New York On Verge of Historic Power Shift…Again

Image result for senator jeff kleinThis headline might be a tad premature but it appears that the State Senate Democratic Caucus headed by Andrea Stewart-Cousins and the 8 member Independent Democratic Caucus by Senator Jeff Klein have reached a preliminary agreement to unify, potentially paving the way for cutting Republicans out of holding any power in the state legislature.

How big of a deal is this? Since the end of WWII, Democrats have held power without Republican help only briefly in 1964, 2008, and 2010. In the latter two cases, Republicans maintained control by entering into power sharing agreements with a group of breakaway Democrats.

Yesterday, Senator Jeff Klein issued a statement in which he indicated that the Democratic factions had come to an agreement about how to work together. In a statement released yesterday evening, “The State Party’s assurance that our progressive legislative agenda will be advanced is a victory for the people of New York,” Klein said. “I look forward to implementing the terms that have been outlined in yesterday’s letter.”

Still this appears to be an agreement to agree. The new power sharing arrangement is reportedly scheduled to take effect only after the state budget is negotiated. Currently there are 23 Democrats in the traditional Senate Democratic Caucus and 8 Democrats in the breakaway IDC. Simcha Felder is a Democrat who currently caucuses with the Republicans but has indicated in the past that he is willing to work with whatever party can most help his constituents. With special elections taking place next year, a unified Democratic conference should be able to take control without needing Republican help, but then again we have been here before.

NY Credit Union Fined By DFS

New York’s Department of Financial Services announced that The United Nations Federal Credit Union and Lloyds of London were fined $1.47 million for marketing and offering life insurance tied to the credit union’s credit and debit card program without being appropriately licensed. Here is some additional information.

Round One Goes To Mulvaney

Also yesterday evening, a Federal District Court Judge refused to block Mick Mulvaney from taking over as the interim head of the CFPB while continuing to serve as the Director of the Office of Management and Budget. I haven’t seen a transcript of the proceedings yet but according to this article, the Judge explained “Nothing in the statutes prevents Mr. Mulvaney from holding both of these positions.” Hopefully this silliness can end soon and we can start concentrating on working with Mr. Mulvaney to bring much needed mandate relief to credit unions.

November 29, 2017 at 9:11 am Leave a comment

Five Things You Need To Know On Tuesday Morning

Here is a roundup of some of the other news that happened over the last week when I wasn’t doing the blog and the CFPB had only one Director:

Uber Data Breach

Most importantly, ride sharing app Uber disclosed, all be it belatedly, that it had been victimized by a data breach about a year ago. The breach affected at least 57 million accounts and compromised the phone numbers and emails of 600,000 US driver licenses. It ended up paying more than $100,000 in ransom money to hackers. Uber’s announcement, conveniently made as people prepared for the Thanksgiving holiday, is the latest and most blatant example of companies failing to give adequate notice of data breaches in a timely fashion. This is why it is also the latest example of why we need national data breach standards.

High Noon For Tax Reform

The push for the Republican Tax Cut Proposal is nearing another critical stage with the Senate talking about voting on the bill by the end of the week. Today the Senate Budget Committee meets to consider the bill. What’s so interesting about that is that one of the Republicans most outwardly skeptical about the plan, Senator Corker of Tennessee sits on that committee. He has indicated the he plans to vote against the bill unless changes are made. If Republicans hope to pass a tax bill without Democrat support, they can only afford two Republican no votes. Remember, that even if the legislation gets through the Senate, then the House and the Senate will have to agree to and pass a single bill.

CUNA and NAFCU Recognize Mulvaney As CFPB Director

All of this would be comical if it didn’t have real world consequences and involve adults.

CUNA and NAFCU sent letters to Mick Mulvaney congratulating him on being named the interim head of the CFPB. Meanwhile, the Justice Department was granted an extension to prepare a response to Leandra English’s lawsuit claiming that she is the rightful heir to the CFPB throne. Mulvaney also announced a freeze on CFPB rulemaking. Also yesterday, several high-profile Democratic Senators including New York Senator and majority leader Chuck Schumer and Massachusetts Senator Elizabeth Warren indicated that they would be submitting amicus briefs in support of English. All this took place as Mulvaney was passing out donuts to his new employees and English was emailing CFPB employees in between making visits to key Democrats on Capital Hill. And you thought your office was dysfunctional?

Powell To Testify At Confirmation Hearing

Gerome Powell will be testifying today before the Senate Banking Committee as he seeks to be confirmed as the next head of the Federal Reserve Board. Barring any unforeseen developments, he is expected to easily win Senate approval and take over the job when Janet Yellen’s term ends in February. Here is a link to his prepared testimony.

Is Inflation MIA?

When he takes the helm, one of the riddles he will continue to have to deal with is inflation and the lack thereof. As I’ve noted in previous blogs, there is an important debate going on among economists; in one camp are those who argue that inflation is just around the corner and that the Fed has to aggressively act now or it will act too late to control the inevitable spike; the other camp argues that the economy is changing and that the persistence of low inflation may be a permanent fixture of this new world. One of the most interesting articles I’ve read in recent weeks was this one from the WSJ in which Chairman Yellen said that the continued persistence of low inflation surprised her and that policy makers may have to consider that “there is something more endemic or long-lasting that we need to pay attention to.” Expect the Fed to raise rates again in December. But if inflation continues to be sluggish, more and more central bankers will question whether raising interest rates makes sense.

November 28, 2017 at 9:09 am Leave a comment

CFPB Attempts A Regulatory Coup

The attempt of the holdover leadership of the CFPB to extend its reign over the Bureau is the type of legal maneuver that lawyers love and that makes everyone else hate lawyers. At the end of the day, what the CFPB and its most zealous supporters will accomplish is nothing more than to underscore that the Bureau is an out of control Bureaucracy in desperate need of reform.

When Richard Cordray announced that he was leaving the Bureau at the end of the month, speculation surfaced immediately that the trump administration would name former Congressman and current OMB Director Mick Mulvaney as its Acting Director. Considering that Mulvaney has been an outspoken foe of the Bureau, supporters of the Bureau were understandably upset; but in the words of our previous President, “Elections have consequences.”

Fast forward to Friday. Director Cordray apparently was so anxious to get a jump on his Black Friday shopping that he announced that Leandra English who had previously served as the Chief of Staff as his Deputy Director. When Cordray announced his departure, he effectively designated her as his successor until his five-year term ends in July. In a statement explained that “we will continue to benefit from Leandra’s in-depth knowledge of the operational needs of this agency and its staff.” The White House responded with a statement naming Mulvaney as the Acting Director. English has already filed a lawsuit seeking to block Mulvaney from taking up this position.

Now here’s the part that the lawyers love. The CFPB zealots have a good faith argument. Specifically, they argue that under the Dodd Frank Act, the Deputy Director becomes the Acting Director “in the absence or unavailability of the Director.” The problem with this logic is that it is questionable that a voluntary departure constitutes the type of absence envisioned by this provision. In addition, the statute is only relevant if it is not preempted by a competing Federal statute, the Federal Vacancy Reform Act. While this issue has never been litigated, the Trump Administration released a memo from the CFPB’s General Counsel in which he opined that the President had the power to make the interim appointment and that CFPB staff should recognize Mulvaney as the Acting Director.

Let’s take off our ideological blinders and use some common sense here. Does anyone really believe that an unelected Director of a self-funded agency with no Board of Directors consistent with the Constitution exercise greater authority to appoint his successor, then can the President of the United States? Not in my copy of the Constitution.

And besides, what is it the Bureau holdovers truly hope to accomplish? In a best case scenario, Ms. English stays in her job until July. At some point, a new Director will be named who will take the Bureau in a vastly different direction. After all, elections have consequences.

In the long-term, all that this litigation will do is create greater confusion about what regulations should be implemented and how they should be interpreted.

November 27, 2017 at 9:13 am Leave a comment

Two Things You Need To Know Before Thanksgiving

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I’m exaggerating a little with the headline but I’m going on hiatus until next Monday and there are a couple of things I thought you should know about before then.

Mulvaney To Be CFPB Director?

First, if CBS news is correct, former conservative Congressman and current Office of Management and Budget Director Mick Mulvaney will soon be named the interim director of the CFPB. This is big news. Mulvaney made a name for himself as one of the most fiscally conservative members of Congress. This morning, a lot of his quotes bashing the CPFB are getting attention. But for astute credit union junkies, or people paid to follow this stuff, Mulvaney’s name should ring a bell for another reason. He was one of the harshest critics of former NCUA Chairman Debbie Matz’s obstinate refusal to hold public budget hearings. She even suggested at one point that lobbyists pushing for these hearings were not really representing the interest of credit unions. Here is part of his response that I find most amusing: “Are you a CU member? I am,” continued Mulvaney. “And I think they are representing me when they ask for those things. As a member of the credit union, I like the fact the credit union is trying to guard my money and be conservative with that.”

Suffice it to say that if Mulvaney takes hold of the CFPB, we are in for some interesting times.

NY To Propose Work Scheduling Rules

With the caveat that I am not an employment law lawyer, after talking to a workmate who actually does know this stuff (aka Chris Pajak), I’ve decided to give you a head’s up about regulations to be posted by the Department of Labor on November 22, 2017. NY has a 45 day comment period.

This regulation is the accumulation of a series of hearings held by the New York State Department of Labor over the next several months. Employee groups complain that low wage employees are increasingly being given less than a week’s notice of their schedule, making it difficult to make arrangements for accommodations like childcare and these employees often show up for work only to be sent home. Generally speaking, under New York’s existing “Report To Pay” rules, there are circumstances when employers are required to pay employees for reporting to work even if the employer has no work for them. Specifically, a non-exempt employee is entitled to the lesser of four (4) hours of pay or the pay he/she would have received had he/she worked the shift.

On that note, I will be back on Monday. Enjoy your Thanksgiving and thanks for reading.

November 21, 2017 at 7:15 am Leave a comment

What SpongeBob And The Overhead Transfer Rate Have To Do With Your CU Budget

Image result for Mr. KrabsAt yesterday’s November meeting of the Board, credit unions notched another important victory, albeit with a huge assist from NASCUS.

For years the overhead transfer rate (OTR) has been one of those things that everyone complains about but no one does anything about. Plus, the NCUA has traditionally guarded the formula as jealously as Mr. Krabs of SpongeBob guards the secret formula for Krabby Patties. For those of you who don’t have an 8-year-old at home or are simply too mature or embarrassed to admit you find SpongeBob amusing, all you need to know is that we are dealing with a top-secret formula.

NCUA is unique among federal financial regulators in that its Board is responsible for the regulation of federally chartered credit unions and oversees the Credit Union Share Insurance Fund. Imagine the OCC also having the FDIC’s responsibilities. The result is that when NCUA makes its budget, it not only collects fees on the federal charters it oversees, but transfers money from the Share Insurance Fund to cover the cost of regulating state charters for Share Insurance purposes. This creates a potential conflict of interest. After all, the more money taken from the Share Insurance Fund, the less money has to be collected for federal charters.

As a result, if you look back over the history of the Share Insurance Fund – I bet you didn’t know your faithful blogger was an armchair Share Insurance Fund historian – there have been periodic spasms of criticism directed at how NCUA determines the OTR. The latest such outburst started approximately three years ago when NASCUS obtained a legal opinion letter accusing NCUA of manipulating the formula to subsidize federal charters at the expense of state charters. In addition, Chairman McWatters who was then, nothing more than the resident gadfly on the Board, criticized NCUA for its lack of transparency.

Which brings us to yesterday’s Board meeting. According to NCUA’s press release, the OTR used for the 2018 budget will result in a dramatic reduction in the amount of money chipped in by state chartered, federally insured credit unions via the Share Insurance Fund from 67.7% in 2017 to 61.5%. In addition, NCUA is proposing a regulation which will make the process more transparent.

Since I’m a huge fan of transparency and I think the potential of OTR abuse is always going to be there, this is a step in the right direction. At the same time, I don’t think we’ve seen the last of the OTR debates. Given the structure that Congress handed the NCUA an impossible task that not even Solomon could definitively settle.

 

November 17, 2017 at 9:44 am Leave a comment

Goodbye, Good Luck, and Good Riddance

Image result for Richard CordrayYesterday, Richard Cordray, the benign dictator of consumer finance, announced that he is resigning at the end of the month. There are few industries that have as much to gain and as little to lose from his departure as do credit unions.

It didn’t have to be this way. I’ve been looking back at my old blogs and when I first started listening to Mr. Cordray, I heard a man who understood that credit unions didn’t engage in the shenanigans which lead directly to the great recession and indirectly to the creation of the CFPB. Instead, we were the good guys whose policies and practices could be an example for the larger banking community. As he explained at his Senate confirmation hearing, “. . . one of the things that we absolutely will not do at the bureau, at least under my leadership, is to impose further burdens on the community banks and credit unions. . . [that] have different constraints, have different abilities to comply with excessive regulation and that’s something we will not do on my watch.  We can exempt them, we can have a two-tiered system and we can listen closely to their concerns, which I will do.”

But his rhetoric has become increasingly hollow. Rather than using the power given to him under Dodd Frank to exclude almost all credit unions from many of its mandates, he and his troops of self-styled pseudo-technocrats contented themselves with subtle distinctions which made it difficult for many credit unions to figure out precisely what they had to comply with and penalized credit unions that had the audacity to grow.

When credit unions correctly pointed out that Dodd Frank empowered the Bureau to more aggressively exempt them, they were met with increasingly condescending responses from the former Supreme Court Clerk and Jeopardy champion. He actually told a room full of industry representatives that it was time for them to “drink the coffee” and realize that the Bureau was their friend.

The problem is, with friends like this we don’t need enemies. With a new Director, we can once again make our case; simply put, if we aren’t part of the problem then we shouldn’t be subject to regulations designed to deter the larger lenders who’s activities pose the greatest potential threat to consumers.

Then there is the larger issue of how the CFPB sees itself. It loves to describe itself as a data driven regulator for the 21st Century. In fact, it is no more or less than a hugely powerful regulator, which has cherry picked data to reach predetermined outcomes. If you think this is too harsh, take the time to read the Bureau’s report on arbitration clauses which conveniently downplays the costs of a class action system gone wild.

But in the end the problem is not Mr. Cordray, who strikes me as an earnest, intelligent, and hardworking guy with whom I vehemently disagree; it’s with the CFBP itself. Increasingly both Republicans and Democrats are circumventing the legislative process by using unelected regulators to gut laws they don’t like and implement policies Congress won’t support. The CFPB with its single Director and its exemption from the appropriations process is exhibit 1A of this disturbing and ultimately undemocratic trend.

In my dream world, Republicans and Democrats would use this pending interregnum to seriously discuss ways to make the Bureau more accountable by instituting a Board of Directors and scaling back the Bureau’s enforcement powers under UDAP. But in this increasingly partisan world in which compromise is viewed as treason, I know this won’t happen and that’s too bad.

 

November 16, 2017 at 9:22 am Leave a comment

Why Proposed Reform Bill Is A Good Deal For Credit Unions

Unless you have been living under a rock, you have probably heard the news that on Monday, a bipartisan group of Senators announced an agreement on a package of regulatory reform measures that will benefit credit unions and other lenders. With the caveat that I have not yet seen a copy of the actual legislation, here are some of the highlights:

Most importantly, the bill would amend the Credit Union Act to clarify that credit unions can make loans on second residences without such loans being subject to member business loan requirements. Specifically, I’m assuming the provision is based on S.836 which amends the current restriction limiting mortgage lending to primary residences. I love this change. One of the earliest issues that I dealt with when I entered credit union land full time was trying to help a small credit union that was being given a tough time by an examiner for providing a mortgage on a member’s second home without having a member business loan policy in place.

A second thing the measure would do is raise the level for compliance with the Home Mortgage Disclosure Act so that the regulations would only apply to institutions that make 500 closed-end mortgage loans or less than 500 open-end lines of credit in each of the two preceding calendar years. The CFPB has grudgingly raised the exemption threshold for HELOC’s to 500 hundred on a temporary basis.  Currently any institution that makes 25 or more closed end mortgage loans in each of the two preceding calendar years and meet Reg. C’s other criteria  comply with the new HMDA regulations

While the agreement doesn’t go quite as far as I would have liked it to with regard to mandated TRID disclosures, it would give lenders greater flexibility to reissue disclosures without triggering a new three day waiting period in instances where a creditor extends to a consumer a second offer of credit with a lower annual percentage rate.

There is also a provision providing protection to individuals who, in good faith and with reasonable care, disclose the suspected exploitation of a senior citizen to a regulatory or law-enforcement agency. This last provision is actually worthy of its own blog and I will be talking about it in greater detail later in the week. I’m sure you can’t wait.

Finally, let’s keep in mind how important it is to see Congress working in a bipartisan fashion in a way that helps credit unions. This is real progress and any momentum is good momentum given the hyper-partisan dysfunction that has gripped our political system. Take the time to tell your Senator and Congressman that you support this regulatory reform package.

November 15, 2017 at 9:26 am 1 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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