Posts tagged ‘NCUA’

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

NCUA Proposes Net Worth Mandate Relief

In a deceptively busy day in the world of regulatory and legal oversight, the NCUA moved to provide credit unions with $50 million or more in assets with an intriguing form of mandate relief; entered into an agreement with the CFPB about the supervision of the growing number of credit unions eclipsing the $10 billion asset threshold; after much delay, is proposing to add a new category to the CAMELS rating system; and is proposing to grant additional authority to CUSOs. Of all these developments, the one which intrigues me the most has to do with the incredibly arcane but vitally important world of risk-based net worth and capital requirements, so grab an extra cup of coffee and join me as I dive into the weeds.

The key to understanding yesterday’s regulatory proposal is to keep the distinction between Risk-Based Capital (RBC) and risk-based net worth requirements straight. All credit unions are subject to the Prompt Corrective Action (PCA) framework. Federal law also requires, however, that NCUA have a more complex capital framework for “complex” credit unions. For more than two decades, federal law has given NCUA the authority to define what makes a credit union complex, and currently, credit unions with $50 million or more in assets still qualify for the complex distinction. This means that they have to comply with both baseline PCA requirements as well as the risk-based net worth requirements. In 2015, NCUA opened a whole new can of worms when it updated the risk-based net worth requirement to include a Risk-Based Capital requirement. Originally, NCUA simply increased the threshold to $100 million for the complex credit union distinction where it previously required “assets that exceed $50 million and its risk-based net worth requirement exceeds six percent.” As things stand today, if your credit union has $500 million or more in assets, it will be subject to the RBC requirements starting in January 2022. 

What does this mean for credit unions with more than $100 million in assets but less than $500 million, which are still subject to the erstwhile risk-based net worth requirements? This brings us to yesterday’s NCUA Board Meeting. Among the proposals put forward by Rodney Hood in the waning days of his Chairmanship is a proposal to raise the asset threshold for compliance with the risk-based net worth threshold from $100 to $500 million. The rationale for this increase is to maximize the amount of capital credit unions have on hand to lend out as the economy continues to reel from the impact of the pandemic. With or without a pandemic, it’s past time we recognize that a $100 million credit union shouldn’t be subject to the same requirements as a $500 million credit union. 

On that note, enjoy your weekend with a special shout out to you Buffalo Bills fans as you tune in Saturday night to watch the best football game of the week. 

January 15, 2021 at 10:01 am 1 comment

Why Your Credit Union Should Be Looking at a CDFI Designation

If I have one request of my faithful blog readers today, it is that you schedule time in the near future to consider whether or not your credit union should seek certification as a community development financial institution (CDFI). Here’s why.

First, NCUA announced that it would be opening a streamlined CDFI application round starting on January 24th. Don’t assume that your credit union is too big to qualify for the certification.

Secondly, yours truly has found no downside to getting your CDFI certification. Not only are you eligible for grants, but as we have seen with the rollout of the newest round of the PPP, CDFIs are increasingly getting regulatory and legislative priority over more traditional lenders.

Third, let’s look at the big picture. NCUA has also recently issued a letter urging multiple SEG credit unions to more aggressively pursue expanding into underserved communities. On the state level, the Legislature passed historic legislation allowing credit unions to receive public deposits from the Comptroller’s office in return for opening a branch in an underserved area. I know last year was a lousy year, and let’s be honest, 2021 isn’t exactly getting off to a better start – but what all these initiatives have in common is a desire on the part of regulators and lawmakers to see financial institutions in general, and credit unions in particular, take more aggressive steps to integrate underserved persons into the financial mainstream.

Which brings me to the last reason I want you all to at least examine whether or not you qualify for CDFI designation. In the coming years, the industry is going to be under a microscope like never before. Every credit union that makes legitimate efforts to participate in these programs is not only helping itself and its members, but the industry and our mission as a whole.

January 14, 2021 at 9:30 am Leave a comment

The Most Informative Blog of the Year

So much for a quiet end to the year. With Congress still rushing to get a COVID relief bill done, NCUA rushing to get some important regulations done, the Russians looking to get some important hacking done and the CDC trying to execute the vaccine roll-out, the past few days have been among the most impactful for the credit union industry this year. Here are the highlights of what you need to know before breaking for your holiday vacation.

NCUA Finalizes Subordinated Debt Regulation

NCUA finalized regulations which will allow complex credit unions to utilize subordinated debt to help meet their risk-based capital requirements when they kick in in 2022. Additionally, for the first time, eligible credit unions can offer subordinated debt to natural persons. Those are just two of the highlights from an extremely important regulation, which creates an updated framework for credit unions that wish to use what used to be called secondary capital. 

One of the big debates going on within the industry has been the extent to which credit unions should be allowed to use secondary capital. On the one hand, former NCUA Board Chairwoman Debbie Matz encouraged eligible credit unions to get their low-income designations in part so that they could utilize secondary capital. In recent years, the pendulum has swung back the other way, with NCUA issuing strict guidance for the approval of secondary capital plans. Individuals who feel that NCUA is too tough on this issue will find little comfort in the final regulations. NCUA now considers subordinated debt to be a security, meaning that credit unions will have to comply with detailed and complicated legal disclosures and oversight provisions. I’ll have more on this in the future, but it’s not too early to start thinking about who in your credit union is going to be designated the in-house security law expert. 

In a typical board meeting, the finalized subordinated debt rule would be more than enough work, but NCUA also took the opportunity to propose several new and important regulations. These include permitting multiple SEG credit unions that participate in shared branching networks to utilize shared branches to satisfy branch location requirements when expanding into new areas. The key is that credit unions will no longer have to own a portion of a shared branching network in order to take advantage of this increased flexibility. The board also extended temporary regulations promulgated in response to COVID-19, which provide regulatory relief to credit unions. Over the strong objections of Board Member Harper, the Board proposed a rule that would give credit unions greater flexibility when it comes to overdraft protections. Specifically, credit unions can now give consumers more than 45 days to either cure the overdraft or enter into a traditional loan. In objecting to the proposal, Board Member Harper argued that the proposal will hurt consumers who he feels need more protection against overdraft programs, not less. 

The NCUA still wasn’t done. It has proposed regulations permitting federal credit unions to purchase servicing rights from other federally insured credit unions. This is an aggressive move by NCUA, which has in the past been hesitant to propose such a change on safety and soundness grounds. 

Show MeThe Money

The NCUA also got some important budget issues out of the way. First and foremost, the normal operating level of the share insurance fund will remain at 1.38% for the time being, and with new Board Member Kyle Hauptman now officially onboard, the NCUA approved next year’s budget. As part of the process, the NCUA made regulatory changes to the overhead transfer rate (OTR)  and the operating fee schedule. The OTR is the formula used to determine how much money NCUA needs to fund its share insurance examination expenses. In recent years it has come under scrutiny since it allows NCUA to assess not only federal credit unions, but state chartered ones as well. The budget was passed over the objection of Board Member Harper, who continues to advocate for greater scrutiny of credit union compliance with consumer protection laws.

EEOC Issues Vaccine Guidance

Many credit unions are considering whether or not they should mandate that their employees get the COVID-19 vaccine. On Wednesday, the EEOC issued this important updated guidance explaining the legal issues that employers should consider if they decide to mandate that their workforce get vaccinated.

From Russia With Love

In a plotline worthy of a John le Carre novel, the size, scope and damage of the recent mass cyberattack, widely believed to be the work of Russia’s intelligence services, continues to grow. It’s hard to believe it won’t end up impacting a large swath of the private sector, and it is certainly something that your IT team should be paying attention to. Here is a blog on the issue published by Microsoft’s President Brad Smith, who has emerged as an authoritative voice on the breach in the absence of a coordinated federal response. 

Believe it or not, there’s much more I could say, but tomorrow is another day. Stay tuned.

December 21, 2020 at 10:01 am Leave a comment

What Your Credit Union Needs to Know About Data Breaches

Reports of a major data breach seem to be becoming as much a fixture of the holiday season as chestnuts roasting on an open fire. While there has been no reported breach yet of a major legacy retailer – but there are still nine shopping days ‘til Christmas – surely news that the Russian government has engaged in one of the largest and most successful cyber hacks ever is enough justification to remind us of what our obligations are to our member’s data. Besides, the FDIC is going to consider a notice of proposed rulemaking on computer security incident notifications on its agenda today. Could similar consideration by the NCUA be close behind?

Is this an area of law that really needs to be updated? You bet it does. Most importantly, financial regulators including the NCUA haven’t made major changes to the area of data security reporting since 2005, which as today’s American Banker points out, was right around the time this thing called the iPhone began to be sold by Apple. The result of federal inaction has been a hodgepodge of state-level regulations and statutes which all seek to accomplish the same basic goals, but with important distinctions. 

This is an area that is crying out for federal action to bring uniformity. In the meantime, remember some of the key regulations and statutes to which you are subject. On the federal level, we have the 12 CFR Part 748 and Appendix B, which outlines the requirements of all credit unions to have a framework for assessing the scope of data breaches which compromise data privacy. As explained in this well-written opinion letter, “the overriding theme of NCUA’s guidance to credit unions in this area is risk assessment. When an incident occurs, the first step of any response program should be to assess the nature and scope of the incident and the likelihood of harm to the member whose information is affected. 12 C.F.R. Part 748, Appendix B, §II(A)(1)(a). Where an incident, even one involving sensitive member information, involves little or no likelihood of harm to the member, a credit union need not notify the NCUA.” If all we had were these GLB-inspired mandates, the sole obligation of financial institutions in this area would be to have a policy and procedure in place with regard to protocols for protecting member information. 

But in the absence of federal action in this area, almost all states have developed their own data breach requirements, and no state outside of California has been more aggressive than New York. Regardless of whether you are a federal or state chartered credit union, you are required to comply with Section 899-AA of New York’s General Business law, which lays out detailed requirements for informing members when their personal information has been compromised, as well as when to inform the Attorney General of a suspected data breach. Specifically, it states that in the event that a breach impacts 500 or more New York residents, the attorney general must be informed in writing by the liable entity within 10 days. This is in addition to New York’s Department of Financial Services cybersecurity regulations, which has its own set of requirements. On paper, the latter regulation just applies to state-licensed or chartered institutions. However, in the absence of federal guidelines, you must always be mindful of what a court would judge as “reasonable conduct” for your industry if your credit union was to be sued for negligently protecting member data. 

By the way – I haven’t even mentioned California’s data security requirements, which some New York credit unions have decided they should comply with. It’s a good thing that we have a functional and thoughtful Congress anxious to address these concerns.

December 15, 2020 at 9:52 am Leave a comment

Credit Unions Don’t Adequately Protect Consumers? That’s News To Me

At yesterday’s budget briefing, NCUA Board Member Todd Harper continued his push for NCUA to adopt an examination framework which includes a consumer protection component. According to Board Member Harper, who has championed this issue since 2019, “we know that the NCUA falls short when it comes to the agency’s oversight of consumer financial protection laws. Consumers, regardless of their financial provider of choice, deserve to have the same level of financial protection, yet we do not adequately assess consumer compliance management systems or even basic compliance with consumer financial protection laws in most credit unions.” Harper’s solution is for the NCUA to join other financial regulators to assign a separate consumer compliance rating to the examinations of credit unions with $1 billion or more in assets. 

These are big charges for a board member to make. The problem is that there continues to be a lack of evidence that credit unions fall short when it comes to consumer compliance. Credit unions have many faults, but a lack of commitment to consumer compliance is not one of them. In fact, I would suggest that if anything, there are some credit unions which do not appropriately balance the need for good faith compliance against the need to invest in other areas of credit union concern. Remember, for those credit unions with over one billion dollars in assets who would be subject to the increased scrutiny, the explosion of class action consumer litigation we’ve seen over the last decade provides more than enough incentive to comply with consumer protection laws. 

The policy debate playing out between Board Member Harper and Chairman Hood will ultimately be decided by Kyle Hauptman, whose nomination to the board was just approved by the Senate. As he considers the issue, the question he should ask himself is this – is there evidence that the credit union industry is systemically failing to adequately protect the consumer rights of its members, or are the board member’s concerns a solution in search of a problem that does not exist?

December 3, 2020 at 9:34 am 2 comments

Congress Moves Closer to Providing AML Relief

On Thursday, Congress moved closer to passing legislation which would relieve banks and credit unions of the most burdensome new Bank Secrecy Act requirement imposed on them in recent years. Negotiators have tentatively agreed to include the Corporate Transparency Act in the National Defense Authorization Act, which provides military funding for Fiscal Year 2021. It is considered must-pass legislation, although given the dysfunction in Washington, is there really any such thing anymore?

Enactment of the legislation would be a major victory for longtime Manhattan Congresswoman Carolyn Maloney, who has advocated for the passage of legislation like this for several years. In 2018, regulations took effect which required banks and credit unions to identify the beneficial owner of corporations and trusts. The intent of the regulation makes an awful lot of sense. One of the easiest ways for people to hide money is to create corporations that act as a front for their personal use. But the smartest way to get this information is to place disclosure requirements on the corporation. 

Under Representative Maloney’s bill, an applicant for a corporation or a limited liability company (LLC) would be required to file a report with FinCEN containing the identities of an entity’s beneficial owners. Under this legislation, as is required by existing FinCEN regulations, a beneficial owner is an individual who, directly or indirectly, controls a corporation or LLC; owns a certain percentage of such an entity; or generally receives “substantial economic benefits” from the company. We should know in a few weeks if this is going to become law. 

Drama at the NCUA

Maybe there was something in the water in our nation’s capital, but governing dysfunction has even infected the three-person NCUA Board. In case you missed it, J. Mark McWatters resigned on Thursday, ending a colorful six-year run in which he became the de-facto gadfly at the agency with his strict adherence to the plain text of NCUA’s regulation and governing law. You always got the feeling that he was not completely comfortable at NCUA. As early as 2016, he was in line to take another job at the Export-Import Bank of the United States. According to David Baumann, if McWatters did not resign, he was going to be fired by the White House, which it had the authority to do as McWatters’ term had already ended. If all goes according to plan, McWatters’ seat will soon be filled by Kyle Hauptman, but nothing seems to go smoothly in Washington these days.

November 23, 2020 at 9:30 am 1 comment

Three Things to Ponder During Your Credit Union Day

Good morning, folks. Here are some things you need to know as you start your credit union day.

 Covid Compliance Could Be Focus of 2021 Exam Cycle

One of the challenges in dealing with compliance and legal issues for credit unions has always been getting information that’s as relevant to a smaller credit union, with its primary focus on regulatory compliance, as it is to larger credit unions, which not only face compliance burdens but the very real threat of class action lawsuits brought by an increasingly sophisticated group of plaintiff lawyers. These two emerging concerns are melding together. At its fair lending webinar yesterday, NCUA staff highlighted the areas it will focus on when it audits your credit union in 2021. 

The list includes policies and procedures related to loan modifications and credit reporting. It seems straightforward to me – this would include an analysis of your fair credit reporting policies to make sure that your credit union is properly complying with forbearance modifications. Remember that under Section 623 (a) (1) (F) of the Fair Credit Reporting Act, a furnisher must report a loan as current when it is subject to an accommodation caused by the pandemic. This does not apply when the credit obligation was delinquent before the accommodation was made. This is going to be a point of emphasis not only for NCUA, but for New York State as well. 

As luck would have it, an hour or so after the webinar, I came across news about this lawsuit in which a loan servicer in Pennsylvania is being sued over its alleged violations of these FCRA requirements. What intrigues me most about these cases going forward is not so much the regulatory violations, which will be easy enough to prove or disprove, but the amount of damages plaintiffs are rewarded. After all, even if a mistake was made, it is one that can be quickly corrected and would only be harmful to a consumer over a three month period. 

New Boss at MCU

I typically don’t use the blog to highlight personnel moves, but Municipal Credit Union is no ordinary case. MCU is the oldest credit union in the state. So, it’s good to see that it is gradually coming back after being placed under conservatorship by NCUA. Yesterday, NCUA announced the appointment of Kyle Markland as the permanent CEO at Municipal, who previously served as COO at Bethpage. With the credit union in conservatorship, it remains under the direct supervision of NCUA. If things go according to plan, a board will eventually be appointed.

Just How Bad Could it Get For Your Members?

The Century Foundation released a report this morning highlighting the economic strain that millions of Americans could face by the end of this year. The foundation put out an analysis indicating that 12 million workers face jobless benefit cutoffs on December 26, 2020. Specifically, the Pandemic Unemployment Assistance Program, which was designed for so-called gig workers (typically independent contractors) not eligible for unemployment insurance, an extended benefits program will come to an end by the new year. The better known Pandemic Unemployment Compensation Program, which provided the unemployed with an additional $600 weekly supplement, ended on July 31st. Strip away all these acronyms, and the bottom line is that an estimated 40 million Americans received a benefit from one of these programs. This is one of the reasons why the most important period for anticipating losses will be the first quarter of next year. If you want more background on the type of people who are struggling during the pandemic, you should take a look at this analysis by Liberty Street Economics, posted by the staff at the Federal Reserve Bank of New York.

By the way, the Century Foundation was founded as the Cooperative League in 1919 by none other than Edward Filene, who is of course the father of the credit union movement. Who knew?! 

Peace out people, enjoy your day.

November 18, 2020 at 9:58 am Leave a comment

The Credit Union Movement and Veterans

Veteran’s Day got me thinking about the bond between credit unions and the military. A recent survey demonstrates how that bond is alive and well, and, if you look at the history of our movement, all credit unions owe a debt of gratitude to service members. 

The survey to which I am referring underscores that credit unions are still living up to their reputation for helping members of the military. Specifically, of the 20 top lenders which provide government VA loans, Navy Federal offers the best rates. Based on analysis of HMDA data, of the VA lenders examined in 2019, 10 had a rate spread that was above the average prime offer rate. In fact, there was more than a 1.25% spread between the lowest annual percentage rate offered by Navy FCU and the highest rate offered by New Day Financial. 

You would think from the comments of some of our Congress members that the CFPB had stopped taking enforcement actions. In fact, one of its most recent settlements involved Low VA Rates, LLC. The settlement demonstrates that the substantial rate spread reflects more than the complexity of offering VA loans. Guess what? The rates weren’t quite as low as advertised. In fact, the Bureau accused the company of engaging in classic bait and switch tactics, in which it advertised low rates on VA backed mortgage products that it did not make available or in which it placed conditions which were not clearly advertised. More generally, the movement is inexorably linked to the armed forces. It is not a coincidence that so many credit unions, such as AmeriCU in Rome, NY, were founded on military bases. Once again, we owe a debt of gratitude to the Greatest Generation. The federal credit union charter was less than a decade old when the Japanese bombed Pearl Harbor. As the NCUA commented in its 1948 report, federal credit unions were encouraged to give “sympathetic consideration to borrowers who entered the military during the war.” Not all of these loans worked out well. In 1944, for example, there were 20,000 military loans “with unpaid balances totaling $1.6 million, which was nearly 5 percent of the total amount of loans outstanding.” But by 1948, almost all of these loans were repaid, and the NCUA explained that “the experience of Federal credit unions with military loans is highly gratifying, and a new chapter in the history of credit union service has been written.”

November 16, 2020 at 10:13 am Leave a comment

For Medallion Loans Things Just Get Worse and Worse

Yesterday, New York City Comptroller Scott Stringer endorsed a plan by Taxi Workers Alliance proposal to help stabilize the prices of taxi medallions in New York City.  Under the proposal:

 “…lenders [would] write down outstanding loans to a maximum of $125,000, allowing medallion owners to repay loans on terms they can afford with current earnings. Under this agreement, the City would act as a backstop for medallion loans held by individual owners. After reviewing the proposal, the Comptroller’s Office has concluded that it offers a comprehensive risk management approach that could reduce future liability and costs for taxpayers.”

Unfortunately, this proposal is being put forward at a time when the prospects for the medallion industry in New York City continue to dim even more.

Similar frameworks have been proposed in the past only to be overtaken by economic reality.  Most notably, in February NCUA was criticized for agreeing to sell the medallion loans it was servicing to Marblegate Asset Management LLC, even as a task force which included representatives of the credit union industry was putting the finishing touches on its own plan to stabilize medallion prices.  But had NCUA not sold these loans, the financial impact on the industry could have been catastrophic.  Remember, this controversy was taking place before anyone knew that a pandemic was about to shut down The City.

To get a sense of just how badly the pandemic further crippled the taxi industry, a blog reader recently sent me a press release from Medallion Financial Corp.  Medallion Financial Corp is a publicly traded lender which is involved with a broad range of loans.  In its third quarter financial report it announced that it has impaired all of its medallions loans and established loan loss reserves at the collateral value, net of liquidation costs, which for the New York City market declined from $119,500 as of June 30, 2020 to $90,300 as of September 30, 2020.  Furthermore, it also stressed that the situation remains highly uncertain.

November 13, 2020 at 12:36 pm 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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