Posts tagged ‘lawsuit’

Four Things You Should Know As Your Start Your Credit Union Day

The CFPB Is Alive And Well

As if to remind people that there still is a CFPB (I’m sorry, I meant BCFP), the Bureau yesterday filed suit against a California based company and some closely related affiliates who specialized in providing lump sum payments to individuals in return for getting a portion of future revenue from pensions and court settlements. The Bureau contends among other things that the defendant is committing a blatant violation of the Truth In Lending Act by providing loans without providing the necessary disclosures.

In responding to an earlier administrative action brought against it during the reign of King Cordray, the defendant argued that its products were not loans, that the CFPB was unconstitutional and therefore lacked the authority to bring an enforcement action. A similar lawsuit is now percolating in New York’s 2nd Circuit.

This is truly a lions and lambs sleeping together moment. The Bureau is essentially making the same argument that is being championed by, among others, New York’s Attorney General. I know that credit unions and other financial institutions know that they have to make certain disclosures when providing loans covered by the Truth In Lending Act. The lawsuit is important because it shows that the Bureau is still out there and you ignore its actions at your peril.

The Revolution Is Being Televised

Speaking of Attorneys General, New York City’s public advocate, Letitia James, is poised to become the state’s first African American AG as well as its first elected female AG by winning the Democratic Primary last night. The victory immediately catapults James into a high-profile position from which she will get national attention. Remember that the state has actively tried to fill the void left in the wake of the CFPB’s radical shift in direction.

Incidentally, among the politicians she beat was Congressman Sean Patrick Maloney. Since the Congressman won a lawsuit allowing him to seek the AG nomination and remain on the ballot for re-election to his congressional seat, those of you in the lower Hudson Valley will still have the chance to vote for him in November.

Although Governor Cuomo’s large victory over Cynthia Nixon is getting a lot of attention, the biggest news from a credit union perspective is probably the destruction of the former Independent Democratic Caucus. Six of the eight former caucus members went out to defeat including former Senate Bank’s Chairman Jessie Hamilton. And this was not just a New York City phenomena. David Valesky also lost. Times are going to be changing in Albany next year.

New Disclosures Unveiled

The CFPB finalized new disclosures mandated by changes Congress made to the Fair Credit Reporting Act in S.2155. The new disclosures extend from 90 days to one year. As explained in the accompanied press release, “the minimum time that nationwide consumer reporting agencies must include an initial fraud alert in a consumer’s file. A fraud alert informs a prospective lender that a consumer may have been a victim of identity theft and requires that the lender take steps to verify the identity of anyone seeking credit in the consumer’s name. Congress set an effective date of Sept. 21, 2018 for the security freeze right, the notice requirement, and the change in duration for initial fraud alerts.”

NCUA Releases Next Week’s Agenda

Yesterday the NCUA released its agenda for next week’s board meeting…enough said. I think that’s enough for one day. Besides, work is being done on the roof of my office.

It was nice to see those of you who attended our Compliance and Legal Conference and I’ll see you Monday. Enjoy your weekend.

September 14, 2018 at 8:57 am Leave a comment

CFPB Attempts A Regulatory Coup

The attempt of the holdover leadership of the CFPB to extend its reign over the Bureau is the type of legal maneuver that lawyers love and that makes everyone else hate lawyers. At the end of the day, what the CFPB and its most zealous supporters will accomplish is nothing more than to underscore that the Bureau is an out of control Bureaucracy in desperate need of reform.

When Richard Cordray announced that he was leaving the Bureau at the end of the month, speculation surfaced immediately that the trump administration would name former Congressman and current OMB Director Mick Mulvaney as its Acting Director. Considering that Mulvaney has been an outspoken foe of the Bureau, supporters of the Bureau were understandably upset; but in the words of our previous President, “Elections have consequences.”

Fast forward to Friday. Director Cordray apparently was so anxious to get a jump on his Black Friday shopping that he announced that Leandra English who had previously served as the Chief of Staff as his Deputy Director. When Cordray announced his departure, he effectively designated her as his successor until his five-year term ends in July. In a statement explained that “we will continue to benefit from Leandra’s in-depth knowledge of the operational needs of this agency and its staff.” The White House responded with a statement naming Mulvaney as the Acting Director. English has already filed a lawsuit seeking to block Mulvaney from taking up this position.

Now here’s the part that the lawyers love. The CFPB zealots have a good faith argument. Specifically, they argue that under the Dodd Frank Act, the Deputy Director becomes the Acting Director “in the absence or unavailability of the Director.” The problem with this logic is that it is questionable that a voluntary departure constitutes the type of absence envisioned by this provision. In addition, the statute is only relevant if it is not preempted by a competing Federal statute, the Federal Vacancy Reform Act. While this issue has never been litigated, the Trump Administration released a memo from the CFPB’s General Counsel in which he opined that the President had the power to make the interim appointment and that CFPB staff should recognize Mulvaney as the Acting Director.

Let’s take off our ideological blinders and use some common sense here. Does anyone really believe that an unelected Director of a self-funded agency with no Board of Directors consistent with the Constitution exercise greater authority to appoint his successor, then can the President of the United States? Not in my copy of the Constitution.

And besides, what is it the Bureau holdovers truly hope to accomplish? In a best case scenario, Ms. English stays in her job until July. At some point, a new Director will be named who will take the Bureau in a vastly different direction. After all, elections have consequences.

In the long-term, all that this litigation will do is create greater confusion about what regulations should be implemented and how they should be interpreted.

November 27, 2017 at 9:13 am 2 comments

Will Credit Unions Recover for LIBOR Fraud

The potentially huge implications of the LIBOR manipulation scandal grew into sharper focus late last week when Berkshire Bank commenced a class action lawsuit in federal district court in New York City seeking to represent all banks and credit unions headquartered in New York that were victimized by the allegedly fraudulent activity of the banking institutions involved.  The complaint, a copy of which can be read in today’s Wall Street Journal, seeks damages resulting from LIBOR manipulation between 2007 and 2010. 

The crux of the plaintiff’s argument is that lenders such as credit unions, which used LIBOR to set adjustable interest rates on mortgages, detrimentally relied “upon defendant’s misrepresentations by calculating the interest due from borrowers based upon the fraudulently depressed” LIBOR rates.  As we can see from the difficulties that merchants are having rounding up support for their class action credit card settlement, being a member of a putative class is just the very first step in what promises to be a very lengthy legal journey.  Still, when one looks at the enormity of numbers we’re talking about when it comes to alleged LIBOR manipulation, I don’t think analogies between this scandal and asbestos and tobacco litigation are unfounded.

This is going to be an interesting one to keep an eye on.

A silly game of TAG

Reuters has an article this morning providing an update on banker attempts to win an extension of the Transaction Account Guarantee (TAG) program, which allows the FDIC to ensure deposits beyond $250,000.  It appears that the Government guarantee has been such a windfall for community banks that some larger banks were reluctant to push for an extension of the program.  Could it be that not all banking institutions support an extension of TAG, thereby showing that their entire lobbying effort is just a cynical sham? 

No, that’s a silly argument; no industry is going to have complete uniformity on any issue.  It is sad to see, though, how dependent the community banks are on an implicit government guarantee while they unabashedly suggest that the tax status of credit unions should keep them from providing member business loans to the private sector.

July 30, 2012 at 7:24 am 1 comment

Lawsuit Threatens Credit Card Practices

As if we don’t have enough to worry about, the Wall Street Journal is reporting this morning that in settlement talks with merchants aimed at avoiding an antitrust suit scheduled to go to trial in September, VISA and MasterCard may agree to allow merchants to impose a surcharge on consumers who have the audacity to use credit cards when buying a product in their stores.  As I pointed out in a previous blog in January, VISA and MasterCard are facing a massive antitrust lawsuit that has the potential of reshaping credit card interchange fee practices. 

The article highlights merchants who complain that credit card interchange fees constitute a third of their overhead.  While I find that statistic incredibly hard to believe, assuming it’s true, why don’t they also sue any wholesaler who provides them products at a price they don’t like?  Of course, when it comes to any other product, the answer would be to simply not offer it to consumers.  But for some reason, the free market doesn’t count when it comes to debit and now, apparently, credit cards.  The merchant lobbyists have done a wonderful job of framing this issue as one that pits Mom and Pop against evil card-issuing financial institutions, but in truth, any settlement in this area disproportionately benefits WalMart, Target and other major retailers.  The idea that they don’t have leverage to negotiate better fees without the interference of the courts or government is, of course, ridiculous.  But so it goes.

Incidently, if there is ultimately a settlement, I would love to see merchants pledge that they will pass on any savings in “overhead” to their consumers.  I won’t hold my breath.

July 12, 2012 at 7:19 am 1 comment

On lawsuits and pixie dust

Good morning folks!  There is a lot of little news I want to get to, but I can’t resist a few comments on the lawsuit that was filed by a community bank in Texas challenging the Constitutionality of the CFPB.  I haven’t been able to read the complaint yet, but one summary I read suggested that the lawsuit also challenges the legality of President Obama’s recess appointment of Richard Cordray as its Acting Director. 

Listen, I can be as critical of the CFPB as anyone, but one of the reasons I’ve always been on the conservative side of judicial issues is because I believe the more judicial restraint you have, the more issues you leave to the elected branches of government.  Like it or not, Congress passed Dodd-Frank.  Congress did give the Bureau enormous powers, but the powers are no greater than those previously exercised by the bureaucracies whose powers it subsumed and there is a mechanism for its regulations to be overturned if enough other regulators believe they are inappropriate.  Let’s face it, the CFPB is here to stay.  Even if the Republicans managed to take over the Senate, they won’t have the votes needed to pass any legislation dissolving it.  If people don’t like the CFPB, they should take it out on their legislators instead of running to the courthouse.  By the way, this is not to say that there aren’t some legitimate issues surrounding the legality of recess appointments, but the Bureau itself is here to stay.

CFPB Updates Progress on Mortgage Disclosures

Not everything that the CFPB wants to do is bad for business.  Yesterday at a House Committee meeting CFPB’s ubiquitous Deputy Director Raj Date provided an update on the Bureau’s efforts to consolidate Truth in Lending and RESPA mortgage disclosures.  A proposed regulation will be out by July 21, but as many of you probably already know, the CFPB has gone through several rounds of testing of proposed new forms.  There is no area of regulation that better exemplifies the need for regulatory streamlining than mortgage disclosures.  As Mr. Date himself commented “[t]he information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms to be confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.”  If the Bureau does a good job with this regulation it could go a long way toward showing people the value of having a CFPB with the authority to consolidate duplicative regulations.

Moody’s Downgrades Bank Debt

Moody’s yesterday downgraded the credit ratings of the nation’s largest banks, including Goldman Sachs, JP Morgan-Chase, and Morgan Stanley.  The downgrade had been rumored for months so its practical impact is somewhat muted.  Still, it’s another embarrassing blow to the banking industry. 

Joint Guidance on Assistance for Servicemembers with Permanent Change of Station Orders Released

Federal regulators, including the NCUA, released a guidance on efforts that financial institutions should take in assisting members of the armed services subject to mandatory transfer orders.  The guidance points out that servicers should work with affected individuals to make sure that they are aware of government programs that may assist them.

June 22, 2012 at 8:04 am Leave a comment

Do too many people own a home?

The Hippocratic oath is to above all else do no harm, and I am very sympathetic to those people who argue that the country would by and large be a better place if Congress and legislatures followed the same dictum.  Still there are times when doing nothing is a policy choice and probably the wrong one. 

This morning the Census Bureau is reporting that the percentage of Americans owning a home is at its lowest level since 1997.  Homeownership declined for the first three months of this year to 65.4%, down from a high of 69.2% in 2004.  The decline has been much sharper for minorities. 

A few interesting points can be made about this statistic.  First, the rise and decline of home ownership roughly parallels the rise and decline of mortgaged-backed securities.  Second, tougher lending standards are trumping low interest rates when it comes to home buying.  This tells me that what is going on here is more than a reflection of our economic problems.   With final regulations to be promulgated creating a national standard for what constitutes a qualified residential mortgage, it will be even more difficult for persons to obtain that first mortgage.  This trend is understandable but it also means that unless Congress steps in and signals what it is going to do to support a secondary market, which was created in large part to boost home ownership, it will continue to decline. 

I pointed out in one of my first blogs that America is one of the few countries where homeownership is considered a birthright.  I personally feel that the economy cannot realistically sustain a system where close to 70% of the adult population either is paying off or largely invested in a house.  Still, suggesting that too many people own a home has serious consequences and any move in that direction should be part of a serious debate.

Taxi credit unions to sue NYS

A coalition of New York Credit Unions which specialize in providing loans for persons seeking taxi medallions yesterday announced a lawsuit against the State of New York to block implementation of the Hail Act.  Under the law, the City will issue thousands of cheap permits for cabs to pick up passengers in the outer boroughs and parts of Manhattan.  According to press reports, the lawsuit contends, among other things,  that in passing the legislation, the state violated the Home Rule provisions of New York’s Constitution that generally are designed to give localities authority over uniquely local issues. 

May 1, 2012 at 7:46 am Leave a comment

MERS MESS II: New York’s AG Joins the Fray

New York State Attorney General Eric Schneiderman joined his counterparts in Massachusetts and Delaware on Friday when he sued J.P. Morgan Chase, Wells Fargo and Bank of America for deceptive practices stemming from the use of the MERS system.  The suit alleges that the electronic recording system amounts to an illegal end run around state recording statutes, the use of which calls into question the validity of foreclosure actions commenced by these banks in New York.  In his lawsuit, Schneiderman argues that the system has resulted in illegal foreclosures, shoddy paperwork being submitted to courts; invalid liens and confusion to homeowners who can’t even be sure who owns their mortgage.

It’s impossible to provide a detailed explanation of the Mortgage Electronic Registration Systems (MERS) without this blog becoming a white paper (trust me, this is not my first draft).  The basic idea is that a lender using the system authorizes a mortgage to be recorded in MERS’s name.  When a mortgage is sold, the lender or servicer electronically records the transaction avoiding the need to pay an additional recording fee and allowing for the quick transfer of mortgages.  Suffice it to say that with well over half of the mortgages in this country being recorded in the system, if your credit union offers mortgages, there is a good chance that it either directly or indirectly uses MERS and that the resolution of this and similar litigation may have important consequences for your operations.

If  the attorneys’ general  lawsuits and several private legal actions currently pending are successful, they could call into question the validity of any pending foreclosure action involving a MERS mortgage and create title issues as county clerks around the country scramble to get mortgages properly recorded.  In addition, courts will have to determine appropriate compensation for a homeowner subject to one of these foreclosures who has already lost his or her home.  These issues are too important to be left to the lower courts, and I hope cases currently pending in New York State ultimately get decided by our Court of Appeals.

On the legislative level, any serious debate about the nation’s housing structure should include a discussion about the merits of creating a national registry.  This suggestion was actually broached by the Federal Reserve as part of a white paper on housing reforms.  Recording systems are archaic when one compares the technology available to the resources actually used to track mortgage liens.  In addition, mortgage lending, at least on the secondary market level, is now a national industry and creating uniform standards for the electronic recording of mortgages in an efficient manner is a goal worth pursuing even if the court ultimately finds that these lenders and servicers over stepped their legal authority.

How about those Giants!!!!!

February 6, 2012 at 7:26 am Leave a comment

Are credit card interchange fees in jeapordy?

It would be well worth your time this morning to read an article in Forbes Magazine and an accompanying blog post detailing what the magazine is calling “the mother of all anti-trust law suits.”  Major retailers are in settlement talks with Visa, MasterCard and the biggest banks in the country and are bandying about figures of as high as $320 billion to compensate retailers for what they contend is collusion between the banks and Visa and MasterCard to keep credit card interchange fees artificially high every year since 2004.  The kicker is that the merchants are also seeking reform of the credit card interchange system and are reportedly seeking to reduce interchange fees to a fourth of their current size. 

In other words, the litigation has the potential to dwarf the financial ramifications of the Durbin Amendment.  For example, Forbes reports that the Durbin Amendment cost Bank of America $1.9 billion.  One analyst estimates that a settlement in this case could cost Bank of America $3.68 billion.  It’s hard to see how credit unions wouldn’t be caught in the drag net.  The case is currently scheduled to go to trial September 12, 2012 in federal court in New York City.

Guidance on Interest Rate Risk Management

Financial regulators, including the NCUA, have made fortifying banks and credit unions against the possibility of a sudden spike in interest rates their top supervisory priority, along with Mortgage Concentration.  So, a Q & A released yesterday afternoon by NCUA in conjunction with the other financial regulators is a must read for those of you tasked with keeping your examiner happy.  In particular, I was impressed that the Q & A addresses what steps smaller financial institutions should take to guard against interest rate risks.  As a generalization, the Q & A points out that an institution’s analysis of financial trends can vary depending on the size and sophistication of the financial institution’s operations.  While I continue to feel that guarding against an interest rate spike in the present environment is a lot like guarding against a snow storm in Key West, I appreciate that regulators are paid to be a little bit paranoid and if Tim Tebow can win a playoff game, I suppose anything really is possible.

I’ll be back on Tuesday, enjoy your weekend.

January 13, 2012 at 7:00 am 2 comments

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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