Posts tagged ‘Bank Of America’

BOA Gets Approval for Low Interest Small Loans

Good morning, folks. Your intrepid blogger is so committed to providing you the information to start your credit union day that he has managed to post this blog even after inexplicably losing power to his house. I wonder if, in the age of COVID-19, I can write off a generator as a business expense. 

In any event, here are some things to ponder this morning. 

You don’t have to be Nostradamus to realize it’s time to start planning for reduced non-interest income in the coming years. With a highly partisan Senate unlikely to go along with big legislative changes like bankruptcy reform, all eyes will be on the CFPB and who Joe Biden picks to take the helm as the next benign dictator of Consumer Protection. For months, there has been speculation in the bloggersphere that one of the first areas we could see regulatory action in involves overdraft fees. Apparently, bankers are reading the room as well – yesterday, the CEO of PNC Bank called for an end to “gotcha fees.” What a coincidence that he made the statement less than a week after President-elect Biden declared victory. 

Responding to calls for payday loan alternatives, the CFPB has signed off on a small dollar loan program. Starting in January, eligible borrowers will be able to obtain loans of $100-$500 dollars with only a $5 fee and a 36% APR that can be repaid over a 90-day period. While the product is clearly consumer-friendly, it will only be available to persons who have had Bank of America accounts for at least a year prior. As I’ve heard from many credit unions, the persons most in need of emergency small dollar loans often do not have existing banking relationships. 

On that note, enjoy your day. I’m headed to the office.

November 10, 2020 at 10:07 am Leave a comment

Another Ruling Upholds USAA’s RDC Patents

I can’t stand country music, but I love poker, and in litigation, as in poker, Kenny Rogers has a point when he says you have to know when to hold ‘em, and when to fold ‘em. This ditty comes to mind this morning as I’m thinking of how best to give you a heads up about the recent jury verdict that once again found that Wells Fargo willfully violated USAA’s remote deposit capture patents. Considering that both of these verdicts open the door to treble damages, the bank could  face more than $1 billion in damages as it continues to engage in its high-profile litigation over who has a legitimate claim to use and license RDC technology.

As I’ve explained before, most credit unions offer RDC technology pursuant to a third party agreement with Mitek Systems. Mitek brought a lawsuit against USAA seeking a ruling that it has not violated USAA’s patent. In an order issued yesterday, the federal judge overseeing the California case scheduled a hearing on USAA’s motion to dismiss for March 5, 2020. This case is absolutely crucial to credit unions. While Mitek has contractually agreed to indemnify most of the users of its RDC technology against claims of patent violations, the reality is that the sheer volume of potential claims raises the possibility that Mitek will not be able to honor its obligations.

All of which brings me back to Kenny Rogers. At the end of the day, USAA is looking to license and receive payment for the use of RDC technology from credit unions and banks. With the usual caveat that this is not legal advice, and I am certainly not a patent attorney, your credit union should at least be considering whether it’s time to cut a deal. The good news is that there are mechanisms available which allow you to pool your resources with other institutions to minimize the cost. The downside to taking that approach is that if Wells wins on appeal, or Mitek is successful in its litigation, you may end up spending money unnecessarily.

By the way, there’s a lot more that I could talk about today, but time is running short, so read tomorrow’s blog for more exciting credit union news. How’s that for a teaser?

Correction-Earlier versions of this post mistakenly said that  BOA, not Wells Fargo, was the defendant in this litigation.    

 

January 16, 2020 at 9:44 am 2 comments

Cybersecurity, Escrow, Conversions and Football Highlight a Busy Few Days

DFS Issues Cybersecurity Risk Alert

In a depressing sign of the times, New York’s Department of Financial Services has issued a cybersecurity risk alert informing credit unions that, given the recent assassination of Soleimani and Iran’s demonstrated capabilities and willingness to engage in cyberattacks against financial institutions, “US entities should prepare for the possibility of cyberattacks.”

DFS points out that in 2012 and 2013; Iranian sponsored hackers launched denial of service attacks against US banks. Consequently, it “strongly recommends that all regulated entities heighten their vigilance against cyberattacks.”

Another Credit Union Converts

Hudson Heritage Federal Credit Union has officially announced its conversion to a state charter. Regardless of whether or not a conversion is in your credit union’s plans, it is great to see DFS take the steps to make the state charter a viable option for credit unions, and banks for that matter and credit unions respond positively to these developments. Remember, a viable state charter is in everyone’s interest.

Are You Prepared for Life Without Interest on Your Mortgage Escrow Accounts?

States like New York and California have long had laws mandating that financial institutions pay interest on mortgage escrow accounts, but prior to the Dodd-Frank Act, it was settled law that these state mandates could not be applied to federally chartered institutions. That is changing.

First, let me stress that if you are a federally chartered credit union not currently providing escrow interest, you are currently under no obligation to do so. That being said, however, the signs are mounting that this privilege may not last much longer, and I do think it is worth a bit of your time to start assessing the financial impact that this change will have on your credit union.

Why so glum? As I previously blogged, a lawsuit that came about after Dodd-Frank argued that preemption of escrow accounts no longer applied to federally chartered institutions. As a result, the bank in question was violating the law by refusing to pay interest to the disgruntled plaintiffs. California’s escrow requirement is very similar to New York’s. On Thursday, this lawsuit was settled with Bank of America agreeing to pay $35 million in damages to the plaintiff class, led by Donald Lusnak (subscription to Law360 required). Additionally, it has already started paying mortgage escrow.

This is all happening as a similar lawsuit; Hymes v. Bank of America, is being litigated in New York State Federal Court.

Why Can’t We Use Technology to Figure Out When a Football Crosses the Goal Line?

This is the great question I was pondering this past weekend as I was watching one of the four playoff games, in which the refs were being forced to determine if a running back managed to get the ball over the goal line while maintaining control as he was being assaulted by a group of freakishly fast, oversized athletes. Frankly, if soccer can figure out within less than an inch whether a goal has been scored, and tennis uses similar technology to tell if the ball is in or out, why can’t the NFL do the same?

Just wondering. Enjoy your day.

January 7, 2020 at 9:19 am 1 comment

The Complexity of the ACH Network and Why it Matters to You

Good morning, folks. I’ve always prided myself on keeping the bank bashing on this blog to a minimum. It’s one of the things that I like about the credit union industry in general: it is not anti-bank as much as it is pro-credit union. Besides, so much of the back and forth between the two industries ends up being a counterproductive waste of time, which does little to advance the interests of your average credit union or community bank.

Today, I’m making an exception because the situation I’m going to discuss involves the complexities of the ACH system while underscoring how foolish it is for community banks and their associations to continue to waste so much of their lobbying fire power on credit unions. The real culprit is a federal political system that has made it increasingly difficult for community banks and credit unions to survive. Today’s blog examines the ACH legalities, and tomorrow’s blog will get into how this case demonstrates why so much of the credit union bashing is misdirected. As you read about the facts, think about the implications for your third-party vender management, as well as your oversight of your vender’s vender.

The sorted tale starts in early August. According to an FBI complaint and a civil complaint filed in one of the first lawsuits, Michael Mann, founder of MyPayrollHR and several other companies, had been kiting millions of dollars in checks between his accounts at Bank of America and Pioneer from August 1st through August 30th of 2019.

MyPayrollHR had a longstanding contract as a client of Pasadena-based Cachet Financial Services. This contract allowed MyPayrollHR to use Cachet’s ACH services to move funds electronically from the bank accounts of MyPayrollHR’s employer-clients to Cachet’s settlement account, where money was then transferred to the bank accounts of employees. Cachet acted as the originator of MyPayroll’s transactions. According to a civil complaint, in early September, Mann manipulated Cachet’s ACH batch file instructions to cause over $26 million to be transferred to numerous bank accounts of companies controlled by Mann.

Before Cachet could find the fraud, it made ACH payments from the master account to employees around the country. Cachet made news when it reversed these credits in an attempt to claw some of them back when it discovered that the money had never actually been deposited, and that Mann did not have money in his bank accounts to cover the shortfall. The result was that the money that had been properly credited to accounts under ACH rules suddenly disappeared. In the meantime, Pioneer, a local savings bank headquartered in the Albany area, which has taken aggressive steps to grow over the past year, moved quickly to freeze Mann’s accounts, as did local branches of Bank of America, but the damage had already been done.

All this compelled Nacha to come out with a rare public statement on September 13th. Why was Nacha so upset by Cachet’s attempted claw back? First, payroll processing is a core ACH activity, but even more importantly than that, receiving depository financial institutions have to be able to rely on the validity of ACH transfers, or the system falls apart. Specifically, take a look at Chapter 12 of the Nacha Operating Guidelines (subscription required). They explain that reversals are allowed in instances in which erroneous or duplicate files have been sent. In this case, there is nothing erroneous about the files. Cachet mistakenly relied on Mann’s honesty, which is why they are suing him.

In the meantime, Pioneer has had to postpone required filings it is responsible for now that it is a mutual holding company traded on NASDAQ. Tuesday, it came out with this press release explaining that it could be delisted. Pioneer’s role in this story says a lot about the true causes of community bank consolidation, and that’s what I will talk about tomorrow.

 

October 24, 2019 at 10:41 am 1 comment

The Good, The Bad and The Ugly

The Good

Good things come to those who wait. . .and wait. . .and wait.  Nearly four years after deciding not to appeal federal court rulings holding that the IRS wrongly tried to tax certain state chartered credit union activities, the IRS has finally gotten around to issuing a memorandum to its examiners confirming that state chartered credit unions are exempt from most UBIT taxes. 

It’s been a while since UBIT was a big issue, so here’s a quick refresher. The Unrelated Business Income Tax (UBIT) taxes the activities of not-for-profit tax-exempt organizations which are not substantially related to the activities for which an organzation was given tax exempt status.  Federal credit unions are explicitly exempt from this tax.  In two cases brought in federal district court and decided in 2009 and 2010, credit unions successfully argued that contrary to the IRS’s opinion, most of the products and services commonly offered by state chartered credit unions are exempt from the UBIT tax.including the sale of credit life and credit disability insurance, GAP auto insurance, ATM “per-transaction fees FROM MEMBERS,” interest on loans and the sale of checks from a check printing company to members. 

The decisions and the recently released memorandum are not a complete victory for state-chartered credit unions.  For instance, the sale of automobile warranties, accidental death and dismemberment insurance, life insurance and ATM “per-transaction fees FROM NON MEMBERS” are subject to UBIT.  I’ve included a link to the IRS memorandum so you can take a look at the entire list.  All in all, though, this is the biggest victory for credit unions in the last decade. 

The Bad

Credit unions are mainly concerned with the enormous power the CFPB has to promulgate consumer regulations.  But to really get a feel for just how powerful the Bureau is, you should keep in mind that it also has the authority to take legal action against financial institutions engaging in deceptive financial practices.  The latest institution to run afoul of the CFPB is Bank of America, which has agreed to pay approximately $727 million in refunds and $20 million in fines in relation to allegations that it engaged in deceptive practices when selling 1.4 customers credit cards and so-called “add-on services.”  A separate agreement was reached with the OCC.

 Among the sins highlighted by the Bureau were the fact that some consumers were led to wrongly believe that the first 30 days of coverage for certain add-on credit card services were free and aggressive enrollment practices which led consumers to believe that they were simply obtaining additional information about a product when in fact they were agreeing to buy it.  These enforcement actions provide a pretty good signal of where the CFPB thinks additional regulation is necessary, so even though Bank of America’s misdeeds may not affect you today, they may impact the work load of your compliance officer tomorrow.

The Ugly

Just how bad is it for mortgage lenders out there?  According to the Wall Street Journal, mortgage originations in February “fell to their lowest level in 14 years due to the months long plunge in refinancing activity and weak demand for loans to purchase new homes.”  The Journal also reports that the share of mortgage applications for refinances hit their lowest level since 2009.  Remember, this is all taking place as the FED is winding down its bond buying program and tougher lending regulations are taking effect.  Unless we see a huge surge of consumer confidence and economic growth in the near future, this is shaping up as one heck of a depressing year for the mortgage market.

On that happy note, have a nice day!

April 10, 2014 at 8:50 am 2 comments

Burning Down The House

Call me wacky, but I don’t think a convicted arsonist should be able to collect insurance for burning down his house. 

If you agree, you’ll understand why I am a little uneasy about an announcement last evening of a settlement of more than $9 billion between Bank of America (BoA) and the Federal Housing Finance Administration (FHFA).  This puts to bed claims that Countrywide and Merrill Lynch duped Fannie Mae and Freddie Mac into purchasing mortgage-backed securities that crashed, causing billions of dollars in losses and contributing to the eventual bankruptcy of the GSE’s. 

I’m a bit more impressed, however, by a related announcement.  New York’s Attorney General Eric Schneiderman was able to get former BoA CEO Ken Lewis to contribute $10 million to a settlement of claims that BoA deceived shareholders as part of the bank’s efforts to acquire the aforementioned Merrill Lynch and Countrywide. The AG’s settlement represents the first that I am aware of in which a CEO is taking personal responsibility for his actions during the mortgage crisis.  What a concept!  Lewis also accepted a three-year ban from serving as an officer or director of any public company.

Let’s take a trip down memory lane.  As late as 2008, Fannie and Freddie were private corporations that specialized in buying mortgages and packaging them as mortgage-backed securities.  Many of our largest private banks, including Countrywide and Merrill Lynch, also purchased mortgages from banks and credit unions and packaged them as so-called private label securities for sale in the secondary market. 

One of the great myths is that Fannie and Freddie caused the mortgage meltdown.  They didn’t.  Banks like Countrywide bought and sold poorly underwritten mortgages because they were making gobs of money.  If Fannie and Freddie didn’t exist, they still would have made the same loans and bundled the same securities, they would have simply made more money.  That being said, government policies promulgated under the Clinton Administration to expand home ownership combined with Fannie and Freddie’s desire to maximize their own profits made the GSE’s willing co-conspirators in the mortgage mess and it was the insolvency of these two institutions that triggered the cascade of events leading the Great Recession. 

Remember that when the crisis hit, the government was scrambling to save as many institutions as it could.  That’s why it strongly encouraged a few healthy banks, including BoA to purchase Merrill Lynch and Countrywide in the first place,  This brings us back to yesterday’s settlement.  The idea that somehow Fannie and Freddie, institutions that specialized in bundling mortgages into securities, were fooled into buying securities of poorly underwritten mortgages is a convenient legal myth.  There were no institutions in the world better positioned to do their own due diligence, nor any institutions more cognizant of the state of the housing market. So when the history of the last seven years is written, let’s not let the government off the hook.

Why should credit unions care?  Because there are no lenders that need a well-functioning secondary market more than credit unions.  Just as home buyers should be held accountable for the terms of their mortgage, institutions that sell to the secondary market should sell these mortgages secure in the knowledge that they are no longer responsible for them.  unfortunately, the secondary market has developed as a system of “seller beware.”  The more liability that companies face for mortgages that they sell, the more expensive it will be to sell mortgages to the secondary market.  Ultimately, your members will pay for yesterday’s settlement.  As part of housing reform, the laws have to be strengthened to limit the ability of any secondary-market participant to hold others responsible for arm-length purchases.

March 27, 2014 at 8:31 am 1 comment

The Corporation Made Me Do It

This country’s ability and/or willingness to properly regulate the financial institutions that own it hit a new low point yesterday, and once again it is credit unions and true community banks that are left holding the bag.

Yesterday, the United States Attorney for the Southern District of New York settled charges against JP Morgan Chase for its systematic and decades long violation of the Bank Secrecy Act, violations that were crucial to the Bernard Madoff Ponzi scheme, by imposing a $1.7 billion fine and entering into a “deferred prosecution” agreement against the corporation. Ostensibly, these are tough penalties, but there is much less here than meets the eye.

First, let’s not kid ourselves. If any credit union did what JP Morgan did to facilitate the Madoff Ponzi scheme since 1994 it would be out of business, we’d all be reviewing a scathing report from the NCUA’s inspector General, and preparing testimony for appearances before Congress. In contrast, for a company that generates a little more than $20 billion a quarter with a healthy stock valuation, the penalty amounts to little more than the nettlesome cost of doing business.

Won’t a penalty like this embarrass the corporation to clean up its own house? I’m joking, of course. I used to be a big Jaime Dimon fan but the fact that he still has a job this morning speaks volumes about his character and the deterioration of corporate board rooms that are willing to excuse any conduct no matter how shameful and incompetent so long as the money keeps rolling in. These guys make A-Rod look like a good corporate citizen.

The only thing that would really change JP Morgan’s conduct is the spectre of huge class action lawsuits and specific individuals going to jail for choosing to violate the law. The bank, of course, knows this, which is why one of the most comical quotes I read this morning from a JP Morgan spokesman was that “Our senior people were trying to do the right thing and acted in good faith at all times.” The spokesman went on to acknowledge in an example of classic understatement: “We recognize we could have done a better job of pulling together various pieces of information. . .” (NYT article linked above). In other words, our valued employees may be incompetent, but my god they’re not knowingly incompetent.

Why is the distinction so important to JP Morgan? Because by admitting violations of the Bank Secrecy Act, the bank does not expose itself to increased liability. The courts have consistently held that the BSA wasn’t designed to give individuals the right to sue for its violation. This means that for the individual who lost his or her life savings after investing money in the Madoff Ponzi scheme, JP Morgan’s acknowledgement yesterday amounts to little more than a “my bad.”

What it’s really concerned about are civil fraud suits which would open it up to third party liability. But fraud against banks related to the actions of an individual who opens up an account is and should be extremely difficult to prove. Very generally speaking, a Madoff victim seeking to sue JP Morgan will not only have to show that the bank knew that a fraud was being perpetrated, but that the bank was actively engaged in carrying it out.

This is why most suits against banks involved in previous Ponzi schemes have been dismissed. For example, in one case brought against Bank of America in federal court in New York by victims of a Ponzi scheme alleging fraud by the bank, the case was dismissed even though the bank opened up a one-peson branch office to accomodate the Ponzi scheme operator. See In Re Agape litigation, 681 F. Supp. 2d 352 (2010). Can anything be done about this and should credit unions really care?

I think the answer to both questions is a resounding yes, if only because we want our kids to grow up in a world where they play to win but play within the rules. I’ll have more on this in a future blog.
. . . . .

CFPB Director Richard Cordray gave a great speech stressing that credit unions should not change their underwriting practices as a result of the new qualified mortgage rules. I would seriously suggest printing out a copy of it to save for the renegade examiner, you know he’s out there, who doesn’t get this point.

January 8, 2014 at 8:30 am Leave a comment

What a post-crisis secondary market means for credit unions

For almost five years now, politicians of all political stripes have played kick the can with Fannie and Freddie. Despite the fact that these two government-sponsored enterprises have been kept alive with an ever-growing government lifeline of taxpayer money, Congress can’t seem to act on any proposal to pick up the pieces.  An election is no time to talk about housing policy, let alone pass meaningful reform.  But with or without Washington’s help, we’re starting to see the first signs of what a post-crisis secondary market may look like. Credit unions have reason to be concerned.  First some background.

One of Fannie Mae’s requirements for purchasing a loan is that it be secured by mortgage insurance if it exceeds 80% of a home’s value.  As foreclosures skyrocketed, insurers voided many of the policies that secured these loans, arguing that the underwriting standards used by the originators did not comport with their requirements for providing the insurance.  FHA and the Justice Department have made similar arguments in going after banks that sold mortgages that went bad.

The problem for Bank of America, which made the mistake of purchasing the nation’s largest originator and servicer in Countrywide, is that it appears that it might be the ultimate loser in this high-stakes game of hot potato.  Fannie is now making Bank of America take back these loans because they were not adequately insured.  Remember when it comes to the GSE’s, it’s seller beware.  According to Bloomberg News, BOA is on the hook for about 60% of Fannie’s unresolved mortgage repurchase requests.

Now Bank of America is pushing back. It has announced that it will stop selling mortgages to Fannie Mae. The bank will continue to sell loans to Freddie Mac, which apparently is not as quick to make repurchase requests.

Why is this important? Because the pre-crisis model was based on the assumption of a win-win situation where nettlesome contractual details and warranties could be ignored and there was an insatiable appetite to purchase mortgage-backed securities for the benefit of all parties.

In the post-crisis world, we are headed towards a bifurcated housing system of the haves and have-nots. The big banks will have the leverage to insist on changes to the secondary market standards, such as buyback provisions, and the ability to purchase private label mortgage securities. In short, they have the ability to opt out of the existing secondary market system and the only ones left to support it will be smaller credit unions, banks, and borrowers who have nowhere else to go.  If you think this is an exaggeration, remember that the FHA is already increasing fees for homeowners who want to buy an FHA backed mortgage.  It’s time for Congress to get involved.    

March 6, 2012 at 7:12 am Leave a comment

Credit Unions: The True Free Market Alternative

I want to thank Bank of America for reminding everyone why, now more than ever, this country needs the credit union option.

In fact, I think BOA CEO Brian Moynihan should be the first recipient of the Friedrich Hayek Award given to the person who best demonstrates how credit unions do more for free market vitality than government regulation ever could or that bankers will ever admit. 

For those of you who may have missed it, Bank of America announced late last week that it will start imposing a five dollar monthly fee on any customer who has the audacity to use a debit card to pay for a purchase.  This fee is in addition to the charges that they will continue to impose on customers for using out-of-network ATMs.  Several of the nation’s other large banks are considering following suit.

Yes, this is the same Bank of America that earlier this year wanted to pay a dividend on its roughly 10 billion shares only to be blocked by the Fed; the same Bank of America that received an estimated $45 billion in government bailout money; and the same Bank of America that is joining with other major mortgage lenders in seeking  blanket protection from future lawsuits in return for settling the “robo-signing” litigation.

The fact is that the banks are still trying to have it both ways: relying on the government to bail them out while extolling the free market to justify taking more money away from the taxpayers who kept them from going bankrupt.  It’s as if Charlie Sheen was put in charge of  Alcoholics Anonymous.

That being said, I’m against the interchange cap and any cap  that substitutes the judgment of Government for that of a business, no matter how flawed.    If  BOA proves anything, it is that no amount of regulation or legislation is going to keep banks from maximizing their profits.

The best way to help consumers is to give them the option of seeking a better return on their savings and competitive rates for their financial products.  The American consumer, as the ultimate beneficiary and arbiter of the free market, will decide for itself if BOA’s fee is smart business or a tone-deaf  blunder.  By raising the MBL cap to provide choices for small businesses, fixing the federal charter so that more credit unions can provide choices  to the underserved, and implementing reasonable capital reforms to maximize the amount of funds available to lend to members who choose to join credit unions,  Congress will be helping consumers help themselves.

October 4, 2011 at 7:00 am 1 comment


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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