No More Ignoring The Coronavirus

Governor Cuomo’s announcement that New York now has its first confirmed case of the coronavirus is simply the latest in a deluge of news indicating that the virus may very well be coming to a credit union near you in the coming months. In addition to the Governor’s announcement, the L.A. Times reported on West Coast cases which included the first case of “community spread”.

All this has me more than a little surprised that we haven’t seen the NCUA coming out with the type of guidance it has released in the past explaining the steps that they expect credit unions to be taking in preparation for a potential pandemic. That being said, any business that isn’t preparing for dealing with a chronic long term public health threat which has already impacted the economy isn’t doing its job.

Against that backdrop in previous guidance responding to earlier potential pandemics NCUA explained to credit unions: that they should have a pandemic preparedness plan to “reduce the likelihood that operations will be affected by a pandemic event” and that the plans should include a comprehensive listing of facilities systems or procedures to continue critical operations “if a large number of staff are unavailable for prolonged periods”.

In an ideal world all you should be doing right now is dusting off your existing protocols since NCUA expects you to be testing your pandemic preparedness on an ongoing basis as well as periodically updating your plans. On the bright side, technology has moved so rapidly in recent years that there are new ways of keeping your members tethered to your branch even if they feel like minimizing the amount of time they spend in public spaces. For example, remote deposit capture in conjunction with your existing online banking ensures that the credit union can continue functioning even if it had to close down a branch for a few days.

Even if the coronavirus threat is ultimately exaggerated, its economic impact is real. The yield on the Ten Year Treasury closed at a miniscule 1.082 on the 28th and Bloomberg Radio is reporting this morning that there is an increasing likelihood that the Fed will make an emergency rate cut of .25%. Furthermore, depressed corporate earnings triggered by China’s aggressive attempts to curtail the virus have already impacted corporate earnings.

All this means more uncertainty for your members and your credit union. In this environment, good luck predicting what conditions you will be waking up to six months from now.

A Legal Giant Steps Down

After 25 years on the bench, Judge Judy is hanging up her gavel at least for a year. Given the current state of politics in DC is it only a matter of time before we hear her name being floated to fill a future Supreme Court vacancy? After all, she had great ratings.

March 2, 2020 at 9:33 am Leave a comment

MLA guidance Clarified; Wild Card Power Requested

Good morning folks. Grab an extra strong cup of coffee before reading this blog. Yours truly has a busy morning but I wanted to give you a heads up on two esoteric but important compliance issues for credit unions. I will provide more detail at a future date.

Our national trade associations deserve a lot of credit this morning, now that the Department of Defense has decided to amend problematic guidance issues implementing the Military Lending Act (MLA). The Military Lending Act is federal legislation which extends credit protections to military personnel and their families. Most importantly, loans made to military personnel are subject to a unique Military Annual Percentage Rate capping interest on covered loans at 36% and requiring certain disclosures.

In 2015 the DOD extended the MLA’s protections to most closed end and open ended consumer loans. To put it nicely, the regulations which accompanied this change created a great deal of confusion. The DOD ultimately issued two sets of interpretive guidance to help lenders comply with the new regulations. The second guidance included a question and answer (Q&A No. 2) which raised concerns about the ability of credit unions to offer additional products with car loans most importantly, GAP insurance. By repealing Question No. 2 the DOD has eliminated this confusion.

New York’s Department of Financial Services has issued a detailed Wild Card request clarifying the ability of state chartered credit unions to engage in loan participations involving liquidating credit unions as well as loans from any source which are being purchased to facilitate the packaging of loans to be sold on the secondary market. The application clarifies that state charters can exercise the same powers that federal credit unions can, pursuant to 12 CFR § 701.21 provided they meet certain conditions.

On that note, have a good weekend.

February 28, 2020 at 9:16 am Leave a comment

Six Take-Aways From CUNAs GAC

Back from another year at CUNAs GAC. Every year I try to highlight some themes that emerge so here is my list of the six (6) things I learned at this year’s conference:

    1. Get those DORs done. Don’t be surprised to see NCUA taking a tougher approach to your credit union when it comes to following up on Documents Of Resolution. One of the big takeaways from the report of NCUA’s Inspector General about the collapse of the NYC taxi credit unions is that NCUA should have acted more promptly to enforce long standing DORs. Anecdotally I talked to a lot of credit union people and some of them said they are already seeing this trend.
    2. Taxi medallions are an even bigger issue than I thought they were. It would have been impossible to be at the conference the last few days without hearing about taxi medallions. This has not been true over the last few years. Both Chairman Hood and Board Member McWatters defended the agency’s decision to sell the medallions to a private equity firm, just as New York State was beginning to focus on ways to stabilize the medallion market. The big questions that remain are: How much flexibility are the new medallion owners going to extend to troubled borrowers? How much is the sale going to impact the sale price of medallions? And precisely why did NCUA feel that now was the best time to sell off these assets?
    3. Alice Through the Looking Glass and the CFPB. In a presentation to the conference, CFPB director Kathy Kraninger laid out an ambitious agenda on issues ranging from qualified mortgages to payday loans even as her own bureau refuses to defend the constitutionality of its leadership structure in a case pending before the Supreme Court. I’m telling you folks, when it comes to the CFPB, be careful what you ask for. Do you really want to wake up in a world in which the legality of all those mortgage regulations you have been implementing for the last 10 years are in doubt?
    4. I know subordinated debt isn’t the most exciting issue but I continue to believe that it is one of the most important facing the industry. The Association will shortly be coming out with a survey seeking feedback on the pending NCUA proposal which would allow complex credit unions access to secondary capital for purposes of meeting their risk based capital requirements while at the same time codifying guidance making it more difficult for low income credit unions to access subordinated debt. The agency has to see if it can balance these competing concerns in a way that does not exacerbate the differences between big and small credit unions.
    5. The more things change, the more they stay the same. There are so many issues on which there should be a bipartisan consensus but Congress is still unable to get things done. I’m thinking about data security and marijuana banking, in particular. We all know that there is a huge political divide in this country; I wonder how many people realize that this perpetual ideological warfare hurts industries and consumers regardless of what party they belong to.
    6. If there is a better politician in New York than Senator Chuck Schumer, I have not met him.


February 27, 2020 at 9:33 am 1 comment

NCUA Committed To Gradual Phase In Of CECL

Greetings from Washington DC where I hope to see many of you at our Association Briefing today in preparation for tomorrow’s Hike The Hill.

Although the legislative stuff is a lot of fun to talk about, with Congress gridlocked the most important developments continue to be on the regulatory and legal front. At last Thursday’s Board meeting, NCUA approved a joint agency guidance explaining baseline examiner expectations for banks, credit unions and thrifts as they prepare to comply with the Current Expected Credit Loss Methodology we lovingly refer to as “Cecil” CECL. The best news I have to report in a while is that NCUA included a footnote in the preamble to the guidance in which it reiterated that it has the authority to phase in CECL Compliance over a three year period. In addition, speaking to a group of small credit unions on Sunday, Chairman Hood noted that phasing in CECL is one of his top priorities.

Why is this so important? Remember that the basic idea of CECL is that financial institutions should record expected credit losses earlier in the lending cycle. There are a number of credit unions for whom a decisive shift to this methodology would have extremely negative consequences. For example, how many credit unions would be harmed if they had to report medallion values under a CECL model? A phasing in of CECL compliance in addition to the already delayed effective date applied to credit unions is one more way that regulators can help smooth the transition.

That being said, the transition is coming and there is a lot of work to be done. Take a look at this guidance and you will see that CECL Compliance impacts much more than accounting. It impacts everything from your board governance to your off balance sheet investments. Now really is the time to get started.

Credit Unions Offer Good Mortgage Value

Here is one more point to raise when you talk to your Congressman tomorrow. Home buyers save thousands of dollars by getting their loans from credit unions. This is the conclusion of a report released by NCUA’s economist at Thursday’s Board meeting. It’s always been interesting to me that when consumers think about credit unions they are much more likely to mention a great rate they received on a car loan than a great mortgage they received. Perhaps this report can help broaden the focus of consumers and policy makers particularly as they consider how to ensure secondary mortgage access if Fannie and Freddie ever go away. On that note, have a nice day.




February 25, 2020 at 8:49 am Leave a comment

More Questions And Answers About NYs Updated Servicing Regs

Although we are on the verge of one of my favorite events of the year, CUNA’s GAC, the most important operational issues impacting NY credit unions are emanating closer to home these days.  In my blog two days ago I reminded you all to begin preparing for changes to New York’s Servicing Regulations and yesterday we had the news that NCUA decided to sell its NY Medallions.

I’ve gotten enough phone calls and emails asking for further clarifications regarding New York State’s amendments to part 419 of its Servicing Regulations that I’m going to summarize some of them on the assumption that at least some of you share similar concerns.  Thanks to those of you who helped me analyze these issues.

Question #1: How was part 419 of New York’s Regulations enacted? 

A lot of the confusion regarding the amendments to 419 stems from New York’s broad use of “Emergency Powers” to promulgate regulations.  I put emergency in quotes because on a practical level, to New York State, an emergency includes any instance in which an agency did not give itself adequate time to promulgate regulations with a traditional comment period.  As you will see with Part 419, these emergencies can last for years with the result that the state lacks the rigorous and systematic regulatory review process we take for granted on the Federal level.  Part 419 was put in place on an emergency basis more than a decade ago to comply with mortgage regulations passed by the Legislature in 2008.  Since it was first promulgated, 419 has periodically been renewed on an emergency basis ever since.  For example, here is the notice of its renewal in 2011.  Last April the state proposed a final amendment to 419.  Some additional changes were made and it is this final regulation which takes effect in March.  For those of you who want to play along at home by updating your policies and procedures, you should have the Emergency copy of 419 (to make sure you are already complying with the baseline requirements), the proposed amendments to these regulations and the final regulations.  For added fun, you should also have a copy of the existing Federal Servicing Requirements so you can see how many changes go beyond existing Federal requirements.

Question #2: Does this apply HELOCs?

Yes, it does.  Unlike the corresponding Federal Regulations, there are no carve-outs for specific types of mortgage products.  This is the part of the regulation that has compliance people tearing their hair out.  In contract to traditional home mortgages where the credit union or bank has standardized days for when mortgages are due and can therefore send out bulk mailings of notices and statements, HELOCs can be due any day of the month, depending on when the line of credit was open.  Furthermore, keep in mind that New York State now mandates delinquency notices be sent out after 17 days.  While my operational gurus explain to me that this is already done as a matter of practice by many lenders, the specific notice requirements may very well have the impact of confusing members, many of whom wait till the 30th day to send in payments.

Question #3: Do these regulations apply to Federal Credit Unions?

Pursuant to New York State Banking law, they do.  New York State Banking law— Section 12-D, provides that mortgage loan originators and servicers who work for state and federally chartered credit unions and banks are exempt from state licensing requirements but they are still required to register with the state.  New York has drafted these regulations to explicitly apply to otherwise exempt organizations.  This is an issue that I would discuss with your attorney if your credit union is federally chartered and does not operate a mortgage CUSO.

As more comes out I will keep you posted.  In the meantime, I will see you in DC.  Peace out!

February 21, 2020 at 9:58 am Leave a comment

NCUA’s Bulk Sale Of Medallions Raises As Many Questions As Answers For Impacted CUs

In 1975 the New York Post responded to the news Gerald Ford had rejected New York City’s request for a financial bailout with the headline: Ford To City “Drop Dead”.

I was thinking of this headline as I saw the news that NCUA has finalized a bulk sale of NYC medallion loans to private investor Marblegate Asset Management LLC. The sale will have an impact on the industry as a whole, those individual credit unions holding participation interests, borrowers looking to refinance and the efforts of policy makers seeking a solution.

While we can debate the merits of NCUA’s decision, what is abundantly clear is that the agency wanted out of the medallion market and the potentially high profile role it would have had to play as New York City and potentially the legislature look for ways to help out underwater taxi medallion owners/drivers. As it explained in this Q&A

“After thorough research and careful consideration, the NCUA determined this sale was the most appropriate action to meet its statutory obligation under the Federal Credit Union Act to achieve the least long-term cost to the National Credit Union Share Insurance Fund.

Of equal importance, this sale also provides borrowers and their families greater certainty about the management of their loans. Private entities have specialized skills and greater resources and flexibility to work with borrowers in ways the NCUA cannot.”

Now we have to see how great an impact this has on the credit union industry as a whole as well as those individual credit unions holding interest in medallion loans. Suffice it to say, we are in unchartered territory. Although the NCUA would not disclose the sale price, the WSJ reported Wednesday that the NCUA portfolio included 4,500 loans, 3,000 of which were New York City medallions. The bulk sale was for $350 million. Although NCUA stressed in the above Q&A that the sale does not affect the “carrying values” of the medallions—an accounting term-of-art—it’s important to keep in mind that the fair market value of assets is often different than the “carrying value” of the assets.

Both CUNA and the New York Credit Union Association urged NCUA not to go forward with a sale precisely at the moment when stakeholders in New York are seeking to devise a framework to purchase the loans and presumably stabilize the medallion prices. While NCUA’s sale does not preclude further efforts, press reports indicate that Marblegate is not buying the medallions to sell them but to see if it can modernize the medallion industry into a viable competitor against Uber.

Finally, according to NCUA, Marblegate has committed to working with borrowers. Stakeholders have grumbled for more than a year that NCUA has not been flexible enough in modifying loans. Perhaps with the loans in private hands this will change.

February 20, 2020 at 10:07 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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