The CFPB Is Constitutional…For Now

Oh well, it’s on to the Supreme Court hopefully.

Yesterday the Court of Appeals for the District of Columbia put the dreams of constitutional extremists like myself on hold when it ruled that the single director structure of the CFPB was constitutional. The decision means that the Director can still only be removed for cause by the President.

But the decision by an “en banc panel” of the Court was by no means a complete victory for the Bureau. The panel effectively held that former Director Cordray overstepped his powers when he increased from $6 Million to $109 Million, a fine imposed on PHH for violating RESPA. It was this excessive fine which triggered the litigation in the first place.

Let’s take a trip down memory lane. PHH, like many large lenders, owns a captive mortgage insurance company. In 2014, the CFPB brought charges against PHH and its captive reinsurer, Atrium. It claimed that the money transferred to PHH through Atrium violated RESPA because a company was not being paid for services being performed or was being paid in amounts that “grossly exceeded” the value of its services. Ultimately PHH contested this finding in an administrative law proceeding and it was this finding and Director Cordray’s fine which triggered this litigation.

What happens now? We will have to wait and see if either side feels that the remaining issues are worthy of the Supreme Court’s review. PHH has secured an important victory and may not feel that it ultimately has a dog in the fight now that the initial penalty has been addressed.

Personally, this is one issue that I sure do hope ends up before the Supreme Court. At some point the court has to reexamine its precedence. In my ever so humble opinion, the constitution was never intended to permit an explosion of independent quasi law making entities which are neither answerable to Congress or the Presidency.

Incidentally the CFPB also released a request for information yesterday in which it signaled that it is considering scaling back the use of administrative adjudications to resolve enforcement disputes. For example, it wants stake holders to discuss the positive and negative aspects of the Bureau’s administrative adjudication processes, including whether a policy of proceeding in Federal court in all instances would be preferable.

Yellen’s Term Comes To An End

Janet Yellen’s term as the first woman to head the Federal Reserve Board came to an end yesterday. Here is the latest statement of the Fed’s Open Market Committee. Incidentally, Yellen is the first Fed Chairman in forty years not to be reappointed to a second term.

February 1, 2018 at 8:59 am Leave a comment

Wine Connoisseur Taught The Limits Of Credit Reimbursement

Wine snobs everywhere got a much needed smack down from the Court of Appeals for the 10th Circuit on Friday when the Court ruled that Amex and Chase weren’t on the hook for more than a million dollars in credit card payments to purchase wine that was never delivered. I don’t know why, but I find this case extremely amusing.

Malik Hasan had purchased $689,000 using his Chase credit card and $379,000 using his Amex from Premier Cru. Cru delivered some but not most of the wine before it went bankrupt. Hasan demanded that the credit card companies refund his accounts and when they refused he sued them.

Even though you don’t deal with transactions of this size, the dispute is one that any credit card issuing credit union is familiar. Under the Fair Credit Billing Act, card holders can have disputed credit card transactions re-credited to their accounts. However, the law also limits the size of a card holder’s claim “to the amount of credit outstanding with respect to the disputed transaction at the time the card holder first notified the card issuer.”

In this case, our stiffed wine connoisseur was quite conscientious and at the time he disputed the transactions there was no outstanding credit balance on either of his cards. As a result, the court ruled that “because recovery under §1666i is limited to the amount of credit outstanding Hasen could recover nothing under the statute.”

Does this mean that the statute actually puts conscientious bill payers at a disadvantage? Arguably yes. But remember the real wrong-doer here is not the card issuer but the bankrupt wine company.

These Goodbye Tours Are Getting Out of Control

This has absolutely nothing to do with credit union land but I have to get it off my chest. I thought it was bad enough when Mariano Rivera took a year to retire from the Yankees. Now I hear that Elton John is taking three years for what he promises will be his last live tour. Now I like both Elton John and Mariano Rivera but at some point we have to put an end to these ridiculously long goodbyes. They are bordering on egomaniacal. By the way, speaking of egomaniacal, is anyone as disturbed by that bizarre Tom Brady Facebook documentary as I am? I really don’t need to know how he spends his personal time or what he has for breakfast. On that note, enjoy your day.

 

 

January 31, 2018 at 9:11 am Leave a comment

Two Bills Worth Knowing About

Bloomberg news is highlighting two bills passed by Congress yesterday that I think are worth knowing about.

First there is H.R. 1457. This bill would set a national standard for financial institutions, including credit unions that want to accept online account applications. The bill establishes a national standard for the acceptance of scanned driver’s license or identification card when individuals are applying for a banking product or to open an account. I actually thought that the acceptance of scanned personally identifiable information was no longer an issue but according to Bloomberg there are still some state laws that stand in the way of fully optimizing online account opening.

The second bill has absolutely nothing to do with credit unions but speaks volumes about how much the banking industry has evolved since the expansion of interstate banking. H.R. 1426 would create a new type of financial institution called a Covered Savings Association. These entities would be allowed to exercise many of the same powers of a nationally chartered bank without having to go through the formal charter conversion process.

Why is this bill more important than it seems? Go back a generation ago and there were fierce jurisdictional battles between community banks and savings associations on one side and national banks on the other. In fact, this tension was helpful to credit unions since it meant that banks had something to do other than think of ways of hurting our industry. Times have changed. We are fast approaching the point when credit unions and national banks are the only two financial charters left standing.

January 30, 2018 at 9:00 am Leave a comment

Big Victory For CU’s

Credit Unions notched an important victory on Friday in their battle against ADA Website litigation. Although the decision is just binding for credit unions located in the Eastern District of Virginia, it provides important persuasive authority for credit unions to argue that their unique member only structure limits the type of people who are qualified to bring lawsuits against them.

The Northwest Federal Credit Union has a field of membership made up of current or former employees of the CIA and their family members. In contrast, the plaintiff did not allege that he was eligible to join this credit union. As the court explains, he was unable to deposit money into the credit union, obtain a loan, or get other services. Against this backdrop, the court concluded that he could make no showing that he was harmed by the credit union’s website, even if it was not ADA compliant. Crucially, the court also held that plans to visit [the website] are immaterial unless the defendant can establish that he is eligible to use “the credit union services.” Why is this statement so potentially important? Because in other contexts courts have recognized standing of parties to bring civil rights lawsuits as a means of testing compliance with Federal law.

The second major conclusion of the court was that the ADA does not apply to websites. This is an issue that is dividing Federal courts across the country and my guess is that at some point it will have to be resolved by the Supreme Court. Remember that as it stands right now, the 2nd Circuit which has jurisdiction over New York credit unions, is trending in the direction of concluding that the ADA applies to websites.

On a personal note, yours truly is just getting over the mother of all flues. If I haven’t gotten to an email or phone call, (knock on wood) I’ll be back in the office tomorrow. By the way, don’t be an idiot like me and refuse to get a flu shot when you have a chance to get one.

January 29, 2018 at 9:17 am Leave a comment

Three Things You Should Ponder As You Start Your Credit Union Day

When It Comes To ADA lawsuits, is the best defense a good offense?

The ever informative CUtoday features an article this morning quoting Becky Landis, CEO of State Highway Patrol FCU in which she argues that the only way credit unions can stop “frivolous” ADA website lawsuits is to litigate. “Yes, you could say that it might be cheaper and less costly for the credit union to roll over and settle, but am I really doing justice to my membership by doing that?”

Great question and I know that it’s one that many credit unions are wrestling with these days. There is certainly a time and place to push back against these lawsuits but just remember that not all of them frivolous. They are annoying, obnoxious and arguably of little utility but a good faith argument can be made that the ADA applies to your website. The real question is, in circumstances where your website is ADA compliant or will be in the near future, should you hand out settlement money just to avoid litigation? There are some great legal issues that have to be litigated if the industry is going to get clarification as to what does and does not constitute as ADA compliance.

DFS Issues Cybersecurity Reminder

New York’s Department of Financial Services issued a reminder earlier this week that institutions subject to its cybersecurity regulations have until February 15th to certify that they are compliant with this regulation. In addition, for those of you subject to DFS Audits, the department announced that proof of your cybersecurity compliance will be one of the issues addressed in those “first day letters” you receive prior to an examination.

Interestingly, a federal credit union that provides mortgages received this notice from the DFS. If other federal credit unions have received a similar notice, please let the Association know.

A Kinder, Gentler CFPB

The amazing makeover of the CFPB continued yesterday. In an op-ed piece in the WSJ, Acting Director Mick Mulvaney says the following: “The CFPB has a new mission: We will exercise, with humility and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate. But we go no further. The days of aggressively “pushing the envelope” are over.”

By the way, with his strict adherence to the plain reading of statutes and advocacy of limited government, Mulvaney sounds very much like NCUA’s Chairman J. Mark McWatters, who is widely rumored to be a top candidate to take over the Bureau.

 

 

January 24, 2018 at 8:27 am Leave a comment

Why Standing Matters To Your Credit Union

Image result for child learning to walkAs a general rule, if I find a legal concept interesting, my readers find it slightly more interesting than the American version of Antiques Road Show. But this morning I get to talk about an extremely important legal principle that is directly impacting your credit union.

If you’re trying to ensure that your website is ADA compliant then you should know about standing. Let’s say you’re more confident than Donald Trump sending out a Saturday morning tweet when it comes to your website; you’re concerned about how much all those data thefts are costing your credit union then you still need to know about standing. So here it goes:

Standing refers to a person’s ability to show that they have been harmed by someone’s legally actionable mistake. You might have the best lawsuit in the world but unless you can show that you have been harmed by someone’s actions then you lack standing. Let’s say Bill Gates was driving 100mph last Saturday. His recklessness didn’t harm you. Similarly, not all statutes are intended to protect all people. For instance, Michael Phelps couldn’t successfully sue under the ADA claiming that a pool he was in wasn’t handicapped accessible.

Standing is one of the key issues for credit unions deciding to fight ADA website violation claims. Typically, the demand letters I have seen are brought in the name of a blind state resident regardless of whether or not the plaintiff is a member or could even qualify for membership. This clearly raises standing as a potential defense, so I was happy to see that NAFCU has submitted a brief in which a court will deal directly with the issue of whether someone who couldn’t qualify for membership in a credit union nevertheless has standing to sue that credit union. Don’t get me wrong. The argument is not a slam dunk winner but it is certainly one that credit unions should raise.

Standing is also a key issue for credit unions claiming that they have been harmed as a result of data breaches. In Spokeo, Inc. v. Robins, the Court held that in order to establish Article III standing, a plaintiff must show that he or she has suffered “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” How does this work in the context of data breaches? Is the fact that a large number of member’s personally identifiable information stolen by hackers enough to establish standing or do plaintiffs also have to show that the data was actually used to rip someone off (that’s a legal term)? This is not an extraction. Yahoo! is making pretty much the same argument in seeking to dismiss consumer claims related to its massive data breach. I also would anticipate Spokeo standing to be an issue in the Equifax litigation.

Unfortunately, Law360 is reporting this morning that the Supreme Court has decided not to hear a case in which it would have had the opportunity to further clarify Spokeo standing, albeit in the context of the Fair Credit Reporting Act.

The issue of standing is further complicated by the distinction between banks and credit unions which can show they have been harmed by a data breach by, for example, having to reissue plastic, and consumers who can prove that their information was exposed but cannot prove that someone has actually used their information yet.

I will keep you posted. I hope you’re still awake. Enjoy your day.

January 23, 2018 at 9:16 am 3 comments

High Noon For Medallions?

It appears that High Noon is fast approaching for the NYC medallion industry.

An auction is scheduled for later today which will give us further insight into just how much value New York City yellow cab medallions still have; it follows an auction On January 11 in which six medallions foreclosed on by a New Jersey credit union sold for $185,000 apiece.

To put this in perspective, the latest auction information I found on the NYC Taxi and Limousine Commission website reported medallions selling at auction for over $2 million in March 2014 for a mini fleet of taxis. .  And remember, it was not that long ago that a medallion foreclosure was unheard of.

The rules for this afternoon’s auction also underscore just how far the industry has fallen. Financing of bids is not being allowed.  In addition, the credit union has the right to determine if the “best bid” is for a group of medallions or for each one individually.

With the pace of sales appears  quickening and more prices  publicly available,  individual  credit unions and the industry writ large should soon  have a solid idea of just how much the rise of Uber and Lyft will cost.  This could impact everything from how much money examiners expect credit unions holding medallion loans to put aside to your credit union’s contribution to the Share Insurance Fund. Stay tuned

January 16, 2018 at 9:17 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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