Posts tagged ‘New York Times’

How Can PPP Borrowers Spend Their Loans?

The PPP can’t get a break. Now that at least some of the glitches involving lenders filing loans with the SBA have been addressed, there are increasing concerns that the program’s terms are too restrictive to help out some of the businesses it was designed to help. The result is that banks and credit unions participating in the program are being asked questions to which they cannot offer definite guidance and the SBA still faces a pressing need to clarify the intricacies of the program even as it is charged with getting more than half a trillion dollars out to the public in record time.

According to the New York Times, many small business owners are afraid to spend the money even after they get the loan. Under the program’s regulations, the PPP loans are completely forgivable provided 75% of the loans proceeds cover payroll costs and payroll is maintained. If those targets are missed then the PPP becomes a normal loan repayable with 1% interest. The article quotes business owners who are concerned that they may be violating the law depending on what they spend the money on if they decide to spend the money on expenses other than payroll.

In fairness to the SBA, this may be yet another example of overcautious legal interpretation as we all dive in to unchartered legal waters. Many of the small businesses interviewed have been advised by lawyers and accountants that they have the flexibility they need to spend the money where it can be of most use for their business. Then again, the same businesses were unable to get yes or no answers from the SBA.

Fortunately there is a simple solution to this problem. The SBA has it within its authority to either adjust the 75% requirement or clarify what small businesses are authorized to do with PPP money if they choose to forgo the 75% requirement. Hopefully it will take these steps quickly. After all, for many small businesses it makes more sense to invest these funds in ways that will keep the businesses viable rather than paying employees for whom they have no work and who are eligible for generous unemployment benefits.

In the meantime, if your members ask you how they can spend the money, I would instruct your staff to tell them that you are still waiting for an answer from the SBA.

May 4, 2020 at 9:42 am Leave a comment

My Kind of Town?

Chicago’s taxi medallion industry is in even worse shape than New York’s, and New Yorkers are to blame. That’s my synopsis of a lengthy article by the New York Times published over the weekend, in which the Times details the dramatic rise and fall of Chicago’s taxi medallion industry, which has caused hundreds of people, many of whom are drivers, to declare bankruptcy. Furthermore, the paper continues to argue that the investment and lending practices which caused medallions to inflate was so reckless and predatory that the loans would have collapsed with or without the rise of Uber and Lyft.

As with the previous article on New York’s taxi medallion industry, the practices of certain credit unions, as well as banks and other lenders, is a part of the story. “As prices rose, lenders flocked to Chicago. Three credit unions that had long provided loans to most New York medallion buyers all came, along with new players in the industry, including Actors Federal Credit Union from New York. So did bigger institutions such as Capital One. Medallion Financial, the Manhattan company, expanded its presence in Chicago.”

The First Monday in October

It’s that time of year again. The Supremes are back in session. Although this promises to be an extremely high profile session, with cases on abortion and immigration to be decided by June, so far, there isn’t much that directly impacts your credit union on the agenda.

A colleague of mine who is also a regular reader of this blog recently predicted that credit unions will be facing an increasing number of ERISA lawsuits. As a result, one of the cases that I will be keeping an eye on is Thole v. U.S. Bank, in which the Court will decide whether a participant in a defined benefit pension plan has standing to sue the plan’s fiduciary for alleged mismanagement, where the plan in question is overfunded. This might not seem like the most relevant question- okay, it’s not- but credit unions are being subjected to more and more ERISA related lawsuits, and the question of who can bring these lawsuits and when is important.

A second case, which the Supreme Court will be hearing arguments on today, will answer the question of whether Title XII of the Civil Rights Act prohibits discrimination based on a person’s sexual orientation. Altitude Express Inc. v. Zarda is a consolidation of lawsuits brought in New York and Georgia. The case is particularly important for those of you who work in states that don’t prohibit discrimination on the basis of sexual orientation as a matter of state law. For those of us in New York, the case is an interesting example of the interplay between New York’s Human Rights Law and federal protections.

October 7, 2019 at 9:23 am Leave a comment

Should We Foreclose On Grandma?

imagesCAENU2IPThere are two villains behind the financial crisis:  one is banking institutions, which abdicated their responsibility to underwrite loans and then ran to Congress to advocate for a $1 trillion bailout in the name of preserving capitalism, and the other is the American consumer, who, despite what their advocates and the CFPB like to think, knowingly took on debt they could not afford.  The most frustrating thing about the aftermath of this crisis has been continuing banker hubris in failing to acknowledge that they need to change their ways and political timidity in telling the American public that it needs to hold itself responsible for the part it played in the meltdown.

The latest nominee for a solution in search of a problem comes from the New York Times with help from the American Association of Retired People (AARP).  According to a front-page article in yesterday’s times:

In the latest chapter of the foreclosure crisis, homeowners over 50 are falling into foreclosure at the fastest pace of any age group, according to nationwide data, in part because women are outliving their spouses and are unable to cope with cuts in their pensions, ballooning medical costs — and the fine print on their mortgages.

So what is this fine print which is ensnaring Golden Girls all across America? According to the Times, “[t]o stay in the home, the surviving spouse needs to take over the mortgage. But to do that, most banks require that the borrower assuming the mortgage be up-to-date on payments.  Housing advocates say that their clients, especially if one spouse experienced a prolonged illness, often find they are already thousands of dollars behind.”  The fine print to which the Times is referring seems to be that nettlesome detail of who signed the mortgage note and whether the surviving spouse can actually pay off the remaining debt.

Here is why the article is so misguided.

I’ve dealt with credit unions that have looked the other way after a member has passed away and, at the risk of sounding like a cruel and heartless lawyer, it is a bad idea.  Death constitutes default on most mortgage contracts because no one else can be compelled to take over a loan or presumed to be financially able to do so.   A mortgage note is not a technicality.  A financial institution has no more right to demand payment from a spouse not on a note than it would to demand payment from a total stranger on the street.  A financial institution that knowingly accepts payments on a note where they know the note holder is dead is setting itself up for the argument that it should not be entitled to payment on the mortgage because it is accepting payments from an individual who 1) was not given proper disclosures under the Truth in Lending Act and 2) may not have passed even the most basic underwriting test.

Existing law is more than sufficient if a spouse who wishes to remain in a house isn’t on a note.  For one thing, spouses, and other relatives for that matter, can assume mortgage payments on existing loans and most credit unions I know are more than willing to accommodate such assumptions.  But whoever takes on the loan has to be able to actually pay it back.  Again, this is not a technicality or an example of servicer indifference but simply a matter of common sense.  There may be a relative handful of institutions that have foreclosed on property for which the spouse was more than able and willing to pay, but the idea that this is a systematic problem is ridiculous.

The real problem, which is outlined in the AARP survey and which the Times acknowledges, is that older Americans are taking on debt, because, like their kids they assumed that the housing values would always rise and wanted to cash in.  Which brings me back to my initial point.  There are plenty of lessons to learn from the financial crisis but if we’re going to make lasting solutions to real problems, we have to first identify what the problems are.






December 3, 2012 at 6:44 am 1 comment

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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