Three Things To Ponder In the Week Ahead

Here are three things you should know as you snap back from reality following a sunny and dry summer weekend;

  • The Washington Post is reporting that Fannie Mae will begin raising its maximum debt to income ratio from 45 percent to 50 percent, beginning July 29, 2017. This is of course big news for those of you who provide mortgages because it expands the pool of member mortgages that can be sold to the secondary market. Also, remember that under the Dodd-Frank Act any mortgage that qualifies for sale to either Fannie Mae or Freddy Mac is a qualified mortgage. This is a big deal because without this, under the qualified mortgage requirements, the debt to income ratio cannot exceed 43 percent per the CFPB.
  • If all goes as expected, the Federal Reserve will once again nudge interest rates higher when its policy making committee meets later this week. Personally, I am really looking forward to Federal Reserve’s Chair Janet Yellen’s press conference following the festivities. The economy continues to send out a string of mixed signals and it will be interesting to see how much she hedges her bets when it comes to the possibility of future rate hikes later in the year.
  • The Wall Street Journal is reporting that the Treasury Department may release as early as today, a 150 page blue print for Regulatory Relief. Among the executive orders signed in the early days of the Trump Administration, was one requiring that the Treasury Department report on potential areas of regulatory reform. While the report has no legally binding impact, it will provide an indication about the top regulatory relief priorities of the administration. Incidentally, the report will not call for the elimination of the CFPB’s single-director structure, but will instead propose that the position be answerable to the president. If it comes out today, I will of course be skimming it as I watch game 6 of the NBA finals, to tell you what is in there about credit unions tomorrow morning. I hope the anticipation doesn’t keep you awake tonight.

On that note enjoy your day!

June 12, 2017 at 8:19 am Leave a comment

What bubble are you in?

I’m a little bit more bemused, bewildered and irritated by the world around me than usual this morning and it’s not just because my Dunkin Donuts’ frozen coffee cost more than $5.00. If I’m going to spend that much money, I’m stopping at Starbucks and getting some real coffee. Let me tell you why I’m annoyed and how it relates to the landscape in which CU’s find themselves competing.

Yesterday we had a former FBI director testify that a sitting U.S. President can’t be trusted even as the president’s lawyer announced that his testimony vindicated our Commander and Chief;

The House passed mandate relief while effusively praising community banks. In reality the bill does much more to help the largest banks in the country than credit unions or small banks.

Our erstwhile ally in Great Britain suffered another self-inflicted wound as voters denied the conservatives a majority in parliament despite polls suggesting an electoral landslide for them. The vote comes less than two weeks before they begin negotiating the U.K.’s divorce from the European Union.

What does all this have in common? They are just the latest examples of a world in which we can not only choose our neighbors but our own “reality bubbles”. The explosion of information brought about by computing power isn’t creating a more meritocratic society in which we hash out issues in a virtual town square, but a more balkanized one in which a collection of tribes increasingly have nothing in common with each other. At the touch of a smartphone button we can find people who think what we think; buy what we buy; eat what we eat; read what we read; live where we live and bank where we bank. We even let kids choose their college roommate lest they be stuck with someone different than themselves.

It’s gotten so pathetic that a Google engineer designed an App to force himself to meet different kinds of people.

The practical point here is that there are two ways to prosper in this environment, either become one of the handful of companies like Facebook and Amazon that have the resources to be all things to all people, or become associated with a tribal niche. Netflix shows don’t get great ratings but they dominate specific demographics. Now, more than ever, credit unions have to pick the tribes they are going to appeal to.

Banking doesn’t mean the same to the socially conscientious millennial as it does to the fifty something year old investment banker or the first generation immigrant and it never will. They are in different tribes and they always will be.

So why am I irritated? This experiment we call the United States of America is predicated on the recognition that America is an incredibly diverse polyglot and the belief that, despite this diversity, its citizens can muddle through and reach consensus on the key issues of the day.

Increasingly though there is not the slightest desire for people to forge a common reality; instead we retreat to our respective bubbles with our “alternative facts”, complain about politicians, and wait for the next election to see what uncompromising band of tribal representatives will tally the most votes.

On that note, have a great weekend!

June 9, 2017 at 9:37 am 1 comment

Are You Really Ready For Remote Deposit Capture?

One of my compliance pet peeves has been the rush to embrace remote deposit capture without a clear framework for apportioning liability. “Check 21” authorized “substitute checks” which are truncated electronic images of paper checks that are treated as real checks. The idea was to speed up settlements between banks.   At the time no one envisioned a world in which your average consumer would have the ability to create electronic images with a smartphone. As a result, what happens if a credit union receives a deposit of an original paper check that was returned unpaid because the check was previously deposited using a remote deposit capture service and paid?

So I was pleasantly surprised that the Federal Reserve finally approved regulations slated to take effect in July 2018 which updated regulation CC for the new century. There is a lot of important stuff in here so in the coming weeks I will be periodically highlighting some key changes as well as an additional proposal the Fed is seeking comment on. Remember this impacts your credit union irrespective of its size.

A new section 229.34 addresses this precise issue and I’m quoting extensively from the accompanying commentary:

“Depositary Bank A offers its customers a remote deposit capture service that permits customers to take pictures of the front and back of their checks and send the image to the bank for deposit. Depositary Bank A accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in turn, pays the check. Depositary Bank A receives settlement for the check. The same customer who sent Depositary Bank A the electronic image of the check then deposits the original check in Depositary Bank B. There is no restrictive endorsement on the check. Depositary Bank B sends the original check (or a substitute check or electronic check) for collection and makes funds from the deposited check available to its customer. The customer withdraws the funds. Paying Bank returns the check to Depositary Bank B indicating that the check already had been paid. Depositary Bank B may be unable to charge back funds from its customer’s account. Depositary Bank B may make an indemnity claim against Depositary Bank A for the amount of the funds Depositary Bank B is unable to recover from its customer.”

Does all this mean that you are at the mercy of your member? Not entirely. The commentary goes onto explain that if the original check deposited in Bank B contained a restrictive endorsement “for mobile deposit at Depositary Bank A only” and the customer’s account number at Depositary Bank A. Depositary Bank B may not make an indemnity claim against Depositary Bank A because Depositary Bank B accepted the original check bearing a restrictive endorsement inconsistent with the means of deposit.

What all this means on a practical level is that you may want to limit access to remote deposit capture to your more seasoned members. Remote Deposit Capture is the future but it’s also ripe for abuse. The new regulations make clear that the credit union offering the service is ultimately vouching for its member’s trustworthiness.


June 8, 2017 at 9:28 am 1 comment

Are You Prepared For Paid Family Leave?

Greetings. It is back to reality after what I personally believe was a phenomenal Annual Convention in Bolton Landing.

Judging by the dramatic dive in my readership that takes place around this time of year, I know that many of you take a break from the nuances of the legislative and regulatory developments of our industry. I call it summer hibernation.

One thing that you should be paying attention to though is the roll out of NY’s Paid Family Leave law. In case you haven’t been paying attention, starting in January 2018 New York is going to start phasing in paid family leave. For example, starting January 1,2018 – eligible employees will receive the lesser of 50 % of their weekly wage or 50% of the states average weekly wage , whichever is less, for a period of 8 weeks during any 52 week calendar period. By the time it is fully phased by 2021, employees will be eligible to receive 12 weeks of paid leave in any calendar year. This law applies to your credit union regardless of its size or charter type.

Even though the law and its benefits don’t kick in until January, New York State is giving employers the option of starting to deduct money from paychecks starting on July 17, 2017 for benefits that kick in January 2018. This is optional and I would certainly recommend checking in with HR folks to see what the best approach is for your credit union.

IF the plan works as intended its cost will be paid for through employee contributions. On June 1st the DFS issued the 2018 premium for Family Leave Benefit Employee Contributions. For coverage beginning January 1, 2018 the amount will be 0.126 of the employees weekly wage provided it doesn’t exceed the average weekly wage of NYS.

Stay tuned. This law is the HR Professional Employment Act in waiting.

June 5, 2017 at 10:36 am Leave a comment

Lake Thoughts for Your Thursday AM

Greetings from the Sagamore on Lake George where the Association is hosting its 100th anniversary. I’m more of a Hamilton than a Jefferson guy but TJ was spot on when he called Lake George “without question” the most beautiful water he had ever seen.

The need to help people of modest means strive for financial security is as pressing today as it was 100 years ago. What has changed is the economy. Here is a factoid from today’s NY Times: a study of 250,000 bank accounts by JP Morgan/Chase Institute found that 80% of households face a mismatch between income and expenses in a given month. The break-even point is about $105,000. Translation: There are many middle class folks out there for whom every penny counts and for whom cost effective banking is a real life saver.

The nation has become so entangled in regulations that rural parts of the country are finding it hard to find enough qualified appraisers to get mortgages processed in a timely manner. Who knew?

Since 1989. presumably in response to the S &L crisis, federal law has required states to set minimum standards for appraisers and appraisals. Over the last two and a half years these requirements have been a bone of contention for lenders in rural communities who argue that licensing requirements are overly burdensome, particularly in the age of Zillow.

A joint guidance issued yesterday by federal financial regulators including the NCUA highlights two existing options that may address appraiser shortages, particularly in rural areas:  a temporary practice permits and temporary waivers.

First, federal law generally requires the state appraiser certifying or licensing agency to recognize the certification or license of an appraiser issued by another state on a temporary basis. As a result, subject to certain exceptions,  practice permits could allow state certified or licensed appraisers to provide their services in states where they are not certified or licensed, including those experiencing a shortage of appraisers.

In addition, federal law already permits the FFIEC to grant a temporary waiver from state licensing requirements in geographic areas where a shortage of appraisers has led to “significant delays” in appraisal shortages.  Requests for waivers  can be made by:

  • A federal bank regulatory agency;
  • A regulated financial institution or credit union; or
  • ther persons or institutions with a demonstrable interest in appraiser regulation.

On that note, I hope to see you over the next few days.

June 1, 2017 at 7:52 am 1 comment

How Home Buying is Vulnerable to Hackers

Hackers are using increasingly sophisticated methods to infiltrate themselves into the home buying process with potentially disastrous results for the home buyer.

Specifically, hackers are using email information stolen from realtors, closing attorneys, title companies and other individuals who are part of the home buying process to send out last second requests to anxious homebuyers to wire needed funds. By the time parties realize that the email request was bogus, their savings have been transferred with little hope of recouping the loss. The scam is described in detail in this blog. A friend of mine told me about this occurring in Putnam County, New York, and I think it’s worth giving people a heads up.

New York State has taken a lot of criticism for its Cyber Security Regulations, but one of its baseline requirements is that insurance companies and banks encrypt email in transit as well as make sure that it is adequately protected when it is being stored. This makes a heck of a lot of sense. Legislatures on both the state and federal level should consider making this a baseline requirement for all companies.

Increasingly, mortgage companies are having members feed information directly into secure websites; again this makes sense. The more information can be uploaded directly from a consumer to a secure website without email exchange that is vulnerable to being hacked, the safer we all are. Needless to say, consumers should be skeptical of any email request for sensitive information. It is just too easy to mimic legitimate businesses with logos, etc.

Finally, we have all grown numb to reports of cyber breaches at places like Yahoo. We may check our bank statements for a couple of months, but when we see no unusual activity we continue about our day thinking that we have dodged a bullet. In reality every time you hear about a breach, whether or not it has cost you money, it means that hackers have more information to develop an increasingly sophisticated hacker profile.

This scam provides a perfect example of why this is so dangerous. The hackers knew how to replicate the profile of the small real estate businesses and patiently waited to entrap individuals they knew were looking to purchase homes. They even knew when the homebuyer would be most vulnerable to last second request for closing funds after watching a sting of email exchanged between realtor and buyer.


May 30, 2017 at 9:16 am Leave a comment

An Appealing Proposition

The NCUA board unveiled proposed regulations yesterday which, taken as a whole, would create a more formal and uniform appellate process by which credit unions could appeal regulator determinations. Although these changes may not seem all that important, they are actually much needed reforms that are long overdue. Another proposal would mandate that members have more information before voting on voluntary mergers.

Here is why you should care:

First in the interest of full disclosure, as I started reading through these proposals last night after turning on game 7 of the Stanley Cup playoffs, I fell asleep faster than an old man in a nursing home after taking his evening meds. As a result, I will be describing these in more detail in the coming weeks as I seek credit union feedback. But for this morning there is one specific aspect of the proposal that I want to highlight.

As pointed out by NCUA, The Federal Credit Union Act does not provide any specific right to a hearing on the record in connection with chartering and field of membership determinations. NCUA is proposing a move to create a formalized appeals process to be codified in a new and improved Sub-Part B to Part 746.

Under the new framework, if the Office of Consumer Protection and Access denies a FOM, Merger, or Spin Off, there would now be a formal process for both written determinations and appeal of these determinations; this includes the right to make oral presentations to the NCUA board.

This approach has several advantages over NCUA’s existing approach to making chartering and FOM determinations. First, as I have commented in previous blogs the more discretion NCUA gives credit unions to argue for FOM expansions, the more important it becomes for NCUA to demonstrate that it has a rational systematic basis for evaluating these requests. Second, a well-functioning appellate process takes the emotion out of disputes and provides a way for parties to know that they are being treated fairly. Finally, a body of administrative case law would provide a needed source of additional guidance for both credit unions an examiners.

On that note, enjoy the long weekend. Hopefully we can squeeze in a sunny day or two.


May 26, 2017 at 9:42 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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