Posts tagged ‘COVID-19’

Preparing for the COVID-19 Endemic

“Vaccination drives hold out the promise of curbing Covid-19, but governments and businesses are increasingly accepting what epidemiologists have long warned: The pathogen will circulate for years, or even decades, leaving society to coexist with Covid-19 much as it does with other endemic diseases like flu, measles, and HIV.”

So said the Wall Street Journal earlier this week. This reality several important legal issues for your credit union to manage as it transitions from pandemic to endemic operations. For instance, one of the key questions with which you should all be grappling, if you haven’t done so already, is whether or not to mandate that your employees receive the vaccine. As I explained in this blog, the EEOC has provided guidance for those institutions which choose to make the vaccine mandatory. Keep in mind that this is a very fluid area of the law. For example, one case that will provide some guidance to New York State businesses on the interplay between the Americans With Disabilities Act (ADA) and vaccine requirements is Norman v. NYU Langone Health System. The district court ruled in September that an employee’s allergy did not qualify them for an exemption from a mandatory vaccination under the ADA. But this case is being appealed, giving the court the opportunity to explain its thinking on this important area of the law just as businesses look to determine their new policies. 

Another important source of information is this guidance issued by OSHA within days of the Biden Administration taking over. It suggests that employers should make COVID-19 vaccinations available to eligible employees, as well as to provide information and training on the benefits and safety of vaccinations. Against this backdrop, you should all consider updating your policies to – at the very least – encourage your employees get voluntarily vaccinated. A voluntary policy avoids many of the legal complications involved with a vaccine mandate while still effectively stressing the importance of workplace safety. In the meantime, the Association has stressed to both the Department of Financial Services and the Governor’s office the importance of making frontline financial workers eligible for the vaccine as soon as possible. 

Another issue for your credit union to consider as it learns to live with COVID is to recognize that even after vaccination becomes widespread, many of the new conditions you put in place are here to stay. As the Wall Street Journal pointed out, there are already burgeoning industries based on that assumption. In the future, rapid testing – not only for COVID-19, but for the flu – will probably become par for the course.  What this means is that one should not assume that the conditions you have put in place today like increased social distancing and an emphasis on healthier buildings will disappear with the pandemic. 

On that note, enjoy your long weekend. Yours truly has no idea what he will do with all the free time he has now that the football season has come to an end.

February 12, 2021 at 9:30 am Leave a comment

For New York, Things Are Worse Than They Appear

Yesterday, the Federal Housing Finance Agency highlighted just how long the pandemic has lasted by announcing that mortgages backed by Fannie Mae and Freddie Mac may be eligible for an additional forbearance extension of three months. Although the agency cautioned that other conditions may apply, the extension will generally apply to borrowers who are on a COVID-19 forbearance plan as of February 28th, 2021. By extending forbearance plans through May, GSE forbearance policies are now more consistent with New York State’s forbearance requirements for non-GSE loans held by your credit union. Remember that in early January, the State Legislature passed legislation granting forbearance extensions to individuals claiming to have been negatively impacted as a direct result of COVID-19. 

The announcement underscores that on a national level, the economic conditions under which credit unions will operate remain unclear, even as the vaccination rollout picks up speed. This uncertainty is particularly true for credit unions in New York. The state has been among the hardest hit by the pandemic – for example, New York currently has an unemployment rate of 8.2%, the fifth highest in the country. In addition, New York has some of the highest numbers of delinquent mortgages in the country, with New York City standing out among other metropolitan areas for its reported number of mortgages past due. 

Of course, these statistics are as predictable as they are depressing. In October 2020, the Empire Center reported that New York’s second quarter GDP dropped 36.3%, marking the biggest decline on record in New York state history. To put it in perspective, New York’s drop was almost five percent higher than the national average for the same period. 

On that inspiring note, enjoy your credit union day. 

February 10, 2021 at 9:22 am Leave a comment

NYS Legislature Enacts COVID Hardship Exemption For Individuals Facing Foreclosure

You know that feeling you get a few days before Christmas when you’re afraid you should have gotten one extra present for that special someone.  You end up frantically checking out the last second deals and getting a present that feels good in the moment but ends up destined to be re-gifted.  If you work for the legislature, you can respond to this last second urge by passing a bill in the week between Christmas and New Year’s which provides foreclosure and credit relief for homeowners and tenants alike.  Let’s hope that this well intended measure doesn’t result in more confusion than would have a less hastily enacted piece of legislation. 

As you review Assembly Bill 11181, keep in mind that its purpose is not only to protect residential homeowners but also to protect small landlords and condo and co-op owners.  Under the bill, any individual who owns ten or fewer “dwelling units” can obtain a moratorium against any foreclosure actions until May 1, 2021.  Foreclosing parties are responsible for providing a copy of a hardship exception form to parties facing foreclosure.  Individuals seeking to freeze their legal actions will be responsible for submitting a signed copy of a new MORTGAGOR’S DECLARATION OF COVID-19-RELATED HARDSHIP.  If all goes according to plan, the form should be available on the office of Court Administration’s website this week.  It will be available in English and six other languages.  If your homeowner’s primary language is not one of these six languages, then it is the foreclosing party’s obligation to obtain the necessary paperwork.  This new requirement does not apply to vacant and abandoned property. 

Of course the state legislature wasn’t the only group working in the closing days of the year.  In tomorrow’s blog I’ll be talking about the operational impact those $600 stimulus checks are having on your credit union.

Although the moratorium has gotten much of the attention, another part of the bill may have an operational impact on your credit union regardless of whether or not it even offers mortgages.  Specifically, the law provides that

“…lending institutions shall not discriminate in the determination of whether credit should be extended to any owner of residential real property as defined in subdivision one of this section because, as provided for in this act, such owner has been granted a stay of mortgage foreclosure proceedings, tax foreclosure proceedings or of tax lien sales, or that an owner of residential real property as defined in subdivision one of this section is currently in arrears and has filed a hardship declaration with such lender.”

January 4, 2021 at 10:32 am Leave a comment

It’s Back! The Paycheck Protection Program, That Is

The government program everyone loves to hate, and then love again – is back in a third iteration. If everything goes according to plan and the President signs the $900 billion stimulus plan (does it concern anyone that no one seems to know what the exact number is? Then again, when you’re dealing with $900 billion, does a $100 billion here or there matter all that much?) Within 10 days of its enactment, we will be seeing regulations for new, improved, simpler and ultimately much needed rejuvenation of the Paycheck Protection Program. I’ve taken a look at the program, the guts of which you can review in Subtitle B – Community Development Investment on page 358 of this act. Suffice it to say this is not your mother’s PPP – whereas the initial legislative thrust was concerned with keeping people employed at a moment in time when we thought things would be back to normal by next June, the new program greatly expands the expenses for which loans are eligible. For example, eligible businesses can use the money for, among other things, cloud computing services. In addition, a new provision of the law makes businesses eligible for a second loan. Finally, the maximum loan size has been reduced from $10 million to $2 million, and only businesses with 300 or fewer employees are eligible for the loans. 

Now for my soapbox moment. When looking at the value of providing PPP loans, please keep in mind not only the impact on your credit union’s bottom line, but the value to the industry of the prominent participants in this program. In addition, for those of you who can go forward with these loans, please share your stories with your trades. Congress and the public are heavily invested in this program. How they perceive financial institutions engaging consumers will, in my ever so humble opinion, shape the regulations and legislation to come. One other quick note about the legislation – although some of the money is allocated towards education, it falls far short of the funds that states like New York were looking for to help offset pandemic-related costs. Brace yourselves for another unique year as the Legislature continues to operate remotely and budgetary concerns dominate even more than usual. 

On that note, yours truly is signing off until next year. Thanks for reading, with a special shoutout to those of you who took the time to comment on my musings along the way. 

December 22, 2020 at 9:26 am 1 comment

Election Post-Mortem, Continued Gridlock Means Tough Times Ahead

One thing that Barack Obama and Mitch McConnell agree on is that elections have consequences. Although the final results won’t be known for weeks, what appears to be clear from this election is that it did little more than confirm a deeply divided status quo with all sides able to point to evidence that they were the actual victors. For credit unions, this has important consequences which will shape the industry in both the near and medium term. Here is a list of some of those consequences:

  • PPP Relief Delayed – Yesterday, the Federal Reserve once again tinkered with its regulations for the Main Street Lending Program, which was designed to encourage banks and credit unions to make loans to medium-sized businesses not eligible for PPP loans. At the same time, Federal Reserve Chairman Powell issued this extremely thoughtful release in which he once again stressed that without fiscal intervention, the Fed is at the outer limits of what it can do to support a slowing economy. Although Mitch McConnell is committed to getting a stimulus bill through Congress, I really don’t see this happening with a disgruntled, lame duck President Trump in charge and two Senate elections outstanding. This delay has real consequences. The market as a whole is welcoming the apparent gridlock, but investors in regional banks are now recognizing that business activity and consumer spending will almost certainly decrease in the months ahead. 
  • The pandemic continues to spread – In case you missed it because you were glued to John King’s magic wall of vote counts, America experienced its worst single-day count of COVID-19 cases. As Federal Reserve Chairman Powell pointed out, the economy can’t get back to full strength as long as people have to worry about contracting the virus. The good news is that in the coming months, perhaps we will move away from this false dichotomy between economic growth and the need to contain the virus. The bad news is that this means one of the top priorities for your credit union, or any business for that matter, has to be discussing, maintaining and monitoring the criteria you will use in determining how to run your operations during the Second Wave. 
  • Tough times ahead in New York – Let’s be honest. The more democrats have control of the US Senate, the more aid that will come to New York State. Anyone who pays property taxes knows how badly we need it. But with hopes for a big Senate victory fading, New Yorkers are facing an unappetizing choice between budget cuts and tax increases at a time when we need more, not less, stimulus. On the bright side, the economic vice the state may well find itself in underscores the value of giving localities mandate relief in the form of credit unions being allowed to accept municipal deposits. 
  • Let’s Go Get Stoned – Five additional states legalized marijuana in some form or another on election night. Not only did New Jersey legalize cannabis, but even red states have now decided it’s time to take a puff, with Montana, Mississippi and South Dakota joining the ranks. I don’t know what it says about America that pot legalization is one of the few issues we can all agree on, but I will now bet that by the end of the next legislative cycle, banks and credit unions will have clear legal authority to provide banking services to these businesses. If you haven’t already discussed how actively your credit union wishes to engage this business or taken a deep dive into the compliance implications, now is the time. Full disclosure: I made the same prediction two years ago. 
  • Credit Union Tax Exemption is in Play – I’m always hesitant to put too much emphasis on the threat posed to credit unions and their tax exempt status. Too often, I think it distracts us from other more pressing issues. But there are four dynamics which make the coming years particularly treacherous for the industry. Even without subsequent stimulus packages, the country has gone on an unprecedented spending spree which will have to be repaid; democrats are going to be pushing hard for tax reform, especially as the pandemic exacerbates economic inequality, three – banks have already been laying the groundwork for a targeted attack against so-called “larger” credit unions and lastly – they may find common ground with the younger, more progressive AOC wing of the democratic party, which is increasingly looking to other entities – such as the Post Office and CDFIs – to provide financing for the underserved. The action points for credit unions are obvious, but if I could make myself king for a day, I would mandate that every credit union draw up a concrete list of the products, services and activities it undertakes as a result of its tax exemption. As an industry, we like to say that we don’t pay corporate taxes because we are not-for-profit institutions. In fact, we don’t pay taxes because of a policy judgment by Congress that the financial value of having not-for-profit financial institutions available to the American public outweighs the fiscal benefit of taxing credit unions. Each and every institution benefitting from that tax exemption can, should and ultimately will have to demonstrate this fact in concrete terms to elected officials anxious for cash. 

Believe it or not, there are many other points to raise, but it’s a beautiful day and I’ve depressed my readers enough. Besides, I still have to brace myself to watch the Giants play the Washington Football Team. Perhaps Ron Rivera will hand us another victory. Have a good weekend. 

November 6, 2020 at 10:25 am Leave a comment

DFS Issues Green Expectations for Banks and Credit Unions

 Greetings from the land where strange white flakes are falling from a grey sky on the day before Halloween. Yet another reminder of why yours truly won’t be retiring in the great Northeast someday. 

In the meantime, I have the type of news which I like to preface with: don’t shoot the messenger. Yesterday, the Department of Financial Services released guidance laying out expectations it has for state-regulated institutions to integrate green initiatives into their operations. What exactly does that mean? If this seems somewhat general, that’s because it is. The guidance should be viewed as a first step in an effort by DFS in “developing a strategy for integrating climate-related risks into its supervisory mandate,” and to “engage with your organizations and work and coordinate with our U.S. and international counterparts to develop effective supervisory practices, as well as guidance and best practices in order to mitigate the financial risks from climate change.” That being said, it does expect regulated institutions to designate a board member or committee to start analyzing how climate change may impact their operations. On the bright side, DFS stresses that its primary goal at this point is to start a dialogue with regulated industries. By the way, in making the announcement, Superintendent Lacewell pointed out that this is another “first in the nation” initiative by New York’s DFS. 

Economy Continues to Exceed Expectations

Just days ahead of the Presidential Election, signs continue to appear that the economy has bounced back stronger than could have been reasonably anticipated from the COVID-19 lockdown. Real GDP increased at an annualized rate of 33.1% in the third quarter. In addition, first time claims for unemployment actually dropped last week. I will let the pundits decide what pearls of wisdom can be extrapolated from these statistics, but the news is consistent with the decision by some of the nation’s largest banks to reduce their loan loss reserves. 

On that note, enjoy your weekend, and don’t slip on the ice on your way to vote.

October 30, 2020 at 9:14 am Leave a comment

Has COVID-19 Killed CECL?

Regulators, like generals, are great at preparing for the last war. On the face of it, your credit union has very little in common with JP Morgan. But, JP Morgan’s experience in trying to comply with CECL in a pandemic economy has lessons for regulators, legislators and credit union executives as they prepare to implement CECL by 2023. 

The impetus behind moving to a CECL method of accounting for expected credit losses was the 2008 mortgage meltdown, in which the floor fell out of the economy. It became clear that there were millions of Americans who couldn’t afford to pay back their mortgage loans, making all those mortgage-backed securities virtually worthless overnight. As regulators picked through the wreckage, they learned from the short sellers that, had banks been required to make realistic assumptions about their potential losses a year or two down the road, this dramatic fall could have been avoided. Enter CECL, which mandates that lenders both big and small make realistic assumptions based on past history about anticipated credit losses. Against this backdrop, CECL made perfect sense. 

But, if history tells us anything, it is that periodic financial crises are inevitable – and, secondly- none are exactly alike. Which brings me back to JP Morgan.

The company raised a lot of eyebrows last week when it actually reduced its third quarter loss reserves. But the real story is that the COVID-19 crisis is so unprecedented, and so unpredictable, that it demonstrates the limited utility of an accounting standard predicated on a baseline of financial predictability. 

For example, in the second quarter, JP Morgan made the realistic assumption that we would not be seeing a V-shaped recovery, in which consumers would once again be going to ballgames and participating in family barbecues, at least not if you live north of the Mason-Dixon line. As a result, it increased its reserves by $8.9 billion. 

Fast forward to the third quarter. In its conference call, the bank emphasized that it still has a gloomy outlook for the economy as a whole, but nevertheless, reduced its reserves by $600 million. Again, this is not some cynical attempt to evade CECL’s mandates by making overly-optimistic assumptions, but a reflection of the fact that the federal stimulus package worked better than anyone, with the possible exception of John Maynard Keynes, could have anticipated. Notwithstanding the continued uncertainty, the bank doesn’t expect to start seeing large-scale charge offs across its consumer lending portfolio until the second half of 2021. 

Credit union executives and regulators can learn a lot from the JP Morgan gyrations as they prepare for 2023, by which time, all credit unions must adopt a CECL model. First, CECL lies at the intersection between regulatory oversight and banking management. While the JP Morgans of the world are sophisticated enough to back up their assumptions about future growth, or lack thereof, there’s going to be a huge temptation on the part of examiners, particularly in times of economic stress, to impose their own baseline assumptions on a credit union’s CECL model. Secondly, implemented too conservatively, CECL could exacerbate economic downturns. Simply put – while the economy has been relatively resilient under these circumstances, the biggest of the big banks must effectively take hundreds of billions of dollars out of the economy in order to comply. 

Finally, yours truly has now drunk the Kool-Aid. An accounting standard which makes sense for large, sophisticated institutions simply has limited utility for small to medium sized institutions, each of which has a unique customer base. It’s time to exempt credit unions, and for that matter, small community banks from CECL.

October 20, 2020 at 9:31 am Leave a comment

Having “the Talk” … with your IT Team

When Rodney Hood started talking about the importance of cybersecurity for credit unions shortly after becoming Chairman, to me, he sounded like the guy who comes about an hour late to the party. After all, cybersecurity has been a key priority of financial regulators for years now. But the COVID-19 pandemic has proven me wrong. With the number of credit union employees now working remotely, consumers relying more heavily than ever before on electronic transactions, and hackers being so brazen that they now steal from Robinhood (I couldn’t resist), your credit union is dealing with new cyber challenges coming from directions it could never have anticipated. 

This puts the credit union senior management, and ultimately their boards of directors, in the hot seat given they’re the entities ultimately responsible for making sure your IT team is implementing the proper policies and procedures to both protect members and keep the place going. But in order to do this, boards have to know the right questions to ask. At yesterday’s board meeting, Johnny E. Davis, Special Advisor to the Chairman on Cybersecurity, provided an easy-to-understand list of questions in his presentation that a board member could use to zero in on how it’s IT staff has responded to the pandemic. For example, has anyone asked your credit union what policies and procedures it has put in place related to remote access by employees? Another basic but crucial question to consider is how your credit union is preparing in the mid to long-term for the changes that have been accelerated by COVID. For example, in it’s quarterly earnings discussion with financial analysts earlier this week, JP Morgan commented on how it has seen an increased use of online banking resources by consumers, and how it believes that much of the shift is permanent. As a colleague of mine recently said, credit unions better have the technology locked and loaded, because even grandparents are getting used to remote deposit. 

All of this of course introduces a compliance component to consider. Cybersecurity is a point of emphasis for your examiner, and irrespective of your size and sophistication, you should be able to document in your board minutes the steps you are taking with regard to your IT infrastructure. 

NCUA Takes the Wheels Off when it Comes to Derivatives

In yesterday’s board meeting, the NCUA also proposed updates to regulations which would give sophisticated credit unions (with 500 million or more in assets) greater flexibility to use derivatives to hedge against interest rate risk. Under the proposal, these credit unions would no longer require prior approval from NCUA to use derivatives, nor would they be restrained to a specific list of permissible investments. At the same time, board members continue to stress that examiners will evaluate derivative activity to ensure that they are being properly used, and that the credit union and its board have the proper expertise and knowledge required to administer such a program. 

On that note, enjoy your weekend, I’ll be back on Monday.

October 16, 2020 at 9:46 am Leave a comment

Push to Exempt CUs from CECL Continues

NCUA continued its push to get credit unions exempt from the updates to the Current Expected Credit Loss (CECL) methodology, with which credit unions are currently mandated to comply with no later than December 15, 2022. 

The latest call for an exemption came in the form of this op-ed from Chairman Rodney Hood, who underscored that COVID-19 further complicates compliance issues. “At a time when credit unions should be focusing their attention on serving their members, the absolute last thing they need is to be burdened by a costly methodology that could have a chilling effect on lending, especially in underserved and rural communities that are the most vulnerable to the pandemic and its effects.”

CECL also made news this week because bank regulators finalized rules allowing banks to phase in CECL accounting standards incrementally over a three-year period as a means of minimizing a sudden hit to loan losses caused by the shift to CECL. Remember that NCUA already finalized this process for credit unions back in the summer. 

I will save my usual rant about how important it is to be preparing for CECL compliance, even as you continue to hope that it will be scrapped before the compliance deadline. On that note, enjoy your day.

October 5, 2020 at 9:35 am Leave a comment

Another Court Rules Lenders are not on the Hook for PPP Agent Fees

Good morning folks. Could this year get any stranger? Originally, I wasn’t going to do a blog today following the news that the President had contracted the COVID-19 virus, but then I realized that regardless of what happens, there are still credit unions to run, even as we wish him a speedy recovery.

I have some good news for those of you who provided PPP loans. A Manhattan federal court has now ruled that, absent a contract, lenders are not obligated to pay the fees of agents who helped businesses apply for PPP loans. The decision is in response to six separate lawsuits alleging that, under the CARES Act and its accompanying legislation, lenders were obligated to pay agent fees so that the businesses receiving the loan proceeds wouldn’t have to. 

In his decision, Judge Rakoff concluded that the purpose of the CARES Act and its regulations was to cap the amount of money agents could receive as compensation, as well as ensure proper documentation of claims to the Small Business Administration (SBA). As a result, “because plaintiffs do not allege that they entered into any agreement with defendants regarding agent fees, the Court holds that they are not entitled to any such fees. Their claims for declaratory relief must therefore be dismissed.” 

This is at least the second case in which a court has held that lenders are not obligated to compensate PPP agents. 

Unemployment Numbers Released

The Bureau of Labor Statistics just released their September unemployment report. The bad news is that while the unemployment rate is continuing to drop, there are growing signs that the economy is slowing down, including an increase in the number of “permanent job losers.” 

October 2, 2020 at 9:21 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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