Important Updates on EEOC guidance and NYS Infectious Disease Standards

Memorial Day may mark the unofficial start of summer but last week added several things to your HR person’s to-do list before she goes on vacation.

First, amendments have been proposed to a recently passed NYS law – the HERO Act – imposing state level infectious disease work place safety standards on all employers and mandating that those with ten or more employees authorize the creation of worksite health committees. The changes will narrow employer obligations but even with the anticipated changes there is still work to be done.

Under the original legislation, the state was going to be responsible for developing infectious disease standards by industry. This chapter amendment clarifies that standards will only vary for the largest industries in the state and those determined by the Commissioner Of Health to have unique requirements. This means that many employers will be able to comply with this law by adopting a general model policy standard to be issued by the state.

You’ll also have more time to prepare for these changes.   Under the existing legislation, parts of the law were going to take effect in less than 30 days. In contrast, you are now required to implement these policies within 30 days after they are published by the Commissioner of Health.

Another area of concern addressed by these changes involves an employer’s scope of liability.  Most importantly, only employees who can demonstrate they are harmed by violations of the new standards will be able to sue employers.  The changes also eliminate liquidated damages and require employers to be given notice of violations before being sued.

Under the law, employers with 10 or more employees will have to give employees the option of creating workplace safety committees. The proposed changes slightly narrows the scope of these committees by clarifying they have no jurisdiction to analyze Workers Compensation policies. In addition, committee meetings can now be limited to two hours per quarter.

                                                                EEOC Issues Vaccination Guidance

On Friday the Equal Employment Opportunity Commission issued important guidance clarifying that employers can require employees to be vaccinated provided they are mindful of the need to reasonably accommodate employees with disabilities and those who hold genuine and sincere religious beliefs that may keep them from wanting to get vaccinated. It also gives a green light to employee vaccination incentives.

Since the roll-out of vaccinations, employers have grappled with how best to get their workplaces vaccinated. The guidance closely tracks advice that many lawyers have already given employers. There are several qualifications to the EEOC’s guidance and you would be well advised to closely read the guidance before making any policy changes.

June 1, 2021 at 9:40 am Leave a comment

Are You Prepared for the New POA requirements?

This is not the most exciting question in the world but the sense I get is that for many of you the answer to this question is at best “not quite” and at worst “what changes?” This is concerning because big changes are coming.  For purposes of this blog, I am assuming that your credit union is being presented with a POA where there are no issues regarding potential financial elder abuse.

On a daily basis every credit union in NYS has to decide whether or not to accept and act on a power of attorney document. In today’s blog I am going to discuss the most basic consequences for your credit unions when confronted with a Power Of Attorney starting June 13th. In subsequent blogs, I will discuss other aspects of these changes. If I panic you into taking further action the Association has a webinar on the subject and you can always give our trusty compliance gurus a call on our compliance hotline.

What exactly am I talking about? Late last year the legislature passed and the governor signed into law legislation and a chapter amendment championed by the bar association designed to make it easier to draft POAs. For our purposes it’s important to remember that one of the primary reasons for these changes was frustration on the part of lawyers that banks and credit unions often refused to accept POAs because of what they contend were immaterial drafting defects.    

Specifically, under existing law to be valid a POA must contain “the exact wording” contained in the general obligation law. This gave credit unions and banks a tremendous amount of flexibility in determining whether or not to accept POAs and over the years many went so far as to mandate their own forms.

Starting on June 13th this standard is changing. Specifically, POAs are now valid provided they “substantially conform” to New York law. In other words minor discrepancies between the exact language of NY law and the POA your front line staff is reviewing no longer provides a basis for refusing to honor the POA. 

Furthermore, there are now financial consequences if your credit union refuses to honor a valid POA. Under existing law, all an attorney can do is commence a summary proceeding to order your credit union to honor the POA. When this new law kicks in, if a judge finds that your credit union refused to honor a valid POA, it could be on the hook for damages and attorney costs.

There are also important changes made to the actual form.  Most importantly, Statutory Gift Riders are no longer required and instead certain powers must be noted in a modification section on the POA itself.

Here’s where it gets a little complicated.  For POAs drafted before June 13th to be valid they still must comply with the exact wording standard as well as the existing Gift Rider requirements. But, starting June 13th, you can still face litigation for refusing to honor valid POAs drafted before June 13th.

The bottom line is that your credit union should be updating its procedures to make sure that frontline staff is aware of these new changes and has clear guidance, such as a checklist, detailing the circumstances under which it will and will not accept a POA.

May 28, 2021 at 10:04 am Leave a comment

It’s a Scary Time for CUs, Cyber Attacks, and Insurance

Warren Zevon once called on his dad to bring him “lawyers, guns, and money.” Given the sharp increase in cyber-attacks, your average credit union CEO should be asking for lawyers, money, and better cyber insurance policies.

Recently, an article in The American Banker proclaimed that these are scary times for small banks and credit unions, some of which have recently been the target of ransomware attacks. Yours truly is highlighting this trend not simply because I want to scare you into action but because I believe that for many financial institutions the question is not if, but when you will find your credit union’s data being held by hackers who want money in return for allowing you to access your client’s personally identifiable information.

One of the most basic steps you can take to help protect yourself against ransomware and data theft attacks is to buy insurance. This is an issue that yours truly is also becoming increasingly obsessed about because there is a lack of clear guidelines as to precisely what a policy provides your credit union and even if your regulators are going to penalize you for using insurance proceeds to recover from ransomware payments.

My paranoia has been fueled by this recent GAO report describing an insurance industry that is scrambling to adjust to the rapidly evolving and increasingly expensive niche of cyber-attacks. For your credit unions that means that it is absolutely crucial that you get competent counsel to provide new guidance as to what is and is not covered under your policy. It also means that you should not assume that general language in your existing policy already provides you insurance protection. There are more and more cases in which this precise issue is being litigated. For example, I recently came across this case, West Bend Mutual Insurance Company v. Krishna Schaumburg Tan, Inc., in which an insurance company tried to deny coverage to a business that was sued after providing biometric data of customers to third parties.

In the medium to long term these issues will resolve themselves. Courts will scrutinize and effectively standardize basic terms. The problem is that this is little comfort to those of you confronting these issues right now. Time to call the lawyers and bring the money.

May 26, 2021 at 9:16 am Leave a comment

Time For the Climate Change Talk

There are three ways in which the industry can react to climate change: (1) It can pretend that the issue does not really exist; (2) It can so embrace the issue that it refuses to acknowledge the tradeoffs involved in integrating climate change considerations into its core operations, such as underwriting, or (3) it can go through the hard work of developing a consensus on an issue that will be with us for decades to come. With the caveat that this is one of those blogs when I remind you that this is my opinion and only my opinion, it’s time to decide what approach to take. 

On Thursday, President Biden issued this executive order on Climate Related Financial Risk. As part of the order, the Financial Services Oversight Council, comprised of federal banking agencies, including the NCUA, will prepare a report detailing the approaches that the agencies are taking to address Climate Related Financial Risk in their respective areas. The report will include recommendations on how identified climate-related financial risk can be mitigated, including through new or revised regulatory standards as appropriate. Federal housing regulators have already been tasked with examining climate change risks and the housing market. 

In other words, we are moving past the platitudes. Within the next year we can expect to see regulators, including the NCUA, propose specific regulatory mandates. It’s one thing to discuss the impact of climate change, it’s quite another to see the direct impact that policies designed to mitigate its effects will have on your bottom line. 

As always, the purpose of this blog is not to give you my opinion on climate change but to get you thinking and preparing about future regulatory developments. The problem is that the feelings one has on the appropriate regulatory framework are inexplicably intertwined with one’s political perspective. For instance, there are individuals who believe that climate change is an unproven piece of scientific speculation which is causing policy makers to put the present-day jobs of Americans at risk. 

On the other end of the spectrum, are those who believe that climate change is a current existential threat to humanity’s existence and that it can be addressed in some way that not only makes the world safer, but reconfigures the economy in a way that creates present-day jobs for Americans. Personally, I believe that there is a huge middle ground out there which both recognizes the threats but also recognizes the reality that addressing climate change will involve tradeoffs.

Where does this leave the credit union industry when it comes to formulating responses to propose regulations in the coming months? Yours truly would love to see the industry develop and publish a set of guiding principles which it will use when analyzing regulatory and legislative proposals in this area. Industries are increasingly being pressured to take public stances on a wide range of hot-button topics. A thoughtful debate over the next six months could serve every credit union by demonstrating how credit unions don’t shy away from the tough issues that impact their membership and giving them a response when they are asked what approach they are taking to climate change.  

May 24, 2021 at 10:07 am Leave a comment

Is the Fed Squeezing Small Lenders Out of Existence?

Good Morning, folks.

In the 1930’s the Federal Government responded to the collapse of the farming industry by putting in place a government back framework meant to stabilize the farming industry and stem the impact it was having on everyday Americans. Today, the family farm is largely a relic of a bygone era but the government subsidies designed to keep it alive are still alive and well and disproportionately benefiting larger corporations that don’t need the money.

Many of the same trends are taking hold in the banking industry to the detriment of credit unions.

I’m not going out on much of a limb here to say that you should expect your credit union to have to pay more into the Share Insurance Fund in approximately six months. That’s my takeaway from NCUA’s report on the Share Insurance Fund provided at yesterday’s monthly board meeting. It is also the assessment of one Todd Harper who put credit unions on notice that “absent some unknown external event, these forces seem likely to eventually” push the equity ratio below the 1.20 level at which point NCUA must pass around the Share Insurance Hat.

This unfortunate development isn’t all that surprising. This past week many New York credit unions have had the opportunity to listen to Steve Ricks pithy overview of current credit unions economic trends. Members are stocking away savings at unprecedented levels thanks to all of that government stimulus spending. The bad news is that loan demand isn’t keeping pace and investment returns are non-existent. Put this all together and you have the profits of many credit unions, particularly smaller ones, being squeezed even more than they have been in the past. Perhaps as the economy picks up even more, so will loan demand. We will have to wait and see.

But let’s take a look at the big picture. The trend we are seeing is nothing more than the continuation of forces put in place by the Federal Reserve more than a decade ago. When the mortgage meltdown looked as if it might trigger a depression, even Janet Yellen explained that, while she was empathetic to the difficulties faced by community banks, the economy as a whole benefitted from the stimulus resulting from historically low interest rates.

At the time this argument made sense. But by continuing to take extraordinary steps to suppress interest rates, the Fed’s intervention is feeling more like a permanent lifeline to large banks then a short-term necessity. As someone who believes in the free market this doesn’t feel like a fair competition.

May 21, 2021 at 12:48 pm Leave a comment

Three Things to Ponder As You Start Your Credit Union Day

It’s been another busy week in credit union land.  Here are some of the key things to ponder as you finish your second or third cup of coffee.

Municipal Deposits Bills Advance

Legislation that would finally permit municipalities to deposit their funds in credit unions, if that is where they think they can get the greatest benefit for their taxpayers, jumped a major legislative hurdle yesterday when A7334 sponsored by Assemblyman Pichardo was passed out of the Assembly Banks Committee. Companion legislation- S670 by Senator Sanders– was passed out of the Senate’s Bank Committee earlier this week. Now both bills are in the Finance Committees of their respective chambers with plenty of time left to get this done before the end of the session.

To Mask or Not To Mask, That is the Question

Now that the CDC has modified its mask guidance and Governor Cuomo has followed suit, credit unions in New York State are considering what changes, if any, they are going to make to mask wearing policies for both members and staff. Here are some things to consider as you implement your changes.

First, take the time to read both the entire CDC guidance and the Governor’s announcement. For instance, did you know that even as he announced that New York would defer to the CDC guidance, the Governor stressed that the state’s Department of Health continues to “strongly recommend” that masks continue to be worn in indoor settings where vaccination status of individuals is unknown. In addition, the CDC is continuing to take a more conservative approach when it comes to hopping on the plane for the long awaited return to an in-person conference.

In many ways the HR issues that your credit unions have to navigate are even trickier. For instance, to the extent you give employees more flexibility based on proof of vaccination, remember the need to provide reasonable accommodations under the ADA to disabled persons who can’t get the vaccine for health reasons.

Given these complexities, your changes should, of course, be in writing but stay flexible. With variants raging around the world and this country still nowhere near approaching herd immunity, you can bet you’re going to have to modify your procedures in the coming months.

CFPB Updates Mortgage Lending Guidance

CFPB’s Q&As on TRID compliance are in many ways the Rosetta Stone of mortgage lending. So when I heard that the CFPB had updated its guidance in response to the federal BUILD Act yours truly was a little nervous. Full Disclosure: I had not heard of the BUILD Act. 

The BUILD Act is legislation signed into law by President Trump in early January. It authorizes not-for-profits offering low-interest mortgage loans that meet certain criteria to provide modified loan estimates and closing disclosures. It is a common complaint among not-for-profits that the regulatory burdens imposed on them by TRID make it difficult to provide loans to the people who need them most. I couldn’t agree more. It’s a shame that Congress takes such a narrow view of which institutions could benefit from greater lending flexibility.

May 20, 2021 at 10:03 am Leave a comment

Resisting The DarkSide

The successful dark side ransomware attack in which hackers were able to disrupt a major pipeline providing gas to states throughout the east coast has once again brought the issue of cyber security to the forefront.  Here are some of the lessons your credit union can learn from this event:

Don’t forget the basics. These are highly sophisticated attacks that start with very basic mistakes. On Wednesday, the FBI and the CISA issued a joint memorandum. The first three steps it suggested companies take to mitigate the threat of ransomware are to require multi-factor authentication, enable strong spam filters, and implement a user training program and simulated attacks for spear phishing.

Expect insurance costs to spike. The attack comes as regulators and stakeholders debate the best way to deal with ransomware attacks and the role that the insurance should play. This past fall, FINCEN issued guidance warning financial institutions and insurance companies that they might be violating federal law if they help a company facilitate a ransomware payment. In addition, New York State’s Department of Financial Services recently reached a multi-million dollar settlement with an insurance company for violating the state’s cyber security regulations. The settlement has gotten the attention of the legal community since it included a stipulation that insurance proceeds would not be used to pay the settlement. 

The DarkSide may bring congress to its senses. Call me a cock-eyed optimist but if the ability of hackers to shut down a major energy pipeline affecting states throughout the country doesn’t jolt congress into passing comprehensive cyber security regulations then nothing will. This would seem like an issue that can overcome the great ideological divide but only time will tell. 

May 17, 2021 at 9:20 am Leave a comment

Albany Moves On CU Priorities

Yesterday saw some important movement on legislation impacting credit unions.

First, legislation that would permit municipalities to deposit money in credit unions has been placed on the Senate Banking agenda which meets this Tuesday, May 18th. S670 sponsored by Banking Committee Chairman Sanders is of course a key priority for the industry.

Currently, municipalities, including school districts and local towns throughout the state, are prohibited from placing their money in credit unions even when it could help New York’s taxpayers by generating more interest on public funds and providing much needed competition in an area where banks currently hold a monopoly. We will be coming out with a Call To Action later today.

Secondly, yesterday the Governor signed legislation to exempt from levy and restraint COVID-19 stimulus payments. More specifically, the bill exempts from collection any payment to individuals under the Federal Family First Coronavirus Response Act exemption for emergency relief funds. Any payments to individuals, including tax refunds, recovery rebates, refundable tax credits, and any advances of any tax credits, under the Federal Families First Coronavirus Response Act (FFCRA), Coronavirus Aid, Relief, and Economic Security Act of 2020  (CARES Act), Consolidated Appropriations Act of 2021, and the American Rescue Plan Act Of 2021 (ARPA). The exemption does not apply to child and family support payments. In addition, the bill prohibits financial institutions from exercising a right-of-set-off on these funds. 

The Association joined with CUNA in advocating for stimulus payments to be exempt from levy and restraint.  Congress did not exempt the latest round of stimulus payments from levy and restraint apparently because doing so would have violated budget reconciliation rules which allowed the measure to be passed in the Senate by a simple majority.

May 14, 2021 at 9:22 am Leave a comment

Post COVID Recovery Poses a Test for CECL Compliance

There are two ways to prepare for your credit union’s transition to the Current Expected Credit Loss accounting standard, lovingly referred to as CECL, with which your credit union must comply starting in 2023: you can either be using this time to research your credit unions lending history and extrapolating lessons from the larger financial institutions that are already complying with a standard or you can continue to put CECL on the back burner in the hope that it will once again be delayed or eliminated completely for smaller financial institutions. If you choose the former approach then this blog is for you.

This morning, yours truly wants to highlight this article in the WSJ discussing the challenges faced by the banking behemoths as they determine how much to reduce their reserves. As the article explains CECL is complicating bank decisions on how much to reduce the reserves: “jumping the gun could be dangerous: Lowering reserves too quickly and then needing to rebuild them could hurt companies’ credibility and reduce income, accountants and advisers say.”

Even taking the historic nature of the economic shutdown into account, it is hard to believe that a huge spike in reserves wasn’t in part a reflection of uncertainty over the proper treatment of loans under CECL. According to the WSJ, in the second quarter of last year, banks had stashed away almost $70B compared to the $12B they had put aside at the same time in 2019.

Now they are reducing the reserves.  But the question of just how dramatically and quickly they should assume that the economy is recovering remains anyone’s—dare I say it— guess. Take for instance the most recent jobs report which was so underwhelming that even the U.S. Department of Labor acknowledged that the economy still has a steep hill to climb. Conversely, consumer credit is increasing and there is plenty of evidence out there that jobs are available for people who want them.

Put all these factors into your CECL blender and ask yourself if any of these macro-trends impact your credit union and if so how much? In many ways implementing CECL is trickier for medium-sized and smaller institutions than it is for the larger guys who know that their institutions will be shaped by larger economic trends that may not even touch your credit unions field of membership.

Those of you hoping for more CECL relief should mark your calendar for May 20th. The Federal Accounting Standings Board (FASB) will be holding a round table discussion on CECL implementation, a clear signal that it is open to making further changes. For those of you hoping that CECL never comes, keep your fingers crossed.

As for your faithful blogger, I remain a CECL contrarian who believes that properly implemented, it makes sense to adopt an accounting standard that recognizes that a certain number of your performing loans will end up being delinquent. That being said, however, CECL has emerged as a potentially significant counter-cyclical drag on economic growth. I wouldn’t be surprised to see pressure grow on the FASB to modify its requirements.

May 11, 2021 at 10:30 am Leave a comment

Fed Proposes giving merchants more choices when processing online payments

Good morning folks, last week the Federal Reserve board proposed regulations that would interpret the Durbin amendment as mandating the type of technology your credit union uses to access debit card networks.

There are two basic types of technologies used to process debit card payments: Single-Message systems send a single message to facilitate a payment transaction while a Dual-Message system uses– you guessed it– two messages. When the Durbin amendment was passed more than ten years ago, either of these approaches could easily accommodate in-store transactions, but SMS technology was not able to accommodate card-not-present technology.  Fast forward to the present day and, according to merchants, some of the largest issuers still don’t accommodate online transactions even though technology now makes it possible to do so. This distinction has grown in importance as online transactions have grown on average 17 percent a year not including the dreaded 2020.

Not surprisingly, the merchants are complaining. They argue, and the Federal Reserve agrees, that since many issuers do not offer the use of SMS to process online transactions they often find themselves unable to choose a competing network. In response to these concerns, the Fed has proposed adding commentary to Regulation II specifying that card-not-present transactions are a specific type of transaction for which a merchant must have access to at least two unaffiliated networks.

After reading the preamble, I’m curious if this will have any impact, particularly on smaller credit unions, or if the Federal Reserve’s new mandate can be accomplished with a touch of a button. If it is the former situation, then get the word out to you association ASAP; if it is the latter, well it was only a matter of time before regulators caught up to the huge shift towards online shopping.

May 10, 2021 at 9:08 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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