Here’s Something to Talk About Over Thanksgiving Dinner

This is my annual blog before I head down to God’s country to celebrate Thanksgiving. With the nasty tone politics has taken over the last few years, if your family is anything like the Meier family talking politics is now very dangerous territory so one of the purposes of this blog is to provide you with a non-political conversation starter that should get you through dinner still on speaking terms with your relatives. Another purpose of the blog is to provide you some useful information about your credit union business which  is probably why you read this in the first place.

Let’s start with the news you can use. I’ve just gotten through the New York Fed’s quarterly report on household debt and there is plenty of interesting factoids for you to consider if you’re in charge of plotting your credit union’s course for the next six months to a year.

For example, did you know that Aggregate household debt balances increased in the third quarter of 2018 for the 17th consecutive quarter, and are now $837 billion higher than the previous (2008Q3) peak of $12.68 trillion? I have to be honest with you, before I got into this business I never thought of increasing debt as a good thing. Then there is the news that delinquencies on household debt are beginning to increase   Aggregate delinquency rates worsened in the third quarter of 2018. As of September 30, 4.7% of outstanding debt was in some stage of delinquency, an uptick from 4.5% in the second quarter and the largest in 7 years.

Interestingly, it appears we really did learn some good lessons from the Great Recession. Mortgage originations were flat. The median credit score was 758.

Now here’s the part of the blog you can use for that dinner conversation. Many of you are probably going to be dealing with a kid home from college or a kid starting to think about going to college. According to the report, student loan debt increased by $37 billion in the third quarter, and stood at $1.44 trillion as of September 30, 2018.11.5% of aggregate student debt was 90+ days delinquent or in default in 2018Q3, a substantial increase from the prior quarter. Transition rates into delinquency worsened in the third quarter after a few quarters of relative improvement.

Is that four-year degree really worth the expense? Here’s a great blog that the Federal Reserve Bank did analyzing that precise question. Their conclusion was that, while you’re better off going to college, the economic benefit you derive from it is closely related to quality of school you go to and the major you choose. The researchers conclude that students or persons who attend selective colleges experience an 11% earnings premium compared with those who attend non-selective colleges.

Does a major make a difference? According to the research, STEM majors have the highest earnings premium followed by Business majors. If a school cohort increases its share of STEM majors (relative to Arts majors) by 10 percentage points, there is a 6 percent increase in that cohort’s earnings six years after enrollment. These findings are qualitatively similar for two-year colleges.

On that note, thanks for reading; enjoy your Holiday; stay calm and make sure there are plenty of leftovers for the 10p.m. sandwich.

November 19, 2018 at 9:13 am Leave a comment

Yet Another Responsibility Imposed on Directors

Before I get today’s blog going I want to give everyone a head’s up. It snows in the Northeast people. There’s no need to drive like you’re all visiting from Miami.  By the way our our kids don’t need to get the day off just because of a few inches. I feel much better now.

Anyway, at yesterday’s board meeting, NCUA proposed a subtly significant regulatory amendment that will add to the ever-growing pile of policies and procedures that our volunteers crazy enough to serve on credit union boards and supervisory committees will have to deal with. It would also help ensure that fidelity bond coverage is there when credit union’s need it.

The Federal Credit Union Act already requires the Board of Directors of federally insured credit unions to acquire bond coverage to guard against losses caused by acts of fraud, forgery, theft, embezzlement or my personal favorite “wrongful abstraction or misapplication” by the covenant employee. Why can’t we just call this stealing?

The proposed amendment, among other things, amends §713.2 of NCUA’s regulations to require all federally insured boards to delegate one  board member who is not an employee to sign the attestation for a surety bond purchase or renewal related to claims of misconduct such as fraud against a credit union employee. The proposal would require boards to review all applications for the purchase or renewal of bond coverage – which isn’t all that different from existing law – but also pass a board resolution approving of the purchase or renewal. In addition, supervisor committees would have to also conduct a review of all applications for the purchase in renewal of fidelity coverage.

Why is NCUA imposing this requirement? For one thing it is currently dealing with litigation, questioning the applicability of insurance protection for an employee’s fraudulent activity where the employee who signed the agreement actually committed the fraud for which coverage is being sought.

Here is a link summarizing the other results of yesterday’s board meeting. On that note, enjoy your weekend.

November 16, 2018 at 10:33 am Leave a comment

Four Quick Hits For Thursday Morning

NCUA Urges Credit Unions to Submit Diversity Self-Assessment

Credit unions and other financial institutions are once again being asked to undertake a voluntary self-assessment of their diversity policies and practices. NCUA would like to see the results submitted by December 31st. Keep in mind that while this self-assessment truly is voluntary, the EEO1 which all businesses with 100 or more employees must annually file with the US Equal Opportunity Employment Commission is not.

More Bad News For Taxi Medallions

Keith Leggett is reporting in his blog that Progressive CU has taken a big hit as it continues to try to survive the medallion crisis. According to Leggett, the CU posted a loss of $53.3 million for the first three-quarters of 2018 with a loss of $35.3 million in the third quarter alone. As a former VP of the American Bankers Association who is responsible for monitoring credit union activities, Keith has always been quick to scrutinize credit union finances but his analysis has almost always been spot-on. Progressive is the last surviving New York credit union that specializes in making taxi medallion loans.

There’s A New Sheriff In Town

The incoming Chair of the vitally important House Financial Services Committee Representative Maxine Waters, took to the airwaves yesterday to make crystal clear what many had suspected as soon as it became clear that the Democrats would be taking control of the House of Representatives: The era of bank deregulation is over.

“Make no mistake, come January in this Committee, the days of this Committee weakening regulations and putting our economy once again at risk of another financial crisis will come to an end.”

Powell Highlights Economic Warning Signs

These comments from Federal Reserve Chairman Jerome Powell are getting a lot of attention this morning. In addition to suggesting that there are potential warning signs of slowing economic growth, Powell highlighted the need for the Country to get its healthcare spending under control if it plans on getting its fiscal house in order.

 

November 15, 2018 at 8:31 am Leave a comment

New York Should Take A Small Step With Big Implications For E-Mortgages

Electronic mortgages are all the rage but in New York there is a continuing road block in the way of a truly paperless mortgage origination process. New York should modernize its notarization requirements to eliminate the in-person notarization requirement for mortgage loan documents.

New York is not all that unique. Other states have also been slow to adopt technology and I for one would support Congress setting national standards for e-notarizations so we can jumpstart this common sense revolution in mortgage lending once and for all.

Since 2012 New York law has allowed county recorders to  electronically  record mortgages. Although I have not been able to find an official list, it appears that the vast majority of counties now accept electronic filings. Unfortunately New York State’s regulations still require notaries to make in person verifications of a signer’s identity. Specifically 9 NYC RR 540.7 provides that “A notary shall perform a notarization of an instrument affecting real property that exists as an electronic record only where the signatory appears in person before the notary at the time of notarization to execute the record or to affirm a prior execution, as permitted by New York State law.”

In other words a completed mortgage  can be electronically submitted for recording but the documents requiring notarization still have to be signed in front of a notary. The result is that you still have to go to your friendly neighborhood notary and sign on the dotted line.

This is silly. In an age when consumer electronic products allowing you to conference call with your family are all the rage surely we can safely give notaries more flexibility to verify someone’s identity. In addition, the blockchain demonstrates how technology actually can do a better job of verifying identities than the good old-fashioned notary.

It’s time to get into the modern age. Other states have already done this and I’m assuming the trend is only accelerating. Furthermore, given the importance of  nationwide securitization of mortgage loans, a simple straightforward standardized process for verifying the legal validity of mortgage documents is essential and will result in a cheaper mortgage process for consumers. To see how easy it is take a look at this video from North Carolina.

For New York and other states searching for more flexible language they need look no further than this document produced by the National Association of Secretaries of State (yes, even they have their own association) in which they updated a 2006 memorandum to make notary requirements more flexible. These nonbinding recommendations eliminated  the  requirement that a signer personally appear before a notary and replaced it  with authorization  for notaries to identify a signer using  audio-video communication.

This isn’t perfect. For instance, blockchain verification still wouldn’t be acceptable. But this would be a heck of an improvement over keeping homeowners tethered to antiquated legal rituals which result in more expensive mortgages and a mortgage process that is more cumbersome than it needs to be. In fact, it’s the type of simple yet helpful measure that I would consider taking if I was in the new Senate Democratic Majority and looking around for things I could do to help the state in the coming year.

November 14, 2018 at 9:19 am Leave a comment

Amazon Comes to NYC: Is Bezos Nuts?

The WSJ is reporting that NYC and Northern Virginia will become the second and third satellite headquarters of Amazon. News this big will clearly have an impact on the financial services industry including credit unions. In addition, Google recently announced a major expansion in the Big Apple. It’s not too early to start speculating about what precisely that impact might be.

To be honest with you, I’m shocked. What surprises me most about Amazon’s decision is that it is willingly setting up shop in what is arguably the most business hostile big city in America. Don’t fool yourself, Wall Street thrives in spite of NYC’s government, not because of it. For instance, the minimum wage in the city will soon be $15, more than double the federal requirement; It imposes numerous restrictions on the hiring process including prohibitions against asking about an individual’s salary history or past criminal conduct and we are already seeing court cases dealing with its lower standard for sexual harassment claims.

Then there is the legislature. Amazon and Google are already grappling with Sacramento’s aggressive laws establishing data privacy standards. Now, they can grapple with New York State as the two coasts vie for the title of the most “progressive” state in the nation.

It is fascinating to me that in the 40’s and 50’s, New York State lost much of its manufacturing base as companies moved south to cheaper locales. In the information age maybe knowledge in the form of a highly educated work force and an enticing place for recent college graduates to live is worth the cost.

How is this going to impact your credit union? For one thing, whether you live in New York or Helena, Montana, I would take a look at New York’s Department of Financial Services’ data security regulations. Right now it just applies to insurance companies, banking institutions, and anyone else who needs a license to operate in this state. But there is going to be a huge incentive on the part of legislators to put their stamp on data privacy standards.

Don’t get me wrong, I’m happy for the state and the increased revenue that both Google and Amazon will generate. But for those of us who argue that the state has for too long imposed too many burdens on too many businesses I can’t help but think that Amazon and Google have just sent the wrong message to the incoming Senate Democratic Majority for which those of us outside of New York City will be paying the bill for years to come.

November 13, 2018 at 8:56 am Leave a comment

Three Things You Need To Know Heading Into a Holiday Weekend

Here are some recent happenings that I think you need to know about before my long weekend kicks in.

Another Day, Another Overdraft Lawsuit

The first thing I did this morning was read a decision released by a Federal District Court in Massachusetts yesterday denying a motion by Digital Federal Credit Union to dismiss a class-action lawsuit claiming that the credit union inadequately explains its account balance calculation methods to members who opt in to receiving overdraft protections for their debit card transactions. (BRANDI SALLS, individually, & on behalf of all others similarly situated Plaintiff, v. DIGITAL FEDERAL CREDIT UNION & DOES 1 through 100, Defendants., No. CV 18-11262-TSH, 2018 WL 5846820,  (D. Mass. Nov. 8, 2018)

I’m not going to spend too much time on this because I’ve already talked about the issue in previous blogs. But once again, a court has ruled that a credit union which uses the available balance method when determining if a member has adequate funds to pay an account debit wrongly assumed that a reasonable person couldn’t find their disclosures ambiguous. As for the argument that the credit union used forms promulgated by federal regulators, the judge joined with other courts in finding that the use of federally prescribed forms for providing disclosures under Regulation E only protects financial institutions against claims based on the form of the disclosure and not claims about its substance. The bottomline is you can use an available balance method but you must properly disclose what it is and how it works.

Another Day, Another Data Breach

Earlier this week it was reported that HSBC was victimized by a relatively small data breach. A mere 1.4 million consumers had their accounts compromised but like I always say, these numbers tend to grow as the weeks go by. Reading about the breach has educated me about a relatively crude but apparently increasingly common, hacking method in which the bad guys use software to bombard accounts with stolen passwords and other account information they have usually purchased from the “dark web” to see if they can gain access to consumer accounts. Remember, someone in your credit union should be responsible for knowing how vulnerable your institution is to this type of attack and what defenses the CU has in place.

Credential stuffing underscores why it is foolish for consumers to use the same login information on all their accounts as well as underscoring the utility of multi-factor authentication techniques. It also demonstrates how difficult it is to assess how damaging a data  breach rally are.  Information stolen from a site like Yahoo  sites could be used to compromise a member’s security years after it was gobbled up. Here are some links that I found helpful: https://www.owasp.org/index.php/Credential_Stuffing_Prevention_Cheat_Sheet; https://www.techrepublic.com/article/how-to-avoid-credential-stuffing-attacks/

Another Fed Meeting

The Federal Reserve’s interest rate setting Open Market Committee released a statement yesterday in which it all but announced that there be another rate hike when it meets again in December. The statement explained that, “The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

That’s enough for one day. Enjoy your weekend. I’ll be back on Tuesday.

 

 

November 9, 2018 at 8:48 am Leave a comment

Foreclosing in New York Just Gets More and More Difficult

One of the developments  that real estate lawyers are paying a lot of attention to these days has to do with New York’s six year statute of limitations for foreclosures  and how it interacts with agreements to modify an existing debt. I’ve seen many credit unions bend over backwards to try to help a delinquent homeowner but the way the law is being interpreted, if you don’t protect yourself properly you may find your credit union is unable to collect on a mortgage.

Fortunately, New York’s General Obligation Law 17-101 provides a mechanism to revive claims that otherwise would be time barred. For the statute to work its magic however, a debtor must acknowledge in writing that he owes a debt and make an unequivocal commitment to paying. As the courts have explained, there must be nothing in the document which is inconsistent with a debtor’s intention to pay.

Just how tough is that standard? Well, do you think this language is good enough? “My partnership owes you money for the first mortgage payment (after the date of modification). We haven’t received the Modification Agreement from you as yet, and I would appreciate it if you would forward it to me as soon as possible.” The court ruled that this statement did not constitute an acknowledgement of the debt because while the letter “arguably” acknowledged the existence of the debt, it was not coupled with an unconditional promise to pay. (Sichol v. Crocker, 177 A.D.2d 842, 842, 576 N.Y.S.2d 457, 458 (1991)).

The issue is becoming increasingly important to foreclosure cases in which six years has passed since a foreclosure was initially filed and homeowners s argue that a purported agreement to modify a loan or voluntarily stop the foreclosure clock from running did not actually constitute an acknowledgment of debt sufficient to reset the foreclosure clock. For example, take a look at U.S. Bank, Nat’l Ass’n v. Kess, 159 A.D.3d 767, 767–68, 71 N.Y.S.3d 635 (N.Y. App. Div. 2018) and Yadegar v. Deutsche Bank Nat’l Tr. Co., 164 A.D.3d 945, 946, 83 N.Y.S.3d 173, 174 (N.Y. App. Div. 2018) to get a sense of how strictly the acknowledgment requirements are being interpreted.

This litigation underscores that agreements dealing with delinquent mortgages can’t be explicit enough. Personally, I would always include language in which the debtor acknowledges that she owes the lender an existing debt of _____________ and is hereby making an unconditional commitment to paying such debt. Of course run this language by your attorney. This is just my opinion.

On that happy note, get to work.

November 8, 2018 at 9:22 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. 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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