Why Credit Unions Should be Concerned About The HEROES Act   

From the credit union perspective, what is most noticeable about the HEROES Act is not what’s in the bill, but what is not.  Despite laying out more than 1,800 pages of priorities, as noted by David Baumann in his excellent article, House Democrats did not include any of the industry’s priorities including PCA flexibility, extending the duration of amendments related to the Central Liquidity Fund or expanded authority for MBL loans.

What’s more, there is plenty in the bill to keep credit union executives worried about unpaid mortgages up at night.  Section 4204 would grant “automatic forbearance” to any borrower whose mortgage has become 60 or more days delinquent since March 13th.

If the conventional wisdom is correct, the house bill has about as much chance of becoming law as Donald Trump does of becoming an epidemiologist.  Still, the industry should consider this bill a warning shot.  The real threat to the continued growth of the industry does not come from the bankers.  It comes from the liberal younger base of the Democratic Party which, rightly or wrongly, is becoming increasingly dissatisfied with the efforts made by credit unions to help people of modest means.

Increasingly, the party is looking to CDFIs which is why the news is not as bad for you if you are one of the approximately 300 credit unions which are Certified Development Financial Institutions.  The bill includes $1billion in funding for the CDFI fund.

May 15, 2020 at 9:07 am Leave a comment

Regulators Turn Spotlight to Consumer Loans

Legislators and regulators have focused most of their attention on mortgage forbearances but yesterday included a reminder that regulators expect financial institutions to work with consumers having trouble keeping up with those credit card payments and other consumer loans.

“The bureau encourages financial firms to continue to provide the kind of assistance to their communities that many have been providing, such as waiving fees, lowering minimum-balance requirements, and implementing changes in account terms that benefit consumers.”

Incidentally, the Wall Street Journal dedicated a lead article today to cataloguing the difficulties consumers are having working with financial institutions after falling behind on credit card payments. The fact that they published the article the day after the CFPB issued this statement underscores that you need to make sure you are providing flexibility to members impacted by COVID-19.

In addition to the press release the CFPB issued guidance on working with deposit accounts, home equity lines of credit and making good faith efforts to comply with timing requirements, such as the timeframe for conducting error resolution investigations.

Much of the information is consistent with steps that I know credit unions have already taken. For instance, one question that our compliance department has frequently received is how quickly can a credit union change the terms of deposit accounts? In a Q&A provided yesterday, the bureau reminds financial institutions that changes favorable to consumers can be implemented without advance notice.

Finally, while Federal regulators are simply pressuring lenders to work with consumers, those of us lucky enough to live in New York should remember that one of the first things the state did was issue emergency regulations mandating that financial institutions waive ATM, account overdraft and credit card late fees for consumers impacted by COVID-19.

May 14, 2020 at 8:29 am Leave a comment

Four Things You Need To Know To Start Your Credit Union Day

The pace of life is quickening again, which is a fancy way of saying that there are several new developments you need to know about. Here goes…

Three New York Regions Ready To “Reopen”

In the most upbeat assessment he has given since the outbreak of the pandemic, Governor Cuomo announced that there are three regions in the state which can begin reopening on May 15th. Of course, credit unions have never closed but they would still be well advised to model their policies after state and local mandates.

I have one Big Picture point to make: As you ramp up your workplaces you would be well advised to meet with your HR team including your outside counsel, to prepare for life with the pandemic. Your credit union not only has to take common sense measures, such as creating more distance between employees and insuring an adequate supply of PPEs, it must also have a framework for dealing with a brand new set of HR issues. I’m sure you can’t wait for my future blog on that subject.

Credit Unions And The CLF

The NCUA yesterday released a letter to federally insured credit unions informing them that if they have less than $250 million in assets they are now eligible to participate in the Central Liquidity Facility (CLF). Provisions in the CARES Act made it cheaper for corporate credit unions to become CLF agents meaning they can act as conduits for their members who have emergency liquidity needs. Now let’s hope no credit union need to use to take advantage of this new authority.

Military Personnel Added to Low-Income Designation Criteria

In another important development, the NCUA announced that it was expanding the criteria used to determine if a credit union qualifies for a Low-Income Credit Union designation to include military personnel. Under section 12CFR 701.34, a credit union qualifies for a low income designation if a majority of its membership are members whose family income is 80% or less than the median family income of the metropolitan area where they live. Under existing regulations, low income members also include students enrolled in college, high school or vocational school. Active duty personnel will now be treated the same way.

CFPB Raises Remittance Threshold

Yours truly has not had a chance to read this yet, but I wanted to give you a heads up that the CFPB issued final regulations yesterday under which fewer credit unions will have to comply with the remittance rule. Specifically, entities making 500 or fewer transfers annually in the current and prior calendar years will not be subject to the Rule.

May 12, 2020 at 9:56 am Leave a comment

Governor Extends Executive Order; IRS Issues Guidance on Checks To Deceased Persons

Yesterday evening the Governor extended all of his Executive Orders through at least June 6, 2020.  He also further extended the moratorium on foreclosures.

Last evening’s orders specify that there shall be no foreclosure of residential or commercial property

“…for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic…”

Remember that even without this order, the New York courts are not processing foreclosure cases at this time.  The moratorium will remain in effect at least through August 19, 2020.

On another note, you know these are strange times when guidance from the IRS makes national news, but sure enough I was planning on telling you about how the IRS has issued guidance informing members how to return stimulus money to which they are not entitled when NPR broadcast the report about this very subject.

The Association’s Compliance Department will be providing you an excellent analysis of the issue in its weekly newsletter.  Yours truly will just emphasize that the IRS guidance imposes no additional requirements on financial institutions.

That being said, in a non-ACH transaction, when you have advance notice that a stimulus check is made out to a deceased individual, such as a joint check with one of the recipients having recently passed away, I would not negotiate that check.

Now it’s time for me to get ready for my South Korean Fantasy Baseball League Draft.  Play Ball!… and with Sunday being Mother’s Day, it’s time for my favorite quote from former baseball great and Mets announcer Ralph Kiner: “Happy Mother’s Day to all you Father’s out there”.

May 8, 2020 at 8:34 am Leave a comment

Why This TCPA Case Matters To Your Credit Union

The Supreme Court yesterday heard a case challenging the constitutionality of the Telephone Consumer Protection Act (TCPA). If press reports are accurate, the justices seem as confused about the TCPA as every business and credit union that has struggled with its restrictions. It’s possible, just possible, that this case will result in giving you more flexibility to reach out to your members.

The TCPA generally prohibits businesses from calling, emailing or texting consumers using auto-dialers without first getting their permission. The statute contains an exception however for calls involving the collection of federal loans. For example, the statute doesn’t bar lenders from pestering former students with robocalls about repaying their delinquent college loans. In addition, as I have explained in many a blog, the statute not only applies to robocalls but to any call made using a system capable of making robocalls.

In Barr v. American Association of Political Consultants Inc. the Association argues that these exceptions demonstrate that the statute violates the First Amendment since its restrictions are based on the content of the robocaller’s message. A lower court agreed but refused to strike down the entire statute. Instead, that court eliminated the exception in the statute that allows Federal debt collectors to make unsolicited phone calls. In the case before the Supreme Court, the consultants are asking the court to confirm that the statute violates the First Amendment. According to the Court watchers, most justices seem inclined to agree that the statute violates the First Amendment.

The exciting part for our purposes (yes I get excited easily) is that the Court may find that its only remedy is to strike down the statute in its entirety. This is no minor issue. The TCPA has become the single most litigated consumer protection law in the country. Its broad interpretation has exposed many a credit union to a potential class action lawsuits and made it more difficult than it should be for the industry to reach out to its members.

 

May 7, 2020 at 9:55 am Leave a comment

What Legal Risks Does The Pandemic Really Pose To Your Credit Union?

Governor Cuomo’s announcement yesterday of a regionally based and phased-in reopening of New York State came the same day that Senate Republicans returned to Washington D.C. and emphasized yet again that any additional Federal Aid will be tied to liability protection for businesses fearful of being sued when employees and customers contract the COVID-19 virus.

Not surprisingly, many credit unions are debating the scope of their liability. I’m afraid this discussion is too narrowly focused. The potential risks of your members and employees contracting the virus is just one of several issues your credit union should be considering as it ramps up services in a world that has been fundamentally reshaped by recent events and has dramatically changed the potential compliance and legal risks confronting your credit union. Most credit unions aren’t going to be confronted with class action lawsuits, but almost all of them are going to have to deal with nervous and sometimes disgruntled employees and customers, financially struggling borrowers, over aggressive regulators tasked with interpreting hastily promulgated mandates and financial strains. All of these pose unique legal and compliance challenges.

Your credit union’s response should be shaped by the size of your credit union and the type of products it offers. What all credit unions, and all businesses for that matter, have in common is the need to take a deep breath, pull back the lens and address those areas where potential legal deficiencies have been exposed or exacerbated by the pandemic.

How should you go about accomplishing this? Credit unions are already used to regulatory mandates requiring that they assess the risks of a broad range of issues ranging from a new member’s business activities to a new product’s vulnerability to identity theft. I would suggest taking the same approach to identifying those areas most in need of improvement as a result of COVID-19.

For example, what is the greater threat to your credit union: a class action lawsuit brought by members or employees who come down with the virus or being sued by an individual employee after not accommodating a request to work from home? For many of you HR issues pose a much greater threat to your financial health than does the direct threat of the pandemic.

Then of course there are the hastily promulgated regulations enacting the PPP and mandating forbearances be granted for homeowners whose finances have been impacted by the pandemic. These are just two examples of regulations which both disgruntled members and curious regulators will be taking a look at in the coming months.

The bottom line is that as your credit union reopens lobbies, expands hours, and calls more employees back to work, it should do so within a new framework which recognizes the various ways both big and small that the pandemic has had and will have on almost every aspect of your credit union’s risk profile. You should recognize the areas of greatest risk and prioritize those areas which most need to be improved. Time to call a virtual meeting and by all means include your outside counsel.

May 5, 2020 at 9:51 am Leave a comment

How Can PPP Borrowers Spend Their Loans?

The PPP can’t get a break. Now that at least some of the glitches involving lenders filing loans with the SBA have been addressed, there are increasing concerns that the program’s terms are too restrictive to help out some of the businesses it was designed to help. The result is that banks and credit unions participating in the program are being asked questions to which they cannot offer definite guidance and the SBA still faces a pressing need to clarify the intricacies of the program even as it is charged with getting more than half a trillion dollars out to the public in record time.

According to the New York Times, many small business owners are afraid to spend the money even after they get the loan. Under the program’s regulations, the PPP loans are completely forgivable provided 75% of the loans proceeds cover payroll costs and payroll is maintained. If those targets are missed then the PPP becomes a normal loan repayable with 1% interest. The article quotes business owners who are concerned that they may be violating the law depending on what they spend the money on if they decide to spend the money on expenses other than payroll.

In fairness to the SBA, this may be yet another example of overcautious legal interpretation as we all dive in to unchartered legal waters. Many of the small businesses interviewed have been advised by lawyers and accountants that they have the flexibility they need to spend the money where it can be of most use for their business. Then again, the same businesses were unable to get yes or no answers from the SBA.

Fortunately there is a simple solution to this problem. The SBA has it within its authority to either adjust the 75% requirement or clarify what small businesses are authorized to do with PPP money if they choose to forgo the 75% requirement. Hopefully it will take these steps quickly. After all, for many small businesses it makes more sense to invest these funds in ways that will keep the businesses viable rather than paying employees for whom they have no work and who are eligible for generous unemployment benefits.

In the meantime, if your members ask you how they can spend the money, I would instruct your staff to tell them that you are still waiting for an answer from the SBA.

May 4, 2020 at 9:42 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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