Cutting Off Their Nose to Spite Their Face

Currently, New York law not only prohibits municipalities from depositing their funds in credit unions, it also prohibits these funds from being deposited in savings banks and savings and loan associations. To me, it’s obvious that municipalities should be able to place their tax dollars wherever they get the best return. For several years now, the Association has advocated for municipalities to be able to deposit their funds not only in credit unions but in these thrifts, as well.

Unfortunately, the banking lobby is so dogmatically opposed to municipal choice that it would rather prohibit some of its own members from accepting municipal deposits than give municipalities the option of depositing funds in credit unions. The latest example of this short-sighted and wasteful viewpoint was revealed in an article in the American Banker last week, in which banking lobbyists proudly proclaimed that they are opposed to legislation once again introduced this session to permit all thrifts and credit unions to accept municipal deposits.

In fact, John Witkowski, President and Chief Executive of the Independent Bankers Association of New York State, sounded a bit paranoid when he explained to the American Banker that “we really have to defend ourselves against what credit unions are trying to do, to expand into the community banking territories geographically and business-wise.” As for the members of his Association harmed by this stance, he explained that “you can’t please everybody,” i.e. let them eat cake. These comments drew a retort from CUNA’s Jim Nussle, who explained that it’s unfortunate that banks put protecting themselves from competition ahead of increasing alternatives to municipalities and households.

It’s easy to get jaded around politics. After all, there are times when the best defense is a good offense. If I worked for the Bankers, I would have no choice but to argue that the big, bad credit unions are using their tax-exempt status to destroy banking as we know it. But, as jaded and cynical as I can get about politics, the most positive thing I will continue to say about it is that the person with the best argument will ultimately win the debate. It’s just a question of how long the battle will take.

It simply makes no sense to prohibit municipalities from placing funds in credit unions. They are federally insured, just like banks. Twenty-five states already give municipalities similar freedom, it would save taxpayers money by ensuring they get the best return on their tax dollars, and when a municipality places money in a credit union, it is assured that its  money is being reinvested within its local community for the benefit of its residents and employees. Oh, and one more thing, credit unions do pay taxes. They simply don’t pay corporate taxes.

By the way, since we’re talking about taxes, I wonder how many banks taking in municipal deposits are structured as S-Corporations precisely because this corporate structure allows them to avoid being taxed at the corporate level?

April 15, 2015 at 8:38 am 2 comments

Preparing For The Next System Failure

In the movie “The Day After Tomorrow”  the climate gets so severe  that millions of people have  to flee to Mexico in search of warm weather.  I was thinking of this plot line as I drove down to North Carolina for my Niece’s wedding this weekend after spending some time in DC.  You have  to get to Southern Virginia before you see any real signs of Spring.

It felt unnatural to be intentionally heading North on Sunday afternoon.    That being said, my wife was getting tired of my mutterings about insurance funds and megabanks so it is time to get blogging again.

Last Monday I noticed that the retired Captain Ahab to the credit union’s industry’s Moby Dick was  up to his old  tricks.  With some excellent research Keith Leggett  reported that the NCUA sent a Whit Paper to Congress a couple of years ago seeking legislative authority to create a more complicated and ultimately larger share insurance fund for the credit union system.(http://creditunionwatch.blogspot.com/2015/04/ncua-white-paper-on-reforming-ncusif.html )  CUNA  has provided a link to the document. Maybe it’s because I was viewing all this from a distance, but a   system that ties insurance fund assessments to both the size and complexity of a credit union’s operations makes sense to me…in theory.

First let’s be honest and admit that the existing share insurance fund didn’t adequately shelter credit unions from the financial Tsunami. If we didn’t get a loan from the treasury Department to payback the debt of the failed corporates the industry would be an empty shell of itself.

Second as the split between larger and smaller credit unions grows larger and larger it make sense that  the  larger more sophisticated credit unions  that pose the greatest risk to the Share Insurance Fund take on  a  greater burden.

Third this should be a long-term plan. The last thing credit unions need right now is another compliance burden.  Let’s establish an RBC framework and then work as an industry and  present Congress with a unified sensible plan for share insurance reform.

Fourth-I love when credit unions complain about NCUA’s compliance burdens and  muse about converting to banks.  There is not a single credit union that would want to be subject to the FDIC’s insurance fund requirements.   Not only are they more complicated, but the FDIC has  the type of discretion that makes credit unions nervous.  Let’s make sure that,  if and when Congress does take up share insurance reform , NCUA isn’t given unfettered discretion to devise what it considers to be a safer system.

Beyond hubris… For those of you who may have missed it Jamie Dimon, who has spent more time negotiating with prosecutors over the last year than a Manhattan public defender, once again  feels secure enough in his banking genius to use a letter to shareholders to explain that most large banks did great  during the Great Recession; that mismanagement of small banks was the real cause of bank failure and that over regulation of banking geniuses like himself is laying the groundwork for the next financial crisis.  This is a lot like an alcoholic blaming Alcoholics Anonymous for his addiction: After all  If  he didn’t have to acknowledge he had a problem he could have kept on drinking.

As Camden  Fine of the Independent Community Bankers wrote in this excellent American Banker piece (http://www.americanbanker.com/bankthink)last week:

Ridiculing the smaller financial institutions that have to answer to the free market — that do not enjoy an absolute taxpayer backstop against failure — is beyond hubris. It shows a complete unwillingness to accept responsibility. It shows that Wall Street, infantilized by privilege, has learned nothing from what it wrought in those panic-stricken months in 2008 and 2009 and in the years of economic doldrums that have followed.

That is not only infuriating to those of us who have had to survive on our wits instead of billion-dollar backstops — it is fundamentally dangerous…”

Amen Brother! Why aren’t credit unions yelling from the rooftops that more has to be done to hold  large  banks to account for their recklessness? If we have learned anything over the last seven years it is  that our industry will pay a disproportionately heavy price for the mismanagement of the banking system by the megabanks.     This is not about demagoguery it’s about survival.

 

April 14, 2015 at 9:18 am Leave a comment

New Credit Scoring Means New challenges For CUS

FICO), Lexis –Nexis Risk solutions and Equifax yesterday  described  the details of a pilot program currently underway to examine the creditworthiness of those who aren’t eligible for credit because there is no way of  scoring them under traditional models.  According to the press release the pilot program allows 12 of the largest credit card issuers in the U.S. to use alternative data to identify creditworthy individuals who would otherwise be unlikely to obtain traditional credit. (http://www.fico.com/en/fico-lexisnexis-risk-solutions-and-equifax-joining-to-generate-trusted-alternative-data-scores-for-millions-more-americans-04-02-2015).

There is more here than meets the eye.   For one thing I didn’t realize just how many Americans are completely off the credit scoring radar. These “unscorables”  don’t engage with  the banking system and therefore can’t be scored .  Yesterday’s press release put that number at 15 million but this may be on the low side.  No matter what numbers you rely on, what everyone agrees on is that a disproportionately large segment of this group is composed of poorer minorities who are flocking to prepaid cards.

In order to assess the credit worthiness of these unbanked persons of modest means additional data has to be mined. The pilot program announced yesterday uses information such as cable and utility bill payments.  These are potential members who have so far chosen to opt out of the financial system all together.  Does the industry have an obligation to aggressively court these members? I say yes.  Alternative scoring models can help.

So why am I a little squeamish? I’ve talked about how  “Big Data” has the ability to both revolutionize lending and create a host of legal challenges that simply weren’t anticipated when  fair lending laws were passed,  For example,  let’s say that this pilot scoring system proves  to be a reliable indicator of creditworthiness.  How many years will lenders have to start using this new model without being accused of violating lending laws?  After all, FICO has now demonstrated that traditional scoring systems have the effect of reducing credit to poorer often  minority. credit worthy applicants and that an alternative system can be used.

Then there are the broader policy implications. Is extending credit to people who have so far chosen to live without it or who can’t afford it under traditional measures really a good thing?  In 2007, on the eve of the Great Recession, America had a personal savings rate of 1.7%. Today it has skyrocketed to 5.5%which still puts us well behind most developed nations.   In addition,  your average 401K barely has enough in it to pay a retiree’s bus fare for his ride to his job at Walmart.

The financial industry will be devising more and more creative and accurate ways of reviewing credit worthiness for years to come.  Used wisely and monitored by regulators within the appropriate legal framework,  much good can come of this innovation. Conversely, right now the technology is racing too far ahead of the policy. Just because an alcoholic can pay for his drink doesn’t mean he should be having one.  As a nation we are too dependent on credit and enabling the poorest among us to take on debt doesn’t seem to be the best way of encouraging thrift.

On that note,  your faithful blogger is off next week to take the family on a visit to the nation’s capital and Southern Pines, North Carolina,  to go to my niece’s wedding and finds some warm weather.  Enjoy the holiday.

April 3, 2015 at 9:57 am Leave a comment

If you have an employee handbook you have to read this…

Whether or not you work in a unionized workplace, the National Labor Relations Board has used an  expansive view of federal law to insert itself  into , and implicitly attempt to micromanage, the American workplace in a way that is directly impacting your credit union operations.

Those of you who think I’m exaggerating and\or those of you whose job it is to manage employees would be well advised to review the NLRB’s recent  guidance  outlining language that can and can’t be in workplace handbooks(http://www.nlrb.gov/reports-guidance/general-counsel-memos Report of the General Counsel Concerning Employer Rules).  On the one hand the memorandum is an attempt to provide a concise compendium of handbook dos and don’ts based on its prior rulings;  on the other hand  it  reads like an  “April  Fools” joke.   Unfortunately it isn’t.

First, the NLRB correctly reminds us that handbook language violates federal law when “employees would reasonably construe the rule’s language to prohibit” concerted activity be it in a unionized or non-unionized workplace.  The problem is that the mythical  employee the NLRB is protecting apparently  has a law degree, is utterly devoid of commonsense, behaves like an out-of-control  teenager who has just been told  she has  to be home by 11:00PM   and  works for the NLRB.  No other workplace could  function in the workplace as pictured by the Board

In the-“ You can’t make this stuff up category” the NLRB explains that  a workplace policy “that prohibits employees from engaging in. “disrespectful,” “negative,” “inappropriate,” or “rude” conduct towards the employer or management, absent sufficient clarification or context, will usually be found unlawful…  Moreover, employee criticism of an employer will not lose the Act’s protection simply because the criticism is false or defamatory.”

Apparently the NLRB doesn’t think your average employee has a rudimentary grasp of the English language or can be expected to have the etiquette  of a kindergartener.

But wait there’s more.  Did you know that a policy banning “Disrespectful conduct or insubordination, including, but not limited to, refusing to follow orders from a supervisor or a designated representative.” Or another prohibiting “Chronic resistance to proper work-related orders or discipline, even though not overt insubordination will result in discipline.” Is illegal?

I want to give the NLRB the benefit of the doubt.  Maybe it is so committed  to protecting the Norma Rae’s of the world chafing under  employer misconduct  that it wants to give   complaints about  management malfeasance   the widest possible protection. The problem is that its prohibitions also prohibit language intended to regulate employee to employee civility. For example it  found the following policy to also violate the FLSA.

“Material that is fraudulent, harassing, embarrassing, sexually explicit, profane, obscene, intimidating, defamatory, or otherwise unlawful or inappropriate may not be sent by e-mail. …”We found the above rule unlawful because several of its terms are ambiguous as to their application to [concerted] activity—”embarrassing,” “defamatory,” and” otherwise . . . inappropriate.” We further concluded that, viewed in context with such language, employees would reasonably construe even the term “intimidating” as covering Section 7 conduct”

Finally even where the NLRB tries to be reasonable the distinctions it draws between lawful and unlawful conduct is so paper-thin that a properly designed  handbook  needs more qualifiers than a  Viagra  Ad.   For example the following language is unlawful  “ Do not discuss “customer or employee information” outside of work, including “phone numbers [and] addresses.” But this policy is legal “Misuse or unauthorized disclosure of confidential information not otherwise available to persons or firms outside [Employer] is cause for disciplinary action, including termination.”

 

April 2, 2015 at 9:27 am Leave a comment

The Morning After

Just as you should have a plan to rapidly recover your credit union operations in the event of a natural disaster, so too should you have a plan to rapidly get up and running in the event your credit union is victimized by a cyberattack. That’s my main take-away from a joint guidance issued yesterday by the FFEIC, a group of financial regulators that of course includes the NCUA.

In addition to underscoring the importance of cyberattack recovery, the regulators are using the guidance to emphasize the importance of ongoing assessments and monitoring of your existing computer systems. For example, you are expected to maintain an ongoing risk assessment system that considers new and evolving threats and conduct regular audits to review who has access to vital systems.

Now for some more general points, in light of the Supreme Court’s recent decision upholding the right of the Department of Labor to reinterpret existing law simply by issuing a new letter, guidances of all types, including those issued by the FFEIC, are as binding on your credit union as if a new regulation had just been promulgated. The FFEIC typically claims that it is doing nothing more than synthesizing existing requirements, but at the very least make reviewing this memo a compliance priority.

In addition, notice how the regulators are not going to let smaller institutions off the hook. Obviously, the steps a $20 million credit union takes to both guard against and recover from malware attacks are not going to be as extensive as the steps taken by a $1 billion institution, but steps need to be taken nonetheless. The regulators have a point since the bad guys have demonstrated an increasing willingness to go after the data stored by smaller institutions, I’m concerned that without a serious attempt on the part of the industry to pool resources, increasing computer costs in conjunction with existing compliance mandates will make it that much more difficult for any small credit unions, or true community banks for that matter, to survive.

March 31, 2015 at 7:45 am Leave a comment

Do Nice Guys Really Finish Last?

If you are a board member helping select candidates to be your next CEO or you’re an Executive filling a slot on your management team, are you more likely to hire George Bailey or Mr. Potter? Be totally honest. George Bailey is a much nicer guy, but who’s more likely to be running a growing credit union ten years down the line? For that matter, should character even matter when making hiring decisions?

These questions came to mind recently after reading an intriguing bit of research in the most recent Harvard Business Review. According to at least one recent survey, the higher character ratings a CEO is given by his staff the better a company tends to perform.

According to the research, CEOs whose employees gave them high marks for character had an average return on assets of 9.35% over a two-year period. That’s was almost five times higher than the return generated by Executives given the lowest ratings. The cynics might be wrong after all.

The findings are based on research performed by a leadership consultancy. They identified what they considered to be the most universally identified moral principles – integrity, responsibility, forgiveness and compassion. They then sent anonymous surveys to employees at 84 companies and not-for-profits and followed up by interviewing many of the Executives. The highest performing Executives, both based on their character and financial performance, were given high ratings on all four principles. For example, they were described as standing up for what’s right, expressing concern for the common good, letting go of mistakes and showing empathy.

On the flip side, the ten worst performing management teams – euphemistically described as self-focused – were described as warping the truth for personal gain and caring mostly about themselves “no matter what the cost to others.”

Ultimately, it may be impossible to objectively quantify character.   After all, we would all have a intriguing enough to ponder next time you start looking for a top executive.

NYS Budget Plan Set

Late last enough, the smoke rose from the State Capitol. It’s been reported that a budget plan has been agreed to for the 2015-2016 State Fiscal Year. It doesn’t look like this will have much of a direct impact on your credit union. More generally, budget negotiations in NYS begin and end with an annual struggle over state aid to education. The “framework agreement” reportedly includes a school aid increase of $1.6 billion and ethics reforms.

On that note, enjoy your Monday. They say Spring will arrive any day now. I am not holding my breath.

March 30, 2015 at 6:44 am Leave a comment

Smorgasbord Friday

Today my blog is like a mall food court – there is a little something for everyone just so long as you aren’t expecting a great meal.

Senate Minority Leader Chuck?

This is huge news that might be even bigger for New York. It’s just been reported that current Senate Minority Leader Harry Reid, D-NV, will not seek reelection. Power abhors a vacuum and you can bet that Senators are already talking about who will replace Reid as the Chamber’s top Democrat. One of the most likely candidates is New York’s own Chuck Schumer. He has developed a reputation as one of the Senate’s top tacticians and his past chairmanship of the Democrat’s Senate Campaign Committee means that he has fostered the type of long term relationships that are awfully important in leadership fights.

Smartphones Are Smarter Than You Think

Just how important is the smartphone to your growth plans? Whether you want it to be or not, it is absolutely crucial because more and more of your members are using their smartphones to access services. Yesterday, the Fed released its fourth annual survey of mobile phone use. According to the Fed, as of December 2014, 39 percent of adults with mobile phones and bank accounts reported using mobile banking – an increase from 33 percent a year earlier. Furthermore, although people continue to use their phones for the more basic transactions – such as checking account balances – they are getting more adventurous. I was surprised that 51 percent of mobile banking users reported depositing a check using their mobile phones, up from 38 percent a year earlier.

Viewing the mobile phone as just another access device is tantamount to describing the Model T as just another vehicle. It magnifies the power of the web by cost effectively giving everyone the means to transact business with anyone else anywhere in the world at the touch of a button. For those of you who want to delve more deeply into the issue, here is a link to a great recent article in the Economist magazine. Here is my favorite quote:

“Smartphones are more than a convenient route online, rather as cars are more than engines on wheels and clocks are not merely a means to count the hours. Much as the car and the clock did in their time, so today the smartphone is poised to enrich lives, reshape entire industries and transform societies—and in ways that Snapchatting teenagers cannot begin to imagine.”

The Great Bank Robbery

I’ve always been ambivalent about the Tea Party movement. On the one hand, it started as a visceral reaction to the banking crisis. People saw the average middle class family losing their homes in the name of capitalism while the very institutions that tanked the economy got a taxpayer bailout. On the other hand, their misdirected rage has been harnessed by a clever group of anti-government extremists masquerading as Republicans, but that’s a blog for another day.

This morning’s WSJ has an extensive article about how “regional banks” are once again lending money to factories. What caught my eye and stirred my ire in the article were quotes from small business owners about how difficult it was to get the loans three or four years ago when they would have been most useful.

Let’s not let bygones be bygones. Every time a legislator questions why credit unions need authority to make member business loans or worries that the big bad credit union movement is somehow undermining community banking, let’s remind them that the same institutions he or she wants to protect are those that took Government handouts and did nothing to help the American consumer in return. Sometimes the truth hurts.

About That Pregnant Employee. . .

Here’s one for your HR people. A couple of days ago the Supreme Court decided one of the most interesting HR cases of the year: Young v. United Parcel Service. I thought the case involved a fairly straightforward question – asking whether a pregnant part-time employee was discriminated against after the company refused her request that she not be required to lift heavy packages. Apparently, the issue is not as clear cut as I thought. The Court’s ruling seems to make dealing with the claims of pregnant employees more complicated than it was just a few days ago. As summarized by the SCOTUS blog, the ruling “sets up this scenario for a female worker claiming she was the victim of pregnancy bias: she must offer proof that she is in the protected group — that is, those who can become pregnant; that she asked to be accommodated in the workplace when she could not fulfill her normal job; that the employer refused to do so, and that the employer did actually provide an accommodation for others who are just as unable, or unable, to do their work temporarily.”

A man, even one who blogs, has to know his limitations. This is a case to ask your seasoned HR professional about.

March 27, 2015 at 8:54 am Leave a comment

Older Posts Newer Posts


Authored By:

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

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 360 other followers

Archives


Follow

Get every new post delivered to your Inbox.

Join 360 other followers