NCUA Releases Annual Meeting Guidance

NCUA yesterday released much needed guidance to Federal credit unions informing them that they had the right to postpone their annual meetings.  NCUA’s clarification is a welcome relief to many credit unions which have been wondering how to both comply with their annual meeting obligations and  state level orders limiting the number of persons who can gather at one space.  In addition, NCUA explained that board members whose terms expire prior to the annual meeting can continue to serve until the rescheduled meeting is held.

In the guidance NCUA also announced that, effective March 16th to March 30th,“all examination related staff are required to be offsite”.  Information will be transmitted through NCUA’s Secure File Transfer Portal.

FinCEN Releases COVID-19 Guidance

Underscoring just how seriously FinCEN takes the reporting responsibilities of financial institutions, it issued this guidance yesterday telling financial institutions to contact FinCEN “as soon as possible” if they have any concerns about reporting delays as a result of the COVID-19 virus.  FinCEN also said to be on the lookout for an increase in scams related to the COVID-19 pandemic.

White House Issues Voluntary Guidance

The White House issued voluntary guidance yesterday which I would strongly suggest making a good faith effort to comply with.  Among the recommendations that caught my eye are ones to not congregate in groups of 10 people or more and to work from home if you can work from home.

On that note, Happy St. Patrick’s Day.  Fortunately, I was able to get a bottle of Jameson before my neighbors hoarded that as well.  Unfortunately, the same cannot be said for toilet paper.  By the way, unless you want to drink a lot, don’t read about yesterday’s stock market.

March 17, 2020 at 9:08 am Leave a comment

Seven Ways COVID-19 Is Impacting Your Operations

Greetings from the state that is number one in COVID-19 cases; as of Sunday afternoon.

There have been an amazing number of developments affecting your credit union over the weakened.  I am emphasizing those that you may not have heard about yet.

New York Delays New Servicing Regulations

I actually have some good news to tell you this morning.  I found out over the weekend that New York’s  Department of Financial Services has issued an emergency regulation putting on hold for an additional 90 days new servicing regulations which many credit unions and mortgage bankers were wondering how they were going to comply with.  In announcing the delay DFS Superintendent, Linda A. Lacewell explained that “the volume and complexity” of the new regulations, especially since they require new programing and disclosure requirements for home equity lines of credit, has led the department to conclude that businesses need more time to comply, particularly at a time when they have to concentrate on the pandemic.

A special shout out to the New York Mortgage Bankers Association, which did a great job alerting stakeholders to the difficulties in complying with this regulation.

State Issues COVID-19 Emergency Relief Order

New York’s Department Of Financial Services issued an order exempting state licensed and state chartered financial institutions including state chartered credit unions from some regulations with which they would normally have to comply.  Most importantly, these institutions can now close and relocate branches and offices without first providing notice to DFS.  In addition, licensed individuals such as mortgage originators can work from home with the understanding that they are still subject to New York’s regulations.  Entities are still expected to inform New York State of any relocations.

Additional Developments…

Also over the weekend, the Governor asked businesses that could do so, to voluntarily shut down and allow their employees to work from home.

Finally, the state has imposed limits on the size of mass gatheringsHere is his first order.  This situation is very fluid and we may see further reductions in the authorized size of mass gatherings.

Fed Gone Wild

Just how low can the Fed go?  The Federal Reserve Open Market Committee announced yesterday that it was slashing the Federal Funds rate to zero (!) and “expects to maintain this target range until it is confident that the economy has weathered recent events…”

When the history of this pandemic is written, it will be marked as the end of a unique period in American history during which the Federal Reserve exercised a decisive impact on the American economy.  In 1987, Alan Greenspan calmed the stock market following its dramatic decline; it was the Fed that helped minimize the impact when the dot-com bubble popped; and Ben Bernanke mitigated the impact of the Great Recession of 2008 by going on a mortgage buying binge.

My how times have changed.  Interest rates are already too low to have much of a stimulus impact and they will have no effect in coxing Americans out of their homes to hoard more toilet paper.

The Fed did take one important step recently.  It announced a massive infusion of funds into the repurchase market.  It also announced it would accept a broader range of securities for these arrangements.

The repurchase market plays an absolutely crucial role in the economy.  It is the mechanism by which the largest of the large financial institutions manage their liquidity on a daily basis by getting short-term loans of cash in return for collateral such as bonds.  The system has had some hiccups over the past year and no one quite knows why.  Stay tuned.

With the Fed out of bullets, it is up to Congress and the President to come together and agree on a stimulus package.  On Saturday, the house took the first step in this legislative dance by passing legislation which extends limited family leave protections to some employees and increasing funding for programs such as SNAP.  The precise impact of this proposal is being debated this morning, with critics already complaining it contains too many loopholes to help most workers.  If, as expected, the Senate passes the bill this week and the President signs it, the real contentious debate gets started.  Both sides are already jockeying for position over what should be included in a larger stimulus package.

March 16, 2020 at 10:38 am Leave a comment

Can you Postpone Your Annual Meeting?

Judging by the number of people that asked the Association this question yesterday, I would hope that NCUA would shortly be coming out with guidance and other related issues. That being said, here is my opinion, which is of course, not a substitute for consultation with your attorney.

  1. Can my credit union postpone its annual meeting?

Yes it can. Under both Federal and State law, board members and officers have a fiduciary obligation to work in the best interest of the credit union (see Grand Union Mount Kisco Employees Fed. Credit Union v. Kanaryk, 848 F. Supp. 446, 457–58 (S.D.N.Y. 1994); 12 CFR 701.4. Furthermore, while NCUA decided to put its bylaws in its regulations a little more than ten years ago, it is important to understand that the bylaws are ultimately a framework in which the board carries out its obligations.

Against this backdrop, it is my humble opinion that while you should hold your annual meeting on the date and time prescribed in your bylaws whenever practical, you have the obligation to change plans when doing so is mandated by common sense public health concerns. In this case you have the right and maybe even the obligation to postpone the annual meeting to confront a public health crisis. After all, one of the goals of NCUA is to encourage participation in annual meetings and as a board member you have an obligation to make decisions which you believe are in the best interest of your membership.  No one should have to choose between putting their health at risk and attending a meeting which can be postponed.

2. Can we hold a virtual meeting?

Unfortunately the answer to this question is not as cleat cut as it should be. NCUA recently updated its bylaws and explicitly rejected a proposal to give credit unions the option of holding virtual meetings. The preamble to the final rule explained that a movement towards completely virtual meetings could actually disenfranchise some members. CUNA has requested guidance from NCUA on this very issue. For state chartered credit unions in New York you have more flexibility to interpret and implement your bylaws. I would use that flexibility to permit virtual meetings in this particular circumstance.

3. If we suspend the annual meeting, how will this impact our board elections?

That depends. If your credit union accepts nominations to the board at the annual meeting then I would argue that the election can’t be held until the annual meeting. After all, the board has an obligation not to disenfranchise its members. But if you’re like the credit union I was talking to yesterday, nominations can only be made by the board nomination committee and by petition. The time period for these nominations has passed and only incumbent board members are seeking reelection. In this case there is no need to extend the nomination period simply because the annual meeting will be postponed. After all, members had adequate time to run for the board and chose not to.

These are unique times. School districts are shutting down. Entire countries are being quarantined and President Trump is actually reading entire speeches off a tele-prompter. The purpose of this blog is not to provide definitive answers where there are none, but to underscore the flexibility your credit union has to implement its regulations in a way which both is true to the intent of your bylaws while being consistent with your obligations to work in the best interest of your members. This is the prism through which I believe regulators should, and courts ultimately would, examine your decisions.

March 13, 2020 at 9:52 am Leave a comment

Can Your Employee Use Medical Marijuana At The Credit Union?

Since 2014 when New York legalized the use of marijuana for medical purposes, lawyers, HR professionals and employers have grappled with how best to reconcile two provisions of New York’s law which seem to be in conflict with one another. On the one hand, § 3369(2) of New York’s Public Health Law stipulates that a certified patient authorized to use marijuana shall be deemed a disability under New York’s Human Rights Law which bans discrimination against the disabled and mandates that employers provide employees reasonable accommodations to do their jobs.

Conversely, this same subdivision goes on to explain that it does “not bar the enforcement of a policy prohibiting an employee from performing his or her duties while impaired by a controlled substance” or put the employer in the position of violating Federal Law.

New Jersey also authorizes the medical use of marijuana with provisions similar to New York’s. A recent decision by its Supreme Court, while not binding in New York, could be used as persuasive authority by future employees claiming to have been discriminated against by their employers. I would certainly take a look at this case and consider whether the type of activities performed by your credit union employees justify policies that you may have regarding the use of marijuana in the workplace.

In Wild v. Carriage Funeral Holdings, Inc., a funeral director came down with cancer in 2015 and was prescribed marijuana under New Jersey’s Medical Use Law. One day he got into an accident while driving a company vehicle. He went to the emergency room and explained that he had marijuana in his system because of his cancer treatment but the doctor was unconcerned because he was clearly not impaired. Nevertheless, he was fired for violating the corporate policy against using drugs during work hours, a policy with which NCUA’s employees are all too familiar these days.

He sued claiming that he was lawfully using marijuana and he was being discriminated against because of his medical disability in violation of NJ law. The lower court disagreed because of a provision of the New Jersey Compassionate Use Act that “nothing” requires an employer to accommodate a medical user of marijuana. The case eventually found its way up to the New Jersey Supreme Court. In a brief decision, it held that it was obligated to interpret New Jersey law in a way that reconciled the two provisions. It ruled that “The Compassionate Use Act does not have an impact on the plaintiff’s existing employment rights. In a case such as this, in which plaintiff alleges that the Compassionate Use Act authorized his use of marijuana outside the workplace, the Act’s provisions may be harmonized” with New Jersey’s anti-discrimination laws.

Think about the impact that this decision has for those of you who have branches in New Jersey. Most importantly, you should make sure that your policies don’t discipline an employee simply because he or she is lawfully using marijuana. The case also raises an interesting issue that employees also need to consider. In this case, there was documented evidence that the employee was not impaired. Would the outcome have been different if the employee was impaired? And if so, how are employers going to make the distinction between an employee with marijuana in his system and an employee with marijuana in his system who is impaired? These are interesting questions that we won’t know the answer to for several years. But in the meantime, your policies have to be drafted in consideration for these questions in any state which authorizes medical marijuana use.

March 12, 2020 at 11:27 am Leave a comment

DFS Issues Preparedness Mandates

New York’s Department of Financial Services issued two separate guidance and “request for assurance” notifications yesterday mandating that institutions it regulates provide within 30 days a report to the department outlining the steps it is taking in response to the coronavirus outbreak. One of the documents assesses the potential financial impact of COVID-19, while the other deals with steps that are being taken to modify operations in response to the outbreak.

DFS expects to receive a written explanation responding to a series of questions including:

1.Assessment of the credit risk ratings of the customers, counterparties and business sectors impacted by COVID-19;

2.Assessment of the credit exposure to customers, counterparties and business sectors impacted by COVID-19, arising from lending, trading, investing, hedging and other financial transactions, including any credit modifications, extensions and restructurings (including capitalizations of interest);

3.Assessment of the scope and the size of credits adversely impacted by COVID-19 that currently are in, or potentially may move to, non-performing/delinquent status, including consideration of stress testing and/or sensitivity analysis of loan portfolios and the adequacy of loan loss reserves;

4.Assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19;

5.Assessment of the over-all impact of COVID-19 on earnings, profits, capital, and liquidity (including impact on loan-to-deposit ratio) of your institutions; and

6.Assessment of reasonable and prudent steps to assist those adversely impacted by COVID-19. See DFS Guidance to New York State Regulated Banks, Credit Unions and Licensed Lenders Regarding Support for Businesses Impacted by the Novel Coronavirus.

The other guidance includes a separate set of questions:

1.Preventative measures tailored to the institution’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on customers, and counterparts;

2.A documented strategy addressing the impact of the outbreak in stages, so that the institution’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak, which includes an assessment of how quickly measures could be adopted and how long operations could be sustained under different stages of the outbreak;

3.Assessment of all facilities (including alternative or back-up sites), systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for long periods or are working off-site, including an assessment and testing as to whether large scale off-site working arrangements can be activated and maintained to ensure operational continuity. This would also include an assessment and testing of the capacity of the existing information technology and systems in light of a potential increased remote usage;

4.An assessment of potential increased cyber-attacks and fraud;

5.Employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps employees can take to reduce the likelihood of contracting COVID-19. See New York State Department of Health website: https://health.ny.gov/diseases/communicable/coronavirus/ and CDC Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019: https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/guidance-business-response.html;

6.Assessment of the preparedness of critical outside-party service providers and suppliers;

7.Development of a communication plan to effectively communicate with customers, counterparties and the public and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;

8.Testing the plan to ensure the plan policies, processes and procedures are effective; and

9.Governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the institution’s own monitoring program.

March 11, 2020 at 10:07 am 1 comment

Tawdry Misconduct At NCUA Uncovered By Inspector General

Reports of marijuana consumption, visits to strip clubs and possible sexual harassment involving NCUA’s office of General Counsel are some of the highlights from a report released by the Office of Inspector General on Friday. Some news just speaks for itself.

 Reach Out And Block Someone

There are many times when legislators and regulators use a chainsaw when they need a scalpel. The leading example of this unfortunate impulse continues to be the TCPA and its regulatory framework which not only take aim against obnoxious robo-calls but are also making it difficult for legitimate businesses including banks and credit unions to engage in rudimentary member communication.

Just how big a deal is this? Recently NAFCU and CUNA signed on to a letter with representatives of several other industries highlighting the practical consequences of the FCC’s overzealous implementation of the fatally antiquated federal statute.

According to the letter, callers and consumers “are not receiving proper notice or procedural protections with blocked or mislabeled calls. If left unchecked, these issues will have significant negative impact on consumers…” For example, the letter noted that two factor identification requests are being blocked as are security related messages and fraud alerts. These aren’t all that useful hanging out in your SPAM folder.

Of course all this was predictable. Remember that this past summer the FCC rushed out regulations giving telephone companies greater protections to more aggressively block suspected robo-calls. At the time credit unions and others warned that this proposal would result in unintended harm to consumers. The FCC went ahead with the rule but coupled it with a mechanism to create a “safety valve” to ensure that consumers could alert the FCC to the fact that legitimate calls were being blocked. The letter includes suggested modifications to the blocking techniques of phone companies. Hopefully some of these will be implemented but I’m not holding my breath.

Get Ready for One Wild Financial Rollercoaster

I’ve included a graph of the Ten Year Treasury Note which continues to drop lower and lower and lower. Combine this with a precipitous drop in oil price and the spreading coronavirus pandemic and today isn’t a good day to check out how your 401k is doing.

March 9, 2020 at 9:19 am Leave a comment

If You’re Responsible For Your CUs BSA Compliance, You Are On The Hook If Things Go Bad

If your credit union does not have adequate staff to appropriately identify and respond to suspicious activity it may be violating federal law and putting both the credit union and its BSA compliance officer at risk of being fined.

That’s my major takeaway after FinCEN recently announced a $475,000 fine against the individual who had been responsible for U.S. Bank’s AML/BSA program. This fine is in addition to a separate civil penalty already imposed on the bank. It’s a strong warning to financial institutions and should be reviewed by anyone responsible for implementing and overseeing your AML/BSA program, including your board.

The order is a not too subtle warning to all institutions that they are expected to maintain staff levels commensurate with their level of BSA risk and that they can’t rely on software to demonstrate good faith compliance. It is also a reminder that whoever is in charge of BSA compliance at your credit union has an obligation to advocate for appropriate resources.

First a quick reminder. Pursuant to 31 U.S.C. § 5318 (h) your credit union must have an anti-money laundering program that includes, at a minimum: internal policies, procedures, and controls; has a designated compliance officer; an ongoing employee training program; and an independent audit function to test its BSA programs.

Michael LaFontaine was the former chief operational risk officer at U.S. Bank National Association. In this capacity he had overall authority and responsibility for BSA compliance. FinCEN determined that he willfully violated these core responsibilities.

Most importantly, he capped the number of alerts that the bank’s BSA monitoring software would generate resulting in thousands of potential BSA violations going unreported. He did this even after Wachovia was fined by FinCEN for engaging in almost identical activity and despite being told by employees that capping reports was inappropriate.

Secondly, he was repeatedly warned by regulators and staff that the size of the bank’s BSA staff was not commensurate with its level of risk. FinCEN explains that “While he did take certain steps to upgrade the AML Program, including advocating for and receiving funding for the replacement of the system in its entirety, his actions were inadequate to correct the deficiencies.” This is a reminder to you BSA compliance people out there to document the efforts you take in the event you conclude that your staffing levels and resources are not commensurate with the credit union’s BSA risk profile.

Will The Fed’s Rate Cuts Do Any Good?

With the Dow Jones Industrial Average declining quicker than Democrats are exiting the presidential primaries, the Fed announced an emergency 50 Basis Points cut in the Fed Fund Rate on Tuesday. Let’s call this the Corona Cut. Far be it for me to question the aggregate wisdom of the Fed, but this one is a bit of a head-scratcher. My sentiments are summed up nicely by Greg Ip of the WSJ who wrote (subscription required):

“The Fed cannot save the U.S. economy from the coronavirus, for two reasons. First, it can’t restart factories that are missing parts as the virus disrupts supply chains, nor can it persuade worried vacationers to fly. Second, and potentially more important, central banks are losing their grip on the business cycle.”

March 5, 2020 at 9:50 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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