer companies that facilitated auto dialer operations based in New York and Arizona, which the government claimed specialized in ripping-off the elderly. In addition, regulators are continuing to review whether even more TCPA regulations should be amended. As a matter of fact, it was this comment letter from CUNA last night that got me thinking about this subject for today’s blog.

There is a reason I am providing you with this parade of horribles. No one likes robocalls, or has sympathy for companies that facilitate shams intended to pressure people into giving up their money. But there are legitimate businesses, such as credit unions, which use this technology every day to communicate with their members about legitimate topics. The current frenzy has regulators using a hatchet to deal with legitimate issues when they should be using a scalpel. I don’t see this ending any time soon. So for those of you who haven’t done so already, take a good look at the type of technology you are using and start thinking of ways that you can avoid getting caught in the regulatory dragnet.

 

January 30, 2020 at 9:43 am Leave a comment

Are you prepared for the next pandemic?

I certainly don’t want anyone to overreact, but as I was getting ready to go this morning, I listened to the news that the coronavirus is continuing to spread. In addition, with an incubation period of 14 days, an epidemiologist interviewed on Bloomberg predicted that as many as 100,000 people could ultimately be infected.

It’s time to start dusting off those continuity plans addressing what steps your credit union would take in the event of a wide-spread virus. Here are a couple of good places to start:

In 2006, there was wide-spread fear of an influenza pandemic. The financial regulators, including the NCUA, responded with this inter-agency statement on Pandemic Planning.

In 2014, we had the Ebola Outbreak. One of the most helpful analyses of the legal issues confronted at the time by employers was this blog post from Bond Schoeneck & King, which addressed issues such as the extent to which employers could inquire about employees’ travel plans.

There are also regulations you are already subject to. For example, Federal law requires employers to provide employees a place of employment free of “recognized hazards that are causing or are likely to cause death or serious physical harm” to employees (29 USCA section 654). Consistent with this obligation OSHA issued this guidance during the flu epidemic.

Now I want to stress that all of these outbreaks are unique and raise different issues. Furthermore, I’m not aware of any formal regulatory requirements that have been imposed on financial institutions as a result of the coronavirus. But as I like to say, I am paid to be paranoid, and now is a good time to start answering the questions that you could be asked if this virus spreads.

Another day, another data breach

In the immortal words of the second greatest American entertainer of the 20th Century, Ray Charles, “Here we go again.” KrebsonSecurity is reporting that convenience store chain Wawa has been victimized by a nine month data snatching security breach. This is based on news that the bad guys are already offering to sell personally identifiable information on the dark web. Rather than go through the usual litany of complaints I think I’m just going to let Ray Charles finish out the blog with one of my favorite songs:

I’ve been there before
And I’ll try it again
But any fool knows
That there’s no way to win
Here we go again
She’ll break my heart again
I’ll play the part again
One more time

 

 

 

 

 

 

January 29, 2020 at 9:32 am Leave a comment

Just What is a UDAAP Violation, Anyways?

It isn’t often that you see a Bureau scaling back its enforcement powers, but this is exactly what the CFPB announced on Friday when it issued an updated policy statement narrowing its use of enforcement and supervisory actions based on abusive acts or practices. Coming on top of the Bureau’s refusal to defend itself against claims that its structure is unconstitutional, the Bureau’s actions are sure to keep its critics fired up for months to come.

As many of you know, one of the core rights given to the CFPB was the authority to take action against unfair, deceptive or abusive acts and practices, but what is the distinction between an act which is unfair or deceptive as opposed to simply abusive? The question may seem esoteric- okay, it is- but one of the major criticisms of the Bureau has been its broad interpretation of its UDAAP powers.

Specifically, the Bureau will still be citing acts as abusive, but will generally try to avoid categorizing misconduct as such if the act shares the same characteristics that would deem it to be unfair and deceptive. This means that for an act to be abusive, it will generally need to be more harmful than beneficial to consumers.

This by itself wouldn’t be too big of a deal, but the Bureau goes on to explain that:

“To ensure that uncertainty regarding the abusiveness standard does not impede beneficial conduct, the Bureau generally does not intend to seek certain monetary remedies for abusive acts or practices if the covered person made a good-faith effort to comply with the law based on a reasonable—albeit mistaken—interpretation of the abusiveness standard.”

This is what I call the “my bad” approach to enforcement, under which entities will effectively be getting a warning before they are penalized for harmful conduct. As someone who has consistently argued that UDAAP is entirely too vague, this is a worthwhile change, but I am sure there are many groups out there that disagree.

As a matter of fact, the Bureau’s announcement will provide a further opening for New York State’s DFS Superintendent, Linda Lacewell, to argue for increasing the Department’s UDAAP powers. Since she became Superintendent, she has been sharply critical of the CFPB’s lack of enforcement priorities, and highlighted the need to give DFS the authority to pick up their slack. Most notably, this year’s state budget proposal includes a provision (see section NN) increasing the authority of the DFS to take action against UDAAP violators.

 

January 27, 2020 at 9:40 am Leave a comment

NCUA Proposes Major Rule for Expanded Use of Subordinated Debt

After almost five years of research, NCUA has released proposed regulations which would allow some credit unions to offer “subordinated debt” as a means of meeting regulatory requirements. Whether or not the proposal was worth the wait will become clear in the coming days as the industry takes the time to digest all 277 pages of it.

At first glance, the biggest winners seem to be complex credit unions that do not have low income designations. Currently, these institutions don’t qualify for secondary capital. Under the proposal, these larger institutions will be able to use this subordinated debt for purposes of meeting their risk based capital requirements.

Under existing regulations, low-income credit unions currently qualify for secondary capital. These institutions will be eligible to receive subordinated debt with their existing secondary capital grandfathered in, provided the credit union complies with parameters set forth in the proposal.

This means that if your credit union is not a complex or low income credit union, you will be ineligible to receive subordinated debt. Remember, credit unions in this category are currently not eligible to receive secondary capital.

Under the plan, NCUA stipulates that in order to qualify to issue subordinated debt, the debt must:

  • Be in the form of a written, unconditional promise to pay on a specified date a sum certain in money in return for adequate consideration in money;
  • Have, at the time of issuance, a fixed stated maturity of at least five years and not more than 20 years from issuance. The stated maturity of the Subordinated Debt Note may not reset and may not contain an option to extend the maturity; and
  • Be properly characterized as debt in accordance with U.S. GAAP.

Not surprisingly, this complicated framework would create more work for lawyers as the subordinated debt would be classified as a security, triggering additional disclosure requirements.

The new subordinated debt classification will replace the existing secondary capital regulations, allowing those of you who already had secondary capital to continue using it so long as you meet the newly proposed requirements found in the regulation. Take a look at page 262 to get a sense of the additional requirements.

Expect much more to come on this in the near future. Remember, these are proposed rules, so submitting comments on this proposal is absolutely critical.

DFS Extends Libor Plan Grace Period

Good news, people. New York’s Department of Financial Services has extended the deadline for which it will accept an institution’s post-Libor preparedness plan from February 7, 2020 until March 23, 2020. Keep in mind that this only applies to state chartered institutions, but NCUA expects federal credit unions to be able to be preparing for the post-Libor world.

January 24, 2020 at 9:51 am Leave a comment

New York Law Makes it More Difficult to Get Title Insurance on Foreclosed Property

It has not taken long for a law providing extra protection to individuals facing foreclosure to have a devastating impact on New York’s mortgage market. If you provide mortgages in New York State, you should read this blog, and if you think I am exaggerating, reach out to colleagues in the title insurance industry. For more background on this issue, take a look at this blog.

One of the bills signed by the Governor during the final days of 2019 created a new section 1302-a of the Real Property Actions Law which reads as follows:

“Notwithstanding the provisions of subdivision (e) of rule thirty-two hundred eleven of the civil practice law and rules, any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in paragraph (a) of subdivision six of section thirteen hundred four of this article, shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss. A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon defendant’s default.”

This legislation has two major consequences. First, it raises the very real possibility that New York’s already cumbersome mortgage foreclosure process will become even more complicated and time consuming. This concern pales in comparison; however, to the reality that under this legislation, anyone buying foreclosed property subject to a default judgment or a foreclosure proceeding in which lack was not raised cannot be assured that they have clean title to the property. In other words, the previous owner could, under this law, contest the purchase of his or her home even after the sale is final in most circumstances.

As one of my colleagues pointed out, this is going to be a mess. The title insurers agree, which is why I’ve heard of two prominent title insurance companies that do business in New York which plan to either refuse to grant title insurance in the state, or grant it with an exception accounting for this new loophole. The latter option will be of little benefit for the new homeowner, let alone the mortgage holder.

This is bad news not only for lenders and borrowers, but for the communities in which these properties are located. Although the intent of the legislation was to make sure that homeowners at risk of losing their house don’t lose the right to raise this defense, the legislation has been drafted in such a way that it will actually make it more difficult to interest people in buying foreclosed property, contributing to the blight which disproportionately impacts poorer neighborhoods. In addition, theses title insurance exceptions will, in my opinion, make it impossible to sell these properties to Fannie Mae and Freddie Mac given the uncertainty of title.

January 22, 2020 at 9:28 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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