Posts tagged ‘SAFE Act’

‘Twas Five Days Before Christmas…

And can you believe that there are some new regulations I still have to tell you about? More and more of us in the industry have noticed that there is increasingly less down time. Personally, I feel this reflects the maturity and sophistication of the industry. Besides, it’s good job security.

First, I want you to know that the Department of Financial Services finalized regulations amending Section 3 NYCRR 419 of New York’s regulations dealing with mortgage servicers. There’s a lot here, but I would scrutinize the change in the definition of affiliated relationships, as well as the expanded definition of settlement services.

…Also for you mortgage gurus, a friendly reminder that before you take the week off, you may want to double check to make sure you are ready to send out the notices required under the Taxpayer First Act. Under this law, persons disclosing taxpayer information to third parties must obtain the taxpayer’s consent. I provided a link to the Fannie Mae update on this issue because this legislation will be most relevant for those of you who originate mortgages and then sell those mortgages to third parties.

…While I’m giving you a heads up, in case you missed it, Senator Crapo of the Banks Committee played Scrooge to those of you with visions of eating organically infused Christmas cookies when he announced that he has serious problems with the SAFE Act. This is the vehicle passed by the House that would essentially allow credit unions and banks to provide banking services to marijuana-related businesses in states that have legalized its sale and distribution. I was naïve enough to think that this was one of those issues on which there could actually be a bipartisan consensus comprised of states’ rights republicans and pro-legalization democrats, but apparently, I was too optimistic. I apologize. This won’t happen again.

In the meantime, remember that this has no impact on the sale and distribution of hemp. By the way, the Association is putting together a workshop on this issue on February 4th. Please take a look at the calendar and sign up if you get a chance, as we’d like to gauge how much interest there is on this subject.

…Finally, I’ve noticed that blogs don’t die; they just fade away, usually because the blogger realizes how much work is involved and simply stops producing one. I am too stubborn to come to that conclusion, so I will be back after my long winter hiatus with another year of tidbits that I hope make your credit union world a little more manageable. In the meantime, merry Christmas, and I would love all you compliance people to take a look at this extremely clever video post recently sent out by Linda Bow, our director of compliance.

On that note, happy holidays, with a special shout out to those of you who are gathering at my house for the first annual Meier family festivus celebration featuring feats of strength and highlighted by when we gather around the table and I explain to all of the lucky participants how they have disappointed me in the previous year. I’ve invited politicians from across the political spectrum as well as some regulators, but they have not yet RSVP’d, which my wife says is extremely rude. I frequently show up at parties without responding to the RSVP.

In all seriousness, thanks for reading, and have a great holiday.

 

December 20, 2019 at 9:33 am 2 comments

Important Guidance on Issues Ranging from Data Underwriting to Hemp

It may be December, but yesterday was one of the busiest days in months for those of us who specialize in tracking regulatory issues. Here are some of the most important developments.

 

Joint “Statement” on the Use of Alternative Data Released

The federal financial banking regulators, including the NCUA and CFPB, issued an important guidance yesterday detailing baseline expectations for the use of alternative data in underwriting decisions. The statement is not important so much for what it says, but simply because it says anything at all. It represents the first attempt by regulators to establish regulatory expectations for the use of alternative data as computer algorithms make it possible for financial institutions to consider a huge volume of seemingly unrelated data points in making underwriting decisions.

Not surprisingly, the regulators stressed that while the use of alternative data provides new opportunities for both borrowers and lenders alike, “as with prior developments in the evolution of underwriting … data and analytical methods also raises questions regarding how to effectively leverage new technological developments” that are consistent with applicable consumer protection and fair lending laws.

Interestingly, the regulators highlight the increasing use of cash flow analysis, which they state “may be particularly beneficial for consumers who demonstrate reliable income patterns over time from a variety of sources rather than from a single job.”

Readers of this blog should not be surprised to know that regulators expect financial institutions using data analytics to undertake a “thorough analysis” of the data being used and the potential risks of not complying with relevant consumer protection laws. Whether or not it is actually possible to strike that balance remains to be seen, but that is a blog topic for another day.

By the way, I put “statement” in quotes because it is not entirely clear to me whether a statement is to be given even less deference than a guidance, and if so, whether or not it is prudent for any of you to even worry about this distinction.

Another Day, Another CU-Bank Merger

Here is another log for credit union opponents to throw on the fire. The American Banker is reporting this morning that Suncoast Credit Union in Tampa, FL has agreed to a purchase and assumption of the assets of $747 million Apollo Bank in Miami. The American Banker points out that this relatively large transaction marks the 16th credit union acquisition of bank assets this year. Predictions suggest that even larger banks will be purchased by credit unions next year. Although this trend reflects the individual decisions of credit unions and their boards, the consequences will affect the industry as a whole. It is time for all of us to better refine those talking points when it comes to explaining why these mergers are occurring, and why they are consistent with the credit union charter.

Guidance Issued on Hemp Banking

The NCUA was not among a group of regulators who issued a joint guidance with FinCEN yesterday detailing BSA obligations for financial institutions that provide services to hemp-related businesses. Most importantly, the guidance emphasizes that hemp banking is now subject to the same SAR reporting requirements as any other type of business. That being said, a well-run compliance program involving hemp growers is much more complicated than your average business.

New York State’s SAFE Act Guidance

Last but not least, on November 24th, an important provision of S2155 took effect. Specifically, section 12 U.S.C. 5117 grants federally registered mortgage loan originators who are seeking state-level licenses or seeking to be qualified in another state temporary authority to act as loan originators. Currently, someone who originates for a federally chartered bank or credit union must be registered with New York State, but does not have to be licensed as a mortgage loan originator. The problem is that when these individuals become employed by mortgage bankers, there can often be a delay of several months before their state-level licensing takes effect. The law now permits individuals licensed in other states and individuals previously employed in federally chartered institutions to obtain a temporary license. New York State has not promulgated formal regulations, but here is a link to a very concise guidance the state has issued on the subject.

December 4, 2019 at 9:18 am Leave a comment

Three Things You Need to Know about What’s Going on in D.C.

Yours truly overslept a little this morning, but having just visited the nation’s capital with a hearty group of New Yorkers, I wanted to get out some thoughts to you on what’s going on at the federal level while it is fresh in my mind.

First, the most practical news you need to know is that, if all goes according to plan, the House of Representatives will pass the SAFE Act later today. This is the bill that would essentially allow financial institutions to provide banking services to marijuana-related businesses in states where it is legal to do so. Of course, it remains to be seen whether the Senate will take up this legislation. For what it’s worth, however, I am cautiously optimistic. Even people opposed to the legalization of marijuana understand that it simply is not safe to make legal businesses carry around millions of dollars in cash because financial institutions cannot legally accept their money. Of course, if the SAFE Act does pass, it will put that much more pressure on the state to develop a framework for the legal sale and distribution of marijuana for recreational purposes.

Point number two, what is going on with data security? Despite the fact that virtually every single industry in this country is losing billions of dollars to cyber theft every year, that almost every financial institution has members who are victimized by hackers, and that the last few years have demonstrated that having a robust cyber infrastructure is a crucial national security issue, no one seems willing or able to come forward with a bill that addresses the issue on the national level. What is going on here? I honestly don’t get it. In the absence of federal action, we will see more action on the state level. This is far from ideal. This is a classic federal problem that needs a federal solution, but if Congress won’t act, someone will have to.

Finally, there is a generational and ideological shift taking place within the Democratic Party. On both the state and federal level, you are seeing established members being primaried, often by younger candidates whose views would have made them unelectable just five years ago. I’m concerned that credit unions aren’t adequately preparing for this decisive shift. Credit unions have for decades fought against the banks to keep their tax exemption, but I’ve said it before, and I’ll say it again. The greatest long-term threat to the credit union industry comes not from pro-bank legislators, but from younger progressives disillusioned by the entire financial system that are skeptical of whether credit unions do enough to help the average consumer.

 

September 25, 2019 at 9:24 am Leave a comment

Seven questions to ask when dealing with your vendor

Yesterday, the CFPB, which seems to be quickening its pace lately, released a supervisory guidance outlining the expectations it has for institutions under its direct supervisory control relating to vendor oversight.  Now, unless your credit union has $10 billion in assets, this guidance has no direct impact on you.  But I have a sneaking suspicion that some of the concerns motivating CFPB’s guidance are some of the very concerns shared by NCUA. 

Most importantly, the CFPB points out that “the mere fact” that a relationship has been established with a service provider does not absolve the financial institution from its responsibility to ensure that applicable consumer laws and regulations are followed.  Ultimately, this is the credit union’s responsibility.  Failure to take on this responsibility is what I like to call “the vendor made me do it” defense. 

Credit unions sometimes get into a relationship with a vendor only to find out that the vendor doesn’t comply with regulations or have the ability to upgrade its software or services to comply with changes.  This is why due diligence is so important.  While I have nothing against sales people, some of my best friends are sales people, I frankly wouldn’t take their word for it when they tell you that the company knows how to comply with pertinent regulations.  Some of the questions I would ask are:

  • Who is responsible for keeping up to date with existing laws and regulations?
  • How knowledgeable is this person?
  • How quickly can the vendor’s product or services be modified to address changes in the law?  Remember, it is no defense to a lawsuit or an examiner to explain that the software provided by your third party vendor didn’t have the ability to comply with that darn regulation.

The questions you should be asking yourself are:

  • Who in your credit union understands both the technological and compliance aspects of your vendor services?
  • Does your contract give you the right to audit the vendor to ensure ongoing compliance?
  • Is there a mechanism in place to ensure that the vendor is made aware of changes not only to regulation but to internal policies and procedures? 
  • Does your contract stipulate that the vendor is responsible for complying with regulations and any damages you may have to pay as a result of their breach of this obligation?

These points might seem obvious, but in an age where your average CEO has many more things to get done than can be fit into a work day, there is always a temptation to delegate to a vendor and assume that the work is being done properly.  But from what I have seen, many vendors are not up to speed on the nuances of regulation and unless you protect yourself, not only in your contract, but by routinely monitoring the relationship, you are setting yourself up for member dissatisfaction and a disgruntled examiner.

OCC releases SAFE Act Examination Guidelines

The OCC has released its examination guide to monitor compliance with the SAFE Act.  This is the nettlesome law that requires credit unions to register their mortgage loan originators with a federal registry.  While the regulation is a pain in the neck from an administrative standpoint, the handbook is a useful tool for complying with this regulation.  This is one I would not ignore, although the regulation is burdensome, once you have the proper procedure in place, compliance should be straightforward.  Of course, the OCC doesn’t have jurisdiction over credit unions, but I expect that the examination procedures would be almost identical.

 

April 17, 2012 at 7:31 am Leave a 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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