Posts tagged ‘Dodd-Frank’

Lawsuit Settlement Shows Who Really Controls Your CU

Earlier this week Plaid reached a $58 million settlement in a class action lawsuit alleging that the company’s business practices violated several state and federal laws related to the privacy of member account information and proper disclosures. The settlement is little more than a speeding ticket for Plaid and similar companies which specialize in helping third parties access the account information of your members.

Understanding what this company does is key to understanding just how obsolete technology is making traditional financial institutions. Increasingly, your institution does nothing more than hold information for the benefit of other financial intermediaries.

You may not have heard of this company but you have probably used its technology, your members certainly have. Plaid specializes in transferring member account information to third party app providers such as Venmo and Paypal. In 2016 Plaid developed a new technique. Let’s say you signed up for Venmo, in the early days of the company you’d be asked to login to your bank account. Doing so would provide Plaid a token with which they could access your account information. Starting in 2016 Plaid centralized the process even further. An individual applying for a Venmo account would select their financial institution but instead of being directed to go to their credit union’s website, they would instead be directed to a website controlled by Plaid which looked just like the credit union’s website.

In other words, Plaid was able to further centralize the data collection process by using illegal phishing techniques, or so the plaintiffs in this case argued.

In settling the lawsuit Plaid agreed to make better disclosures and to do a better job of only keeping the information it needs to do its job. It also is going to more prominently provide consumers disclosures about what it does and how it does it.

But in one form or another, the system is here to stay. Tucked away in the Dood-Frank Act is 12 USCA § 5533. It gives consumers the right to mandate that banks and credit unions share their account information with third parties of their choosing. One of the primary purposes of the provision was to make it easier for consumers to switch financial institutions by allowing a new bank or credit union to gather their account information.

Unfortunately while federal law has encouraged innovation in this area it has done little to update the consumer protection framework. Just about every major consumer protection law centers on the checking account and the loan provider. In fact, there are scores of companies accessing and using account information every day without any traditional consumer protection constraints.

August 11, 2021 at 9:08 am Leave a comment

CFPB Proposes Nationwide Foreclosure Moratorium

In one of the most aggressive claims of regulatory authority in decades, the CFPB proposed regulations yesterday that would sharply limit the ability to begin foreclosure actions until the end of the year. 

To make sure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers exit forbearance at around the same time this fall, the proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.”

To accomplish this goal regulations would create a new temporary COVID-19 pre-foreclosure emergency review period that wouldn’t expire until the end of the year.  The regulation would be coupled with enhanced loss mitigation options.  For example, current regulation already requires servicers to attempt to make live contact with delinquent borrowers.  The proposed rule would amend these regulations to mandate that borrowers be told about COVID-19 loss mitigation options.  The new time period for evaluating loss mitigation options would effectively prohibit foreclosures. 

Where does the CFPB have the authority to impose this de facto moratorium? It points out in the legal authority section of the regulations preamble that § 1032 of the Dodd-Frank Act mandates that the Bureau “shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.” 12 U.S.C. 5532(c).  It argues that researchers have pointed to a link between financial stress and poor decision making that a longer pre-foreclosure period would help address. 

For those of us in New York, the regulations wouldn’t be all that different than statutory requirements which our elected representatives voted on and chose to put in place.  In contrast, I have half-jokingly referred to the CFPB Director as the benign dictator of consumer protection law.  If this regulation is allowed to take effect, I won’t be joking anymore.  No elected representative voting to create the CFPB thought they were giving an unelected bureaucrat overseeing an independent agency the right to preempt state property law in the absence of explicit Congressional authority. 

To be clear, I am proud of working for an industry that by and large does everything it can to avoid foreclosures.  But, for those of you in support of the Bureau’s action remember, that there will someday be a Director in charge appointed by a president with whom you disagree.  Do you want him or her to be able to exercise this much power?

April 6, 2021 at 10:04 am Leave a comment

How is Your CU’s Diversity Initiative Coming Along?

As your credit  union emerges from the day-to-day demands of banking during a pandemic its time to start preparing for the issues that are going to impact its regulatory framework in the months and years to come as opposed to those concerns which will fade with the pandemic.

One of the key issues credit unions will continue to face in the coming years is fostering the diversity of their own workforces and boards.  The reckoning may not come as quickly as it will for larger institutions with more resources and spottier track records, but it is coming nonetheless.  

The Dodd-Frank Act included a mandate for financial regulators, including the NCUA, to establish an Office of Minority and Women Inclusion (OMWI) and survey industries on their diversity policies.  Participation is a voluntary but potentially potent weapon for policymakers.  Last week, for example, Representative Maxine Waters demanded that the largest banks do a better job of voluntarily submitting self-assessments of their diversity practices.  She, along with Congresswoman Beatty, stated in a letter to these financial institutions: “We are making progress to ensure a comprehensive understanding of diversity and inclusion performance in the financial services industry.  However, this cannot be achieved until organizations, especially the largest investment managers, disclose their diversity data and policies with the Offices of Minority and Women Inclusion, Congress, and the public.”  The trend isn’t limited to the political branches.

Another less high profile example has to do with board management at the largest banks.  In late February the FRB issued a guidance on best practices for effective board oversight.  In the guidance it explained that an effective process for selecting board members “… considers a diverse pool of potential nominees, including women and minorities.”  The inclusion of this language in the final guidance is a not so subtle nudge for boards to examine their recruitment practices.   

Now, to be clear, neither of those two examples apply to credit unions but sooner or later, your credit union will be expected to have a robust system that maximizes diversity within its employment and leadership ranks. It’s another one of those initiatives that can either be thoughtfully implemented or hastily complied with.

New York Introduces A Cannabis Legalization Bill

Late Saturday night the legislature introduced this 113 page bill signaling that it had reached agreement on a framework for legalizing the use and sale of recreational marijuana in New York State.  The law also provides guidance on issues related to hemp.  Enjoy the reading.

March 29, 2021 at 9:21 am Leave a comment

Three Things to Ponder As You Start Your Credit Union Week

Good morning, folks. Here are some things to keep in mind as you start what promises to be an extremely eventful truncated week. 

Meet the New Boss

With the Supreme Court ruling that the director of the CFPB serves at the pleasure of the President of the United States, President-elect Biden has announced his pick to head the Bureau. Even with the Supreme Court ruling, no one in government has as much power to shape the regulations of the consumer financial sector than will Rohit Chopra.

Judging by the press reports I read over the weekend, there are few regulators who will have as much running room at the start of the Biden presidency as the CFPB. The conventional wisdom is that the CFPB was made “toothless” (New York Times) under the parting director Kathy Kraninger. While this is not true, perception is reality, and the list of top priorities is already emerging. Get ready to work on proposals dealing with overdrafts, student loan disclosures, mortgage forbearances and payday loans. All this will be in addition to a much more aggressive use of regulation through enforcement action. 

NCUA and CFPB Enter Into A MOU

David Baumann of the Credit Union Times reported Friday that the CFPB and the NCUA had agreed upon a Memorandum of Understanding. According to the NCUA, the purpose of this agreement is “to improve coordination between the agencies related to the consumer protection supervision of credit unions over $10 billion dollars in assets.” But we won’t know for sure, at least for a while, as the NCUA is making the CUTimes file a FOIA request to learn the contents of the memo.

Under the Dodd-Frank Act, the Bureau has direct supervision over institutions with $10 billion or more in assets. An institution is subject to this supervision once it reports four consecutive quarters of $10 billion or more in assets. If I was at or near this threshold, I sure as heck would want to know what was in the MOU. After all, institutions have a right to know what’s expected of them; what regulators are overseeing them, and precisely with whom their supervisory information is being shared.

It’s Budget Day at the Capitol!

For New York Legislative geeks, today is like Christmas morning. You finally get to know what surprises are under the Budget tree, and there’s sure to be a few lumps of coal. Many of the big picture items are already being debated, such as online gambling and marijuana banking. And of course, the great wild card in all of this is the extent to which Congress will be able to ease New York’s fiscal woes. Goody gumdrops. 

Merry Christmas, Happy New Year, and enjoy your day.

January 19, 2021 at 9:43 am 1 comment

CFPB Proposes New Category of QM Loans: Does it Really Matter?

With the election fast approaching, the Consumer Financial Protection Bureau (CFPB) earlier this week introduced its most dramatic proposal yet to change the regulatory framework put in place by Congress (and the CFPB) with the passage of Dodd-Frank.  Whether or not this proposal has any impact on your credit union’s operations will ultimately depend on who is President next January.

When a mortgage is characterized as a Qualified Mortgage it makes it easier to sell the mortgage to third parties and creates a “safe harbor” against lawsuits and foreclosure defenses alleging that a lender did not properly determine that the borrower had the ability to repay a mortgage loan.  Right now there are two categories of Qualified Mortgages.  One in which the mortgage loan complies with criteria established by the CFPB which includes a debt-to-income cap and a second category which includes any mortgage eligible for purchase by Fannie Mae or Freddie Mac.  This second category is known as the “GSE Patch” which expires on January 10, 2021.  The latest proposal introduced by the CFPB would create a category of seasoned loans.  Under this approach a mortgage which is retained by a lender in its own portfolio and meets certain other conditions would season into a Qualified Mortgage with all its advantages.

The proposal would apply to first home mortgages which meet certain fee and point restrictions.  A loan would be considered seasoned if on-time payments are made for 36-months, beginning on the date on which the first periodic payment is due. In a nod to the pandemic, a forbearance resulting from a pandemic related emergency would suspend the 36-month period.

Typically, a proposal like this would generate a storm of analysis and a boat-load of comment letters predicting everything from housing nirvana to Armageddon.  But why then is the comment period a mere 30 days?  I’m going to go out on a limb here and surmise that now that the Supreme Court has made the CFPB Director an at-will employee of the President, Kathleen Kraninger wants to get as many regulations finalized as she can before leaving office.  It’s a little game Washington plays because one of the first things a new administration will do is freeze the implementation of newly enacted regulations.

That being said, if this proposal ever takes effect, it will have a profound impact on the mortgage industry.  Under this approach lenders who are willing to portfolio loans for the first three years of a mortgage will find it much easier to foreclose on property which subsequently comes delinquent.  It may also increase the availability of houses by enticing more lenders to take a risk on borrowers who don’t meet more stringent underwriting standards.

That last point is what has critics of the proposal so upset.  They would argue that a loan which shouldn’t have been made in the first place doesn’t become a better loan simply because the homeowner was able to make payments for a few years.

August 21, 2020 at 8:36 am Leave a comment

The Most Important Provision of Dodd-Frank You Didn’t Know About  

Yesterday, the CFPB announced that it would be issuing an Advanced Notice of Proposed Rulemaking (ANPR) formally beginning the rulemaking process to breathe life into what will be one of the most important consumer provisions in the Dodd-Frank Act.

Section 1033 of the Act provides that consumers must be given access to information about their consumer products in a form that is readily accessible.  Specifically, the provision provides that, “subject” to rules prescribed by the CFPB “covered persons”, a term which includes any entity providing a consumer financial product or service “shall make available to a consumer, upon request, information in their control or procession concerning the financial product or service”.

In other words, tucked away in Dodd-Frank is a provision that will create a federal standard which will give consumers the right to decide not only whether or not their information is going to be shared with a third party but whom they choose to share it with.

It’s not surprising that when the CFPB held a symposium on this section earlier this year, among its biggest advocates were Fintechs.  The ability to access consumer information in real-time and to get permission to do so in a standard format will make it that much easier for third parties to do everything from managing finances to creating computer generated retirement plans.  The lack of existing standards has created a no-man’s-land with banks and other financial intermediaries disputing what information third parties are entitled to and in what format.

This has put an emphasis on Fintechs working directly with banks and credit unions.  If record standards become standardized and consumers have the decisive say in who gets access to their information, you will see more and more Fintechs becoming less and less interested in working directly with your credit union.

The legal downside, yes there is always a legal downside, is that this brave new world will come with a host of legal requirements, such as new notices, and liability conundrums such as determining who is responsible for misused information.

On a policy level, it’s another example of how technology is chipping away at many of the activities previously performed by your friendly neighborhood banker or credit union.  Stay tuned for the ANPR.

Dodd-Frank and Section 1033

July 28, 2020 at 9:25 am Leave a comment

CFPB Proposes Alternative to the GSE Patch

With a January 21st statutory deadline fast approaching, the CFPB yesterday put forward a set of regulations which could have a dramatic impact on the mortgage industry.

Dodd-Frank and its accompanying regulations provide mortgage lenders with enhanced legal protections in the event that they must foreclose on a property.  For a mortgage to be classified as a Qualified Mortgages (QM), it must, among other things, have a debt-to-income ratio no higher than 43%.  Alternatively, any mortgage eligible for sale to Fannie Mae or Freddie Mac also qualifies as a QM mortgage even though the GSE’s have GTI ratios exceeding 43%.

The drafters of Dodd-Frank put the GSE exception into statute so that policy makers would have enough time to gradually ween the mortgage industry off of its GSE dependency.  The Dodd-Frank GSE authorization expires in January 2021 and, according to the CFPB, there are still 957,000 loans which qualify as QM loans because they are eligible for sale in the secondary market.  Consequently, without the GSE option, home buying is going to be a lot more expensive for a lot of lower income Americans.

Yesterday the GSE unveiled its post January 2021 proposal.  Based on the summaries I have read, including a statement from the CFPB, the Bureau is proposing doing away with the 43% DTI ratio and replacing it with a price based approach similar to that which is already in use for other categories of loans.  Specifically, whether or not a mortgage qualifies as a QM would be determined by comparing a loan’s annual percentage rate (APR) to the average prime offer rate (APOR) for a comparable transaction.

In a separate rulemaking, the CFPB is proposing extending the existing GSE authorization until April 2021.  In other words, after an election in which the future of the CFPB will be debated.  Needless to say, if you are looking for regulatory certainty in the mortgage market over the next year, you are in the wrong country.

June 23, 2020 at 9:28 am Leave a comment

The CFPB to The Rescue!

Considering I believe the world would be a marginally better place had the CFPB never been created, I’ve had a tough time this morning thinking of any action taken by the Bureau with which I am more pleased.

What I am referring to is this interpretive ruling issued by the Bureau emphasizing that a borrower suffering an economic impact resulting from the COVID-19 pandemic can waive mandatory waiting periods before mortgage closings. In addition, the Bureau has given lenders more flexibility to send out updated Loan Estimates without running afoul of the regulations. Commonsense has prevailed.

Under the TRID rule creditors must deliver Loan Estimates to consumers no less than seven (7) days before consummation and consumers must receive Closing Disclosures at least three (3) business days before closing. For these time periods to be waived, a consumer must have a bonafide emergency.

The CFPB takes this rule seriously. It means, for example, that a member who wants to expedite a closing to go to the Bahamas is out of luck. The CFPB guidance should give lenders greater confidence in expediting closings so long as the member is being impacted by COVID-19. This flexibility also applies to the three (3) day Right Of Rescission.

The Dodd-Frank mandated regulations also placed strict limits on when lenders can send out amended Loan Estimates. Remember that regulators wanted to cut down on bait-and-switch tactics. Under existing regulations however, lenders can provide an amended Loan Estimate when closing costs are impacted by an extraordinary event, such as a war or natural disaster. According to the CFPB, the economic disruption caused by COVID-19 constitutes such an event. As a result “for the purposes of determining good faith, creditors may use the revised estimates of settlement charges that consumers would incur in connection with the mortgage transaction if the COVID-19 pandemic has affected the estimate of such charges”. Who knew that quarantines could have such benefits?

May 1, 2020 at 8:34 am Leave a comment

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

Victory!

Image result for victory kiss vedIt’s nice to actually be part of a win, isn’t it? Here are a few quick thoughts on the passage of S.2155:

First, it wasn’t just the victory but the size of the victory. Notwithstanding the demagogic nonsense being pedaled by certain unnamed Democrats who made the bill sound as if it was the worst piece of legislation since Smoot Hawley. 258 yes votes means that 33 Democrats quietly voted yes on the bill. A big shout out to Long Island Democrats, Kathleen Rice and Tom Suozzi as well as the Hudson Valley’s Sean Patrick Maloney for looking past the noise and recognizing that the bill was primarily a level-headed approach to helping out community banks and credit unions.

Second, the bill did not repeal HMDA. I repeat, the bill did not repeal HMDA. What the bill did was exempt institutions from the almost two dozen data points which the CFPB and Congress imposed on institutions as an outgrowth of Dodd-Frank. Keep in mind that the institutions which actually have the history and ability to engage in systemic lending abuses are still subject to enhanced HMDA scrutiny but I know that wouldn’t make a good Democratic talking point. Go to §104 of the bill and judge for yourself.

Third, speaking of the nonsense spewed by some of the bill’s opponents, if this bill really is a giveaway to the big banks, the ABA really isn’t as talented as I think it is. A few more victory’s like this and it will be out of business.

Fourth, remember the bill isn’t law yet. It still has to be signed off on by the President which we have every indication he will do.

Fifth, compliance people have had a relatively quiet time of it lately. That’s about to change. There are many good little nuggets in this bill ranging from the protection of financial institutions that report suspected financial abuse of the elderly to greater flexibility for mortgage bankers that employ originators who previously worked in banks and credit unions. This is obviously good news for those of you who have mortgage Cusos. We need to start finding out when these provisions take effect and if regulations will be promulgated along with them.

Finally, a big shout out to CUNA and NAFCU. This is a huge victory. In addition, to get the House of Representatives to agree to pass a Senate banking bill without amendment is a tactical accomplishment which speaks to the quality of our national leadership.

May 23, 2018 at 8:55 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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