Posts tagged ‘Supreme Court’

Ok, Boomer, Here Are Some Important Developments

Yesterday, NCUA released its agenda for next week’s board meeting. The caption that caught my eye is that the NCUA will be proposing a rule on subordinated debt. Earlier this year, NCUA issued an advanced notice of proposed rulemaking analyzing potential uses of what I am going to generally refer to as non-member uninsured capital. Depending on what NCUA comes out with, the regulation could give credit unions of all sizes the ability to obtain additional capital and set off a fierce attack by the bankers. In addition, some of the issues involved are complex enough to keep compliance people and lawyers busy for months, if not years to come. Stay tuned.

Is it Ok, Boomer?

That was the question pondered by Chief Justice Roberts as he heard arguments dealing with the interpretation of an obscure provision of the Age Discrimination in Employment Act. His question was over whether it was acceptable for a young employer to say “ok, boomer” to an older job applicant. I have since been informed that this is an increasingly common putdown of persons from a certain age group by millennials. Fortunately, the phrase has not caught on with my daughters, but I digress.

I am using this opportunity to highlight an age discrimination case that your HR department should examine brought to my attention by one of my more faithful readers. In EEOC v. Tucoemas Federal Credit Union, the credit union agreed to pay $450,000 to settle claims that it discriminated against three female employees in their fifties when it passed them over for the CEO job and instead hired a younger man with no credit union experience. Now, the case itself doesn’t break new ground, but if you take the time to read through the decree, it underscores just how dangerous it is to not have appropriate policies and procedures in place when it comes to making promotion and hiring decisions. This is particularly true for employees in New York, since changes to New York law make it more cost effective for attorneys to bring state law discrimination claims.

In Defense of the CFPB

Supporters of the CFPB are in the bizarre position of having to defend the Bureau against claims that its leadership structure is unconstitutional in Seila Law LLC v. Consumer Finance Protection Bureau. As a result, when the Supreme Court appointed prominent appellate attorney Paul Clement to argue in favor of the Bureau, his arguments are effectively the most important ones to be watched by supporters of the CFPB.

The other day, he submitted his brief to the court, and the key takeaways are that Congress has broad discretion to establish an independent agency’s leadership structure. The constitution does not speak to precisely how such agencies are to be organized. What really intrigued me is that he also argued that the court needn’t decide the issue of the Bureau’s structural constitutionality, because the issue involved in the underlying litigation can be resolved irrespective of the Bureau’s leadership. The latter argument could be significant because, like any good litigator, Clement is trying to give a majority of the Justices a way to rule on the case without declaring the structure of the CFPB unconstitutional.

January 17, 2020 at 10:03 am 1 comment

CUNA: Scrap the CFPB and Pick Up the Pieces

Now that the Supreme Court has agreed to rule on the constitutionality of the single-director leadership structure at the Consumer Financial Protection Bureau, CUNA has submitted a provocative friend of the court brief. In this brief, CUNA argues that in the event the leadership structure is found to be unconstitutional, the court should invalidate the entire CFPB, but allow Congress six months to address the identified defects.

Just in case your second cup of coffee hasn’t quite kicked in yet, remember that the CFPB is unique among financial regulators in that it is overseen by a single director who can only be removed for cause by the president. Since the CFPB’s budget is not subject to congressional appropriations, the director exercises enormous power in comparison to any other federal regulator. Opponents of the CFPB have seized on this structure to challenge its constitutionality.

Most prominently, the Court of Appeals for the District of Columbia, in a decision by then-Judge Kavanaugh, ruled that the Bureau was in fact unconstitutional. He also ruled that this defect could be remedied by simply interpreting the statute as making the director subject to removal by the president with or without cause. Even though this decision was eventually reversed by the entire Court of Appeals, Kavanaugh’s decision has provided a template for other plaintiffs challenging the CFPB’s authority.

The Supreme Court will be deciding this issue when it hears Seila Law LLC v. CFPB. In its brief, CUNA argues that while it agrees that the Bureau’s structure is unconstitutional, the Kavanaugh solution is not appropriate, as Congress never intended the Bureau to be an extension of executive power. The solution, CUNA argues, should instead be to send this back to Congress to develop a bipartisan oversight board analogous to that of NCUA and other financial regulators. This argument is consistent with the position that the industry has taken in pushing for legislation in this area.

Of course, this raises the very real possibility that Congress won’t be able to reach a consensus on this issue. Remember, the court’s decision is going to be coming out in June in the midst of the most divisive and important election cycle since the Civil War. Furthermore, if Congress hasn’t come up with a plan on how to restructure the GSEs over the past decade, realistically, it won’t be able to deal with this issue swiftly.

So here is the question I ask my faithful readers to ponder in the coming days. Particularly, if you want to get a good debate going over Christmas dinner – would credit unions be better off with the CFPB and all its regulations done away with, or given the amount of resources that have already been committed to implementing and understanding thousands of pages of mortgage rules, would they be better off if the CFPB, with all its defects, remained intact? I for one believe that, for purely practical reasons, Justice Kavanaugh’s solution is the only feasible one.

CFPB Issues Important Guidance on Disclosure of Construction Loans

The entire framework of the TRID disclosure regime is based on the assumption that Dick and Jane go look for a house, sign a contract, get a mortgage, schedule a closing, and move in surrounded by a white picket fence to live happily ever after. In reality, a sizable number of home buyers want to build their house from the ground up. Although construction loans are covered by TRID disclosure requirements, grafting these requirements onto construction loans is, to put it mildly, perplexing.

Consequently, I am glad to announce that, just in time for the holidays, the CFPB has issued not one but two separate guidance’s to aid those of us who have been asked to advise on how best to disclose construction loans consistent with federal law.

I’ll have more to say on this in a future blog, I’m sure you can’t wait. I know I can’t.

December 19, 2019 at 9:17 am Leave a comment

NCUA Proposed Regulation Addresses Discrimination Concerns

Good morning, folks.

I’ve decided to fill you in on NCUA’s amendments to its field of membership regulations for community charters, which it proposed as part of yesterday’s board meeting. The Board also gave final approval to regulations permitting credit unions to hold more nonmember shares, which I will discuss at a later date. That being said, I will finish part two of yesterday’s blog on Monday.

As most readers are aware, when the Court of Appeals for the D.C. Circuit upheld NCUA’s amendments, making it easier for community credit unions to expand their service areas, it did not hand credit unions a complete victory. It ruled that NCUA had to provide more detail as to how it would ensure that credit unions expanding into new communities would not use their flexibility to gerrymander the communities they serve to exclude areas serving low and moderate income individuals.

The proposed regulation unveiled at yesterday’s meeting is effectively an addition to NCUA’s brief before the court, providing it with more detail as to why credit unions will not discriminate against such individuals and assuring the court that, even if a credit union is inclined to do so, NCUA has the ability to prevent such activity. If all goes according to plan, this regulation will be approved and the court will uphold all of NCUA’s 2016 amendments. Remember, the case can still be appealed to the Supreme Court, and the bankers have recently asked the entire Court of Appeals to reconsider its ruling.

A Core Based Statistical Area is an area which comprises at least one urban core of at least 10,000 people with adjacent counties having substantial commuting ties to that core. A Combined Statistical Area is a combination of two or more Core Based Statistical Areas which have substantial commuting ties with each other. These are designations created by the Office of Management and Budget, not NCUA.

In the 2016 amendments, NCUA allowed community chartered credit unions to serve a portion of a Core Based Statistical Area without having to serve the entire urban core. The court held that the NCUA had the authority to eliminate the core requirement, but it also agreed with the banks who argued that this might give rise to gerrymandering. This argument potentially opens up the proverbial can of worms from a policy and political standpoint because it puts credit unions in the position of explaining why concepts for which banks were made subject to the Community Reinvestment Act, such as redlining; don’t need to be applied to credit unions. At the same time, NCUA had to make sure that its proposed regulations adequately addressed the courts gerrymandering concerns.

First, NCUA argued in the preamble to this proposed regulation that the existing mandate to serve the urban core actually makes it more difficult for credit unions to serve individuals in many poor communities across the country. It pointed out that there are many suburban areas that are now poorer than the urban centers they are adjacent to.

Secondly, NCUA argued that since many core areas are served by credit unions, giving other credit unions the ability to serve areas around these cores will not diminish service.

Finally, the NCUA is proposed explicit language giving the Board “discretion to require additional information, conduct an inquiry, and ultimately reject an initial application, expansion, or conversion, if the Board finds discrimination in the selection of a portion of a CSA or a CBSA.”

The proposed regulation will only have a 30-day comment period. The industry should help augment the legal record with examples and statistics demonstrating how the proposed regulations will help serve people of modest means.

October 25, 2019 at 9:42 am Leave a comment

FOM Litigation Not Over Yet

Even as the NCUA starts to approve charter expansions based on its recently upheld field of membership regulations, a motion filed with the Court of Appeals for the D.C. Circuit is a reminder that the litigation is not yet over.

Early last week, the American Bankers Association filed a petition requesting that the court reconsider its ruling that the NCUA acted within its regulatory and statutory authority when expanding the definition of a “well-defined local community” to give credit unions greater flexibility to expand their community charters. The rule also amends the definition of a “rural district” by increasing the population limit from 250,000 (or 3 percent of total state population) to 1 million people.

I read the motion last evening, and as much as I love baseball, it actually was more entertaining that the Yankees series against the Minnesota Twins, but I digress. The typical federal appeals case is decided by three judges who belong to the same circuit. A petition for an En Banc review is a request for an entire circuit court to reconsider an earlier ruling. To successfully be granted a rehearing, the moving party, in this case the ABA, would have to prove not only that the three judge panel came up with the wrong decision, but that it also misapplied settled law in a way that must be corrected. The motion is a longshot, but it is not unheard of. It was a successful En Banc petition which led the D.C. Circuit to reverse an earlier ruling that the CFPB’s governing structure was unconstitutional.

Not surprisingly, the motion zeros in on the issue which is central to this case: how much discretion does the NCUA have to define what constitutes a local community? In making its ruling, the court concluded that since Congress had delegated the authority to NCUA to define these terms, it gave NCUA “vast discretion.” In addition, the court held that the regulations should not be struck down based on the fact that NCUA may approve overly expansive community charters in the future. The only issue before the court was whether the framework established by the agency was illegal. According to the ABA, the court’s analysis is all wrong.

Let’s remember that this case has potential significance for industries other than credit unions. In the past, I have talked about a legal framework called Chevron deference, under which courts will generally defer to agency interpretations with expertise on the issue at hand when a statute’s language is vague or unclear. The conservative wing of the Supreme Court, most notably Justice Gorsuch, has signaled that it believes that judicial deference to agency interpretations has gone too far. As a result, you can bet that even if the case is not taken up again by the court of appeals, the Bankers will be petitioning the court, arguing that they can use this decision as a vehicle to chip away at this line of cases…

More ADA Website News

Speaking of the Supreme Court, on Monday, it decided not to take up a case decided by the Ninth Circuit Court of Appeals on the West coast. Credit unions have been successful in arguing that disabled persons who do not qualify for membership in a credit union lack standing (i.e. the legal right) to sue credit unions, claiming that their websites violate the ADA because they don’t accommodate the needs of blind persons. None of these cases address the underlying issue of whether or not the ADA applies to websites in the first place. In Domino’s Pizza LLC v. Robles, the Court held that the ADA does apply to websites, at least where there is a nexus between the website and the physical location. In this case, you can order a pizza from your local Domino’s location using their website. That being said, if you know anything about good pizza you shouldn’t be doing that in the first place, but again I digress.

The case has no direct impact on credit unions, but I expect other circuit courts to have to grapple with the underlying issue and, who knows? Someday, maybe the Department of Justice can issue final regulations once and for all.

October 9, 2019 at 9:36 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

What Now? NCUA Lays Out Post-Decision Roadmap

NCUA laid out the steps it plans to take in response to the recent decision by the Court of Appeals for the D.C. Circuit, largely upholding its 2016 Field of Membership amendments and making it easier for community credit unions to expand. The NCUA signaled it’s taking a wait-and-see approach before authorizing credit unions to take advantage of the regulations.

While I wish the NCUA would have done a better job of couching its cautionary tone in more positive language, (if it were my press release, I would have said something like “while we are confident that the court’s well-reasoned decision will be upheld, it is premature to act on it until the appeals process has been exhausted…”) NCUA’s caution makes sense under the circumstances. We should know in a matter of months whether or not the Supreme Court will accept the case for review. In the meantime, it makes no sense for credit unions to make plans based on what might happen.

In addition, there is still work to be done. First, the NCUA said it would begin accepting applications for rural districts, even though it will not act on them until “the appropriate time.” In the decision, the court reversed a previous ruling and held that the NCUA had the authority to permit federal credit unions to serve a rural community with up to one million persons. The previous limit was 250,000 people.

Then there is the trickiest part of the ruling that must still be addressed. Prior to 2016, credit unions were allowed to expand within Core Based Statistical Areas- generally speaking, these are regional hubs- so long as the credit union also served the rural area within the hub. The 2016 amendments eliminated the requirement that credit unions serve “the core of the core.” The court ruled that NCUA had to do a better job of explaining how it would prevent this amendment from discriminating against individuals in poor urban areas by excluding them from community expansion plans. At the same time, the court also indicated that it was confident NCUA could satisfy this requirement.

The process of addressing the court’s concern will begin shortly with the proposal of new regulations.

September 5, 2019 at 9:09 am Leave a comment

A Hump day Potpourri of Politics, Accounting and Law

Your early morning reading doesn’t get more exciting than this does it folks? There’s a heavy dose of politics to talk about today.

Governor Unveils Budget Proposals

Yesterday, the Governor did his combined State of the State/Budget presentation for the 2019 legislative session. Since I don’t like to deceive my faithful readers, I must admit that I was planning on starting to skim through this year’s budget proposals last night but I got hooked into watching NCIS with my wife. I will follow-up with more detailed information tomorrow. For now what I will say is that with the Governor’s commitment to legalizing the use of recreational marijuana, your credit union should start thinking about how it is going to impact your operations. It will be impacted even it chooses not to engage with marijuana related businesses. Here is a link to the DOB’s budget page for those of you who want to get started on your own.

FASB To Hold CECL Roundtable

The Federal Accounting Standards Board announced recently that it would be hosting a roundtable to discuss issues related to the implementation of new current expected credit losses model on January 28th. I would actually take the time to listen to this discussion which will be archived by the board. With the clock ticking on CECL compliance, NCUA has told credit unions that it will be examining the steps they are taking to prepare for CECL  I have listened in on a couple previous FASB discussions and they are actually an excellent source of information if you are scrambling to understand the key issues associated with CECL.

Court Turns Down CFPB Challenge for Now

You may have already read that the Supreme Court recently turned down a petition challenging the constitutionality of the CFPB as structured. (STATE NATIONAL BANK OF BIG SPRING, ET AL., PETITIONERS v. STEVEN T. MNUCHIN, SECRETARY OF THE TREASURY, ET AL.)

Don’t read too much into the court’s decision. The Justice Department urged the Supremes not to take the case, explaining in a brief that the case would a “poor vehicle” to consider a challenge to the CFPB because Judge Kavanaugh, who has written a decision holding that the CFPB structure is unconstitutional, would not be allowed to hear the case. In addition, the Department notes there are procedural issues which could keep the court from deciding the core constitutional issues. Bottom line: there are better cases challenging the constitutionality of the CFPB in the pipeline. I fully expect that you will see a case taken by the court on this issue in the relatively near future.

Gillibrand Announces She Plans On Running For President

Kristen Gillibrand continued one of the most remarkable political ascendancies New York State has seen in decades when she went on the Colbert show last night to announce she was planning on running for President. It doesn’t seem that long ago that Gillibrand knocked off popular republican incumbent Congressman John E. Sweeney to claim a Hudson Valley seat. It also doesn’t seem that long ago that David Patterson, who became Governor after Eliot Spitzer’s relationship with a prostitute was exposed,  named that obscure centrist Congresswoman to replace Hillary Clinton who was embarking  her stint as Secretary of State after her first can’t miss run for the Presidency. At the time, Paterson’s selection of Gillibrand alienated the Manhattan set which expected a Kennedy to be named to the seat. Fast forward to today. I’m not saying that Gillibrand will get the democratic nomination but the very fact that she has evolved into a credible candidate with a national following shows that she is one of the most talented politicians in New York.

By the way, Gillibrand’s use of the Colbert show to make the announcement got me thinking about my favorite political announcement. Here is a clip from the 1995 David Letterman show in which then Senate Majority Leader Bob Dole announces he is running for President because “I’ve given it a lot of thought and I think every country should have one.” By the way, if you don’t think political discourse has deteriorated for the worse in this country, notice how nicely Dole talks about Clinton and Al Gore. In today’s environment, those types of comments would get someone stuck in a primary.

January 16, 2019 at 9:20 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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