What Would Luke Do?

Typically, your faithful blogger likes to prepare posts first thing in the morning to provide you with the most up-to-the-minute information that is going to impact your credit union day. Today, I’m cheating. As you read this post, there is a good chance that I am still sleeping, having binged on a late night college hoop extravaganza. Later today, I will be playing poker with 25 fellow hooky players. I must be rested and sharp for such a day’s work.

Why am I telling you this? I just watched an Internet broadcast of yesterday’s NCUA board meeting and I couldn’t resist giving you my take on some very good news. In fact, I am as pleased as I would be if I got dealt a Straight Flush on the River.

In the latest example of how an infusion of new blood has given the agency enthusiasm for real mandate relief, the NCUA has decided to go forward with plans to eliminate the Fixed-Assets Cap. This cap currently limits federal credit union expenses for buildings, furniture, equipment – including computer hardware and software, and real property to 5% of a credit union’s shares and retained earnings unless they get a waiver. The really good news is that NCUA is proposing to far exceed its initial proposal made in July of 2014 and not only eliminate the cap, but do so without a requirement that credit unions submit a fixed asset management program (FAM).

When NCUA initially proposed eliminating the fixed asset cap, it coupled this proposed reform with a requirement that credit unions submit a highly detailed plan and mandating procedures to insure a board’s involvement in the project. Credit unions and associations, including NYCUA, argued that while they supported elimination of the cap in concept the FAM was so onerous that the proposed “reform” was of little value. Yesterday, the agency proposed doing away with both the cap and the proposed FAM. Instead, guidance will be issued to give credit unions and regulators a sense of when a credit union is taking on too much risk.

This means that NCUA should and will have the authority to question building plans, but that credit unions should be able to execute expansion dreams so long as they can justify them. In yesterday’s board meeting, NCUA’s Larry Fazio quoted the Gospel of Luke – I’m not kidding – for the following proposition:

“Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it?  For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, ‘This fellow began to build and was not able to finish.’(14:28-30).

Regardless of what your religious beliefs are, with or without a formal cap, NCUA always has had and always will have the authority to question building plans on safety and soundness grounds. NCUA may not be requiring credit unions to develop a detailed FAM, but credit unions should be able to demonstrate that they have thoroughly analyzed the cost and benefits of their project by, for example, doing cost projections. They also should be able to show that the board was actively involved in the building decision. Neither of these conditions are unreasonable and I would much rather credit unions be prepared to demonstrate how their projects reflect their unique needs instead of being required to comply with inflexible regulations.

The Board also decided to go forward with an amendment establishing a standard occupancy requirement. Under existing regulations, an FCU must partially occupy the buildings acquired for future expansion within three years and unimproved property within six years. NCUA is going forward with plans to require credit unions to partially occupy property within 5 years of its acquisition whether or not it is improved. NCUA is going to put these new changes out for a 30-day comment period.

On that note, enjoy the basketball and remember people who chase straights and flushes arrive on planes and leave on buses.

March 20, 2015 at 8:20 am Leave a comment

Are You Ready for Some March Madness?

Two things happened yesterday that will impact your credit union. What remains to be seen is how great an impact they will have.

Most importantly, the Federal Reserve’s Open Market Committee gathered yesterday for its first meeting since January. Reports indicated that the Fed is losing patience. To be more accurate, meetings of the Federal Reserve’s Open Market Committee are accompanied by a statement providing clues as to where the Fed thinks the economy is headed. In its January statement, it explained that “[b]ased on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” If, as expected, the Fed removes this line from today’s statement, it is a sure sign that it will be raising interest rates for the first time since 2008, probably no later than June.

For almost a decade now, regulators have been warning against the dangers posed to financial institutions over-exposed to a sudden spike in interest rates. I have always thought these fears were exaggerated, but the Fed’s policy statement will signal the start of what could be the most volatile period of rate gyrations you have had to deal with in quite some time. Remember that in June of 2013, a statement by then Chairman Ben Bernanke indicating that the Fed would soon be moving to raise interest rates resulted in the average rate for a 30-year fixed rate mortgage to surge more than 100 basis points between June and September. Ironically, the Fed ultimately did not raise rates at that point, and mortgage rates tumbled yet again. The question is: will the Fed’s statement today touch off another analogous period or has the market already baked in an anticipated rate increase?

The second thing that happened yesterday you should keep your eye on is the CFPB’s announcement that it is beginning a “public inquiry” into credit card industry practices. Since the inception of the CFPB, your faithful blogger has always thought that it would take steps to fundamentally amend Regulation Z, not only for mortgage lending, as it was charged to do under the Dodd-Frank Act, but for all open-ended lending.

The CFPB is charged with conducting a biennial review of the CARD Act. As part of this review, the Bureau is seeking public comment on credit card practices for purposes of presenting a report to Congress. Pure speculation on my part, but if I were a consumer advocacy organization, and I wanted to change the way consumer lending is done in this country, I would sure want to lay out my blueprint while a Democratic President is still in office. Stay tuned.

March 18, 2015 at 8:26 am Leave a comment

Does the Supreme Court’s Loan Officer Decision Impact Your Credit Union?

As readers of this blog know, last week the Supreme Court unanimously reversed a lower court decision and upheld the U.S.  Department of Labor’s authority to issue an opinion letter classifying mortgage loan officers as non-exempt employees for purposes of the Fair Labor Standard Act (Perez v. Mortgage Bankers Ass’n, No. 13-1041, 2015 WL 998535, at *4 (U.S. Mar. 9, 2015).  What kind of impact will this have on your credit union?  I can’t answer that for you, but the question you should be asking is: What are my employees’ primary duties? If an employee’s job is to act as a mortgage loan officer, then the decision may change the way he is classified and compensated.   In contrast, if your supervisors originate the occasional mortgage, but spend most of their day supervising staff, then the decision won’t impact your operations.  The key point is that labels don’t matter: it’s what the employee actually does that you and your HR person have to look at in the aftermath of this ruling.

First-with apologies for those of you for whom this is real basic stuff-federal law divides us up into two basic categories of workers: exempt and nonexempt.  Nonexempt employees are entitled to overtime whereas exempt employees are not.  The distinctions made sense in 1938 when it was obvious who the blue collar factory worker was and who was the white collar boss, but in the information age, the distinction isn’t as easy to figure out. Regulations recognize five categories of exempt employees including professional, administrative, executive, outside sales, and computer-related professions.   In 2010, the Obama Administration’s DOL reversed an earlier DOL opinion letter.  It ruled that mortgage loan officers were not administrative employees and had to be given overtime. Last week’s decision upheld the DOL’s right to issue this ruling.

The distinction can be tricky for credit unions, particularly smaller ones.  For example, since many branch managers wear multiple hats-they not only manage staff but they sign off on most of the mortgage loan originations-does this decision mean that they are now automatically non-exempt employees? No,   it comes down to what an employee’s “primary duties” are. Nothing in the Court’s decision changes this erstwhile test.    As explained on the DOL’s website, the primary duty “means the principal, main, major or most important duty that the employee performs.”

Remember, the label you give a job doesn’t mean all that much.  For example, our small branch manager who helps out with an occasional mortgage loan is considered a Mortgage Loan Originator under other federal regulations; after all she sometimes offers, arranges, or assists a member in obtaining or applying for a mortgage at the credit union. ( 12 CFR  1026.36.)  But, while the CFPB doesn’t care what an originator’s primary duty is, the DOL sure does

March 17, 2015 at 10:40 am Leave a comment

Is The Cardless ATM the Next Big Thing?

I have my doubts, but just so you know, I would not have invested in Twitter either. Chicago-based BMO Harris Bank is starting the highest profile roll-out to date of a cardless ATM network in the US.

So what is a cardless ATM? Think of it as pre-ordered cash. A member uses her smart phone app to order a cash transaction. When the member arrives at a cardless ATM terminal, all she has to do is press a single button and wave her phone in front of the ATM. Out pops the cash and she is on her way.

The technology allows customers with a smart phone app to withdraw cash from an ATM without a debit card. As readers of this blog will know, I am quick to chastise credit unions that are reluctant to adopt new technology. But this is one technology of which I am not convinced.

In 2013, Wintrust, a $20 billion holding company also based in the Mid-West, started using the technology and further expanded its use in January of this year. A case study of its experience produced by FIS, which is the technology vendor behind the enterprise, pointed out that the technology increases security since ATM transactions bypass the use of magnetic strips; are convenient for customers since they can use their existing smart phones and automatically save ATM receipts; and increases the speed of a typical ATM transaction to as little as 8-9 seconds for a “preordered cash withdraw” compared to a normal ATM transaction that takes 30-40 seconds.

So, why am I skeptical? It seems to me that if a member is technologically savvy enough to be attracted to technology like this, that same member is busy avoiding the use of cash completely. This would have been great technology in the 90s but with people now having the ability to make cashless transfers between accounts and go weeks without ever visiting an ATM, let alone a branch, how impressed are they really going to be by a cardless transaction?

Then there is the big picture. Precisely at the moment when merchants are finally being pressured to adopt EMV technology, does it make sense to invest in upgraded ATM technology that may very well have a very short shelf-life. As for the added security of a cardless withdrawal, I believe it is only a matter of time before the bad guys figure out how to steal these wireless encrypted messages. I don’t know the first thing about the technology, but I know enough about human nature to surmise that if there is money to be made from stealing information, there are enough people out there who have the brain power, greed and lack of ethics to figure out how to get it.

On that cheery note, have a great Monday.

March 16, 2015 at 8:26 am Leave a comment

Will CFPB Make handling delinquent loans even more difficult?

They may-at least in relation to mortgage loans involving bankrupt borrowers.

Let’s recall  that in passing Dodd Frank and promulgating its regulations Congress and the CFPB wanted to minimize potential dual track foreclosures whereby a bank  agrees to modify a mortgage loan on a Friday only to foreclose on the same house the following Monday.  As a result, the 2013 Mortgage servicing rules mandated that   mortgage servicers make a “good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency and, promptly after establishing live contact, inform such borrower about the availability of loss mitigation options if appropriate.” In addition servicers are required to provide to a delinquent borrower a written notice alerting a delinquent borrower to loss mitigation opportunities not  later than 45 days of a borrowers delinquency (12 CFR 1024.39)

But what happens if the delinquent borrower has declared bankruptcy? What happens if the mortgage is owed by co-borrowers only one of whom has declared bankruptcy? These are the type of arcane riddles that keep compliance folks tossing and turning at night.  They are very legitimate questions because trying to collect a debt subject to an automatic stay is illegal.

Fortunately,  the Bureau That Never Sleeps shared these concerns, or so I thought. When it finalized the  mortgage servicing rules in 2013 it clarified  that the “Live Contact “ provisions don’t apply  if the borrower has declared bankruptcy.  It went onto explain that the “live contact” provisions also don’t apply if either co-borrower on a delinquent loan is delinquent.  As the Bureau explains in a commentary to this provision   “The exemption in § 1024.39(d)(1) applies if any of the borrowers is in bankruptcy. For example, if a husband and wife jointly own a home, and the husband files for bankruptcy, the servicer is exempt from complying with § 1024.39 as to both the husband and the wife.”

This makes perfect sense. After all can you imagine trying to make live contact with a non-bankrupt spouse while trying to avoid running afoul of the  bankruptcy code with the other? Would you train your servicers to hang up if it sounds like anyone but the spouse who has not declared bankruptcy answers the phone?

Unfortunately our good friends at the Bureau can’t keep well enough alone.  In December they issued a series of proposed amendments to the servicing rules.  Some of these changes make sense but the Bureau is considering narrowing the live contact exemption.  Specifically it is proposing that the exemption from the live contact requirements applies to only those non-bankrupt borrowers who are jointly liable on a mortgage loan with a debtor in a Chapter 12 or Chapter 13 bankruptcy case. In other words,  if the Bureau goes forward with this proposal you would have to make a good faith effort to make live contact with a non- bankrupt co-borrower whose co-borrower declared chapter 7 bankruptcy.

The Bureau  is responding to consumer groups who point out that there is currently no prohibition in the bankruptcy code against  contacting a non-delinquent co-borrower.  Fair enough. But this means that under existing law servicers get to use their own judgment in deciding when the benefits of such contact are worth the risks.  How serious  a problem is the CFPB trying to address anyway? Is there an epidemic of houses being lost because a co-borrower filed for Chapter 7 bankruptcy and the other  co-borrower didn’t know? This is a great example of crafting a regulation that is great in  the abstract   just so long as no one has to try to implement it.

As for the early intervention notices the Bureau is proposing to mandate that servicers, with certain exceptions, be required to provide the written early intervention notice required by § 1024.39(b) to a delinquent borrower who is in bankruptcy or has discharged personal liability for the mortgage loan. The comment period ends Monday and I will keep you posted on what the CFPB decides to do.

Have a good weekend.


March 13, 2015 at 9:19 am Leave a comment

Are you storing your email like Hillary?

Its great having the Clinton’s back in the spotlight.

Their penchant for going right up to the line of propriety and wallowing in the gray area of the law (e.g. how do you define “is” anyway?)  provides so many entertaining blog worthy teaching moments that I’m sure Hillary’s relentless drive for the Presidency will be of great benefit to blogger and reader alike.

In case you missed it, earlier this week the former First Lady held a press conference to dispel any notions that she was knowingly   doing something inappropriate when she had a personal server installed at her private residence so she could store her State Department email on her personal account.  (Can you imagine Putin responding to an email from Secretaryofstatechick at yahoo.com?)

Anyway, shame on those of you who thought that she was trying to pull a fast one.  The prestigious   law school graduate, and  former high-powered lawyer with  the most experience in and around government of any presidential candidate since John Quincy Adams didn’t realize that it might be wrong to put government email on her personal server and decide for herself what emails should be saved, destroyed and parceled out.

In fairness to the Lady Who Would be Queen, the question of how much email to retain and for how long is one that vexes businesses of all shapes and sizes including credit unions every day.  Compliance people hate it because there are few bright line rules about how long email should be retained. Instead   one of the best guides to use in crafting your credit union’s email retention procedures  are   the factors considered by the courts  overseeing lawsuits.  Why? Because unless you plan on never getting sued by a former employee or ending up in a contract dispute with a vendor the courts are going to expect you to be able to provide basic information that the party suing you needs to prove its  case. The more reasonably you maintain your email today the more  slack a court may be willing to cut you tomorrow when determining whether you or the disgruntled plaintiff should bear the cost of discovery. There are also specific recordkeeping requirements for specific regulations but basing your record retention exclusively on these requirements doesn’t do enough to provide your credit union with an appropriate record retention framework.

As a general rule a party being sued bares the cost of complying with discovery requests-as those of you who have ever tried to get an attorney to reimburse your credit union for the cost of complying with an information subpoena are well aware.  However with the explosion of electronic storage courts have become sensitive to the fact that, depending on a corporation’s size, electronic record retention  and retrieval of email and other documents can become prohibitive.  Furthermore, it isn’t reasonable to impose the same retention requirements on a $50 million credit union and Bank of America.  As a result in weighing discovery requests and apportioning retrieval costs federal courts and, increasingly, New York’s state’s courts have examined the following criteria:

“1. [t]he extent to which the request is specifically tailored to discover relevant information;

“2. [t]he availability of such information from other sources;

“3. [t]he total cost of production, compared to the amount in controversy;

“4. [t]he total cost of production, compared to the resources available to each party;

“5. [t]he relative ability of each party to control costs and its incentive to do so;

“6. [t]he importance of the issues at stake in the litigation; and

“7. [t]he relative benefits to the parties of obtaining the information”

U.S. Bank Nat. Ass’n v. GreenPoint Mortgage Funding, Inc., 94 A.D.3d 58, 63-64, 939 N.Y.S.2d 395 (2012)


I underlined 4  5  and 6 because,  as you update  your email retention or broader record retention policy a key point to keep in mind is that the courts expect you to have a reasonable policy reflecting the characteristics of your credit union.  In this day and age you won’t avoid the cost of retrieving email because your policy is to save money by not archiving email on any of your servers for more than one day.  Conversely it’s perfectly acceptable to delete email where the cost of storing it becomes prohibitive and the likelihood that the information will ever need to be retrieved is slight.

One more thing to really make things more entertaining.  Hillary’s mistake also underscores the reality that, in the age of the smartphone, drawing a neat line between an employee’s “work” and “personal email”   is all but impossible.  It is likely to be the source of many a contentious legal battle.  Your policy should put employees on notice that “their” email may not be “theirs” if they are using a company smartphone or using their smartphone to conduct personal business

I wanted to scare you a little with this blog.  Your record retention policy is one of the most important policies your credit union can have and deciding how to manage all that email is a crucial component of that policy.  This is not an area where you should cut and paste another credit union’s policy and go onto more important work.  Instead you should involve your IT staff, your HR person your compliance officer and yes even a lawyer in devising a record retention policy that reflect your credit union’s unique attributes.

March 12, 2015 at 9:56 am 2 comments

Three Things You Should Know On A Tuesday Morning

Here are three things you should know if you want to be one of the cool kids at the water cooler this morning.

Yesterday, the Supreme Court issued one of the handful of decisions each year that directly impact your credit union’s operations.  Most importantly, if you have employees whose job is to assist prospective borrowers in applying for various mortgage offerings, the Supreme Court upheld a Department of Labor interpretation mandating that such persons be treated as non-exempt employees. This means, for example, that originators are entitled to overtime for the time they work over forty hours.

If you don’t do mortgages, I have some bad news and some good news for you. The bad news is that the Court gave agencies like the NCUA the green light to continue and arguably expand their practice of issuing guidance “reinterpreting” existing regulations. The case decided by the Court yesterday (Perez, Secretary of Labor, et al v. The Mortgage Bankers Association, et al) involved the validly of a legal interpretation issued by the Department of Labor in which it opined that mortgage originators should be treated as non- exempt employees. The mortgage bankers argued that the DOL’s interpretation amounted to a new rule and could only be imposed following a formal rule making process. The Court overturned lower court precedent and concluded in a unanimous decision that a formal rulemaking notice and comment period is only required when an agency amends – i.e. changes the wording – a regulation. It can issue all the interpretations it wants and the only remedy for the regulated is to argue that an interpretation is “arbitrary and capricious.” Don’t be surprised if you see amending the Administrative Procedures Act become a major component of Republican regulatory reform efforts.

The good news? You also have three Justices begging for future challenges to the APA. In the short run, the agencies won a major victory yesterday with the Court giving them expanded powers to interpret their own regulations. But, in the long run, the Court will probably give less deference to agencies drafting their own regulations. In the meantime, your credit union faces the potential of more regulatory oversight. Oh Boy!

Regulatory Relief On The Way?

There was some good news on the regulatory front yesterday. Chairwoman Matz dubbed 2015 “the year of regulatory relief.” (I think she stole that from the Chinese calendar) while outlining an impressive-sounding list of reform proposals. The list Includes expanded use of supplemental capital, authorization for large credit unions to securitize mortgage loans and greater Field of Membership flexibility.

All of this sounds promising, but let’s not get too excited until we see the detail. Let’s not forget that NCUA has already proposed changes to FOM requirements that make it more, not less, difficult for credit unions to expand their associational based memberships. In addition, even with yesterday’s Supreme Court ruling, it’s far from clear how much the use of supplemental capital can be expanded without amendments to the law.

Schneiderman Secures Credit Rating Agency Reform

NY AG Eric Schneiderman continued to raise his profile on consumer protection issues yesterday when he announced what is being described as a national settlement with the three major credit rating agencies: Experian, Equifax, and Transunion. Under the agreement, the CRA’s will, among other things, agree to enhanced dispute resolution procedures and delay the recording of medical debt for 180 days. One passage of the press release really got my attention: the settlement “prohibits the CRAs from including debts from lenders who have been identified by the Attorney General as operating in violation of New York lending laws on New York consumers’ credit reports.”

Although the settlement involves the reporting agencies, furnishers of credit information such as credit unions aren’t completely off the hook: “The Attorney General’s agreement requires the three CRAs to create a National Credit Reporting Working Group (“Working Group”) that will develop a set of best practices and policies to enhance the CRAs’ furnisher monitoring and data accuracy.” Stay tuned.

March 10, 2015 at 8:51 am Leave a comment

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Authored By:

Henry Meier, Esq., Associate General Counsel, New York Credit Union Association

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