The Eagle Has Landed; NY Passes “Big Ugly” Budget

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Around 5:30pm last night, just as Sergio Garcia was making an eagle on the 15th hole during the most entertaining final round of the Masters I have ever seen, the New York State Senate was taking up consideration of S.2009C. To save you the time, you can start reviewing on Page 99 Section AAA. This bill is lovingly referred to as “the big ugly” since it contains a Hodge podge of the most highly debated issues in the state’s 2017 -2018 spending plan.

The most important news for credit unions is that the bill does authorize Transportation Network Companies (TNCs) e.g. Uber, Lyft to operate in New York State. Credit Unions had two concerns about this legislation: First, we wanted to make sure that members who become TNC drivers were adequately insuring our collateral in the event of an accident while clocked in to the network. Remember that your traditional car insurance policy contains a livery exception. Secondly, given the substantial investment of the industry in New York City taxi medallions, it seems likely that any legislation making it easier for persons to offer ride sharing services without medallions will have an impact on the value of outstanding medallion loans.

As to the first issue, the legislation mandates that TNC networks either provide physical damage protection for their drivers or make sure their drivers have such protections. They will also be responsible for putting drivers on notice that such insurance may be required.

As for the loss impact on medallion prices, the final legislation allows NYC to adopt more stringent regulations than otherwise mandated by state law. Whether this will result in any measure of stabilizing prices remains to be seen.

As we go thru the legislation, I will give you highlights of anything else that impacts credit unions.

 

April 10, 2017 at 9:01 am 1 comment

Good Riddens To The Filibuster

Yesterday the Senate evoked the so-called nuclear option, by changing the senate rules with a simple majority to force a vote on Supreme Court nominee, Neil Gorsuch.

This is one of those issues that have been screaming at my newspaper about, so let me take a break from talking about the financial issues of the day to tell you why I am so agitated. When I hear people wax nostalgic  about the filibuster, it is kind of like hearing a movie critic extolling the virtues of the play he saw at Ford’s Theatre. Or, better yet,  it is like the guy at the bar drowning his sorrows  who fondly remembers the good times with his “crazy “girlfriend who was, in fact, crazy.

The simple truth is that the filibuster is an antiquated vestige of a bygone era that increases voter disenchantment with the legislative process by imposing a super majority requirement on the passage of bills no matter how important they may be. Yesterday’s rule change only applied to Supreme Court nominations but it is only a matter  of time before  the senate moves to limit the filibuster’s use in stalling l legislation.  For me the change can’t come soon enough.

Today’s filibuster isn’t Jimmy Stewart’s filibuster which required a dedicated group of legislators to publicly refuse to yield the senate floor so long as they could stand up and keep talking.

By the mid 1970’s a senator didn’t have to be physically present to vote to continue a filibuster and senate procedures introduced a dual track. Under this approach,  the senate can move on to other legislation while the filibustered  legislation remains frozen.

All this means is that the modern day filibuster is no longer about a determined minority willing to take a stand against legislation it doesn’t like; rather it is a de facto requirement for a 60 vote super majority to pass legislation.

This isn’t a recipe for thoughtful deliberation but an invitation to obstruct on a grand scale. It’s what keeps a simple majority from voting to restructure the CFPB or reconsider the Durbin Amendment.

For those of you, such as the Association’s Vice President of Governmental Affairs, who insist that the filibuster ensures that the legitimate  points of the minority party can’t simply be ignored. I say this has more to do with changing political realities than with any procedural safeguards.

The filibuster has never been what made the senate a collegial body. Just a generation ago, you had liberal northeast republicans who worked with southern democrats and conservative Dems who worked with republicans. Today such bi-partisanship is an invitation to be primary.

I am glad I got that off my chest, thanks for listening.

Have a great weekend.

April 7, 2017 at 9:18 am Leave a comment

Dimon Unveils Top Priorities for Regulatory Relief

JP Morgan Chase’s CEO Jaime Dimon used his first annual letter to shareholders since Donald Trump took office to outline a series of regulatory reforms he says will make more home loans available for first time home buyers and those with less than pristine credit. 

Intriguingly, two of the proposals I like could be accomplished without legislation assuming that a more free-market oriented Director of the CFPB will eventually be taking the reins.  According to Dimon, post-banking crisis regulatory reforms have resulted in a “complex, highly risky and unpredictable operating environment that exposes lenders and servicers to disproportionate legal liability and materially increases operational risks and costs.”  The result:  more expensive mortgages and fewer mortgage loans for those without strong credit.

While his description of the ailment didn’t surprise me, his cure did.  He wants to see greater use of FHA mortgages as a means of providing credit for first time and moderate income home buyers.  But this should be coupled with re-examination of government litigation seeking to make mortgage lenders repurchase mortgages that allegedly don’t meet FHA standards.  Specifically, he is calling on the FHA to publicly commit to using the False Claims Act to sue lenders solely for intentional fraud rather than immaterial or unintentional errors. 

A second change urged by Dimon would be for the GSEs, Treasury Department and the CFPB to work toward creating a single national regulatory framework for mortgage servicing.   He points out that, as of 2015, it costs on average more than $2,000 a year to service a mortgage in default and that the cost of servicing a performing mortgage is $181, annually.  A uniform system with uniform rules would go a long way to keeping costs from continuing to sky-rocket.  The problem with this approach is that, for it to be truly effective, Congress would have to pass laws strengthening federal pre-emption of state lending law or states like New York would have to voluntarily agree to go along with these standards.  Both of these scenarios are highly unlikely.   

April 5, 2017 at 8:38 am Leave a comment

Wells Fargo In The News for All The Wrong Reasons- Again

Wells Fargo continues to be the gift that keeps on giving, for consumer advocates anxious to argue why we are all better off with the CFPB.

Yesterday, The Occupational Safety and Health Administration (OSHA) ordered the bank to pay $5.4 million in back wages to an employee they fired in 2010, after reporting suspected incidents of mail and wire fraud by “bankers” under his supervision.

Although a written decision didn’t accompany this news there is wide-spread speculation that the whistle blower was disciplined for reporting instances related to the opening of phony accounts without customer permission. Remember, the CFPB was the regulator that discovered and fined Wells Fargo for this misconduct.

Incidentally, if you’re wondering why OSHA is fining Wells Fargo, it’s because it was given the authority to enforce Sarbanes-Oxley’s whistle blower protections provisions. Go figure.

The Sarbanes-Oxley Act makes it illegal for a publically traded company to discharge, suspend, threaten, harass, or discriminate against any employee who provides information to assist in the investigation of a violation of certain Federal Laws (18 USC 1514A). The bank has the option of appealing OSHA’s fine. It should quit while it’s behind; but somehow I don’t think that is going to happen.

Of course, the fact that Wells Fargo has engaged in misconduct discovered by the CFPB doesn’t make the CFPB’s structure anymore constitutional or prudent. But try telling that to the Elizabeth Warren’s of the world.

 

New York Extends Budget till May 31

In what is new ground for the Cuomo Administration the legislature and the Governor have agreed to a temporary budget extending until May 31, while they continue to work on a budget plan for the 2017-2018 fiscal year. This sure does have a back to the future feel to it.

April 4, 2017 at 9:24 am Leave a comment

Oh Crapo! Don’t Expect Major Reg Relief Anytime Soon

So much for large scale regulatory reform!

Speaking before the US Chamber of Commerce (that unabashed bastion of capitalism in DC), Senate Banking Committee Chairman Mike Crapo acknowledged the obvious and said that in the near term a broad based overhaul of Dodd-Frank is out of the question. He is quoted in Today’s American Banker as saying “In the near term, we are working to identify bills with bipartisan support that we can move quickly and put points on the board,”

Maybe it is the gloom of a dreary late season wintery mix but this doesn’t sound like the type of agenda that would include scaling back the CFPB’s power, but hopefully I can be proved wrong. On the bright side, he did predict that he and Senator Sherrod Brown, of Ohio would find common ground in areas where they can move pieces of legislation quickly.

What really bothers me is the Senator’s comments, as paraphrased in the article, that larger regulatory changes will have to come from the independent agencies, which will eventually be headed by Trump appointees.

Is this really what representative government has become? Have our elected representatives’ become so comfortable delegating legislative authority to un-elected regulators that they openly pin their hopes for big changes on personnel decisions about who will lead government bureaucracies? I guess I have to re-read the constitution, or simply start ignoring it all together in order to understand what is happening in Washington.

State Budget

Will there or wont there be an on-time state budget? I was hoping to dedicate this blog to an overview of the 2017-2018 Fiscal Year New York State Budget which kicks in at 12:00am tomorrow. Instead, all I know for sure is that there are a lot of rumors floating around but nothing set in stone yet. As of right now the Assembly isn’t scheduled to go into session until 12:00 this afternoon and the Senate gavels in at 3:00, so it is hard to see how the Governors streak of “on-time” budgets will remain intact.

Those issues that could impact credit unions include insurance requirements for Uber drivers to ensure that car loan collateral is protected, expansion of authority for financial institutions to block transactions involving financial abuse of the elderly and disabled, and language either expanding or clarifying (depending on how you want to interpret it) the regulatory authority of the DFS over licensed individuals and institutions. It is also possible that none of these issues will be dealt within the budget.

By the way, don’t make the NYS budget process more complicated than it is; for more than 30 years budget negotiations have been  first and foremost about education aid: when the parties decide on how much school districts will get to spend, and how the pot will be divided – there will be a budget.

 

March 31, 2017 at 9:08 am Leave a comment

Courts Hold That NY Law May Violate Merchant Rights

Merchants won an important, but by no means decisive, battle yesterday in their campaign to invalidate state laws outlawing credit card surcharges. However, there are still more rounds to go.

In Expressions Hair Design v. Schneiderman, No. 15-1391, 2017 WL 1155913, at *2 (U.S. Mar. 29, 2017) the Supreme Court examined the constitutionality of Section 518 of New York’s General Business Law. The statute, which has been on the books since 1984, bans credit card surcharges, but allows merchants to offer cash discounts. In their lawsuit the merchants have argued that there is no practical distinction between a cash discount and a surcharge. They argue that all the statute does is make it illegal for them to describe higher charges for credit card purchase as surcharges in violation of the First Amendment. The New York State Attorney General, joined by among others, the New York Credit Union Association and CUNA argue that surcharge bans are legitimate regulations. In fact, countries around the world have banned surcharges as evidence mounts that merchants impose surcharges well in excess of transaction costs.

The court of appeals for the Second Circuit concluded that the statute was an appropriate exercise of legislative authority, since it regulated merchant conduct as opposed to merchant speech. Specifically, New York’s ban regulated a relationship between a products sticker price and the price charged to a credit card user.

Yesterday the Court disagreed, concluding that the statute does restrict merchant speech and may violate the First Amendment. The reason I underlined “may” is because the case now goes back to the second circuit which now must decide if the law is legal even though it restricts merchant’s speech.

Commercial speech is protected under the first amendment but disclosure requirements are upheld when they further a substantial government interest and are designed to directly address the activity being regulated. Before deciding the case again it is possible that the Second Circuit could ask New York’s highest court, New York’s Court of Appeals, to determine precisely what Section 518 prohibits.

Stay tuned.

March 30, 2017 at 8:54 am Leave a comment

Two Cases You Need To Know About

Today’s blog highlights two recent decisions, one that will interest your Compliance/IT department and another that will peak the curiosity of your HR folks.

A decision by the 9th Circuit yesterday underscores yet again the broad reach of the Telephone Consumer Protection Act (TCPA). We recently did a blog on this, but I get the sense that most people, including financial institutions, are still in denial. Chances are your credit union has to comply with the TCPA.

In Flores v. Adir Int’l, LLC, No. CV1500076ABPLAX, 2015 WL 4340020, at *4 (C.D. Cal. July 15, 2015, defendant repeatedly received generic text messages from the debt collector, even after he requested that the texts no longer be sent. He sued under the TCPA, which makes it illegal to contact consumers without their permission with the use of an automatic telephone dialing system (ATDS). He argued that the unsolicited texts demonstrated that the debt collector was using an ADTS to contact him, without his permission and was therefore violating the law. In tossing this claim the Federal District Court held that “Plaintiff’s own allegations suggest direct targeting that is inconsistent with the sort of random or sequential number generation required for an ATDS.” In other words the district court assumed, as have many businesses, that the TCPA outlaws automated dialing.

Yesterday, the court of appeals for the 9th Circuit on the west coast reversed this decision. In a concise memorandum it explained why the district court got it wrong. Dialing equipment does not need to dial numbers or send text messages “randomly” in order to qualify as an ATDS under the TCPA. Rather, “the statute’s clear language mandates that the focus must be on whether the equipment has the capacity “‘to store or produce telephone numbers to be called, using a random or sequential number generator.”

By the way, this decision has nothing to do with the fact that the persistent texter was a debt collector. As explained in a previous blog, unless you use “old fashioned” roto- dialers at your credit union, chances are your system qualifies as an ATDS. Every time a member is contact the TCPA is in play.

Second Circuit Allows “ Gender Stereotyping” claim To Move Forward

This is the one that your HR person should take a look at. The court of appeals for the 2nd Circuit, which has jurisdiction over New York, yesterday ruled that an employee could bring a successful discrimination claim by proving he was victimized by “ gender stereotyping “ in the work place.

Matthew Christenson, an openly gay man sued his employer, an International Advertising Agency, alleging that his supervisor engaged in a pattern of humiliating harassment targeted at his “femininity and sexual orientation.” The harassment included graphic illustrations on an office white board.

The case has drawn attention because Christenson explicitly asked the court to rule that employers can be sued for discrimination based on sexual orientation under Title VII of the Civil Rights Act of 1964. The second circuit was unwilling to go this far, but allowed the case to go forward if the employee could prove he was the victim of gender-stereotyping.

In a splintered 1989 decision, the Supreme Court held that an employer who made an employment decision based  on the belief that a woman could not be aggressive,  had acted on basis of gender discrimination under Title VII. (Price Waterhouse v. Hopkins, 490 U.S. 228, 109 S. Ct. 1775, 104 L. Ed. 2d 268 (1989).

 

Remember that discrimination on the basis of sexual orientation is already illegal based on New York State law.

 

Don Draper beware!

March 29, 2017 at 9:32 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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