Posts tagged ‘Todd Harper’

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

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

Compliance Oversight Isn’t Broke; There’s No Need to Fix It

According to the statistics, the only thing older than the average credit union member is the average age of a baseball fan. So, I apologize for the late start, but after a seven game World Series, with games that don’t start until after 8:00 PM, and that seem to average about five hours in length, yours truly decided to sleep in a little this morning.

With apologies out of the way, the thing I wanted to bring to your attention was this press release issued by NCUA Board Member Todd Harper. According to Harper, credit unions with over $1 billion in assets should be subject to more scrutiny of their consumer compliance efforts. Harper says that NCUA’s existing practice runs counter to the procedures established by the Federal Financial Institutions Examination Council, of which NCUA is a member. He is requesting comments on this proposal from credit unions.

First, everyone take a deep breath. One board member does not a proposed rule make. It’s safe to assume that in making this request on his own, Harper has been unable to interest other board members in this proposal.

To be clear, billion dollar credit unions are already subject to compliance reviews as part of their examinations and are cognizant of the need to comply with the plethora of consumer regulations pumped out by the CFPB over the last several years.

Since the early 1980s when the FFIEC was originally formed, consumer compliance has been one of the areas examined by all financial institutions. Harper’s concern stems from a subtle but potentially important distinction between NCUA and the other financial regulators, which was highlighted by guidance issued by the FFIEC in 2016. At that time, the FFIEC wanted to update its compliance reviews to put greater emphasis on a financial institution’s compliance management system (CMS), which generally refers to the policies and procedures a credit union has in place to monitor ongoing compliance requirements, integrate new requirements into their operational framework and ultimately ensure that transactions are being carried out in compliance with laws and regulations. At the time of this new guidance, the FFIEC explained in a footnote that NCUA would be integrating the principles of the updated guidance into its examinations and CAMEL ratings, but had decided not to issue a separate compliance rating for credit unions. When the new guidance took effect, NCUA issued this letter to credit unions, which made it clear that it was not turning a blind eye to compliance issues.

The bottom line is that NCUA expects credit unions to abide by the same compliance standards as banks. It simply reflects that evaluation differently.

In addition, let’s keep in mind that examiners aren’t the only ones tracking credit union compliance. For almost a decade now, the Association has been tracking credit union litigation, and one of the most striking developments has been the number of large credit unions that find themselves subject to class action lawsuits alleging noncompliance with a consumer protection law or regulation, such as overdraft protections.

Let’s not impose additional burdens for the sake of uniformity absent clear proof that credit unions are facing systemic problems when it comes to consumer compliance issues. They already have enough to worry about and have spent tens of millions of dollars in the form of software and staff to comply to protect consumers.


October 31, 2019 at 11:18 am Leave a comment

NCUA Board Approves Important Changes

Okay, I know that headline does not exactly grab your attention, but I’ve only had one cup of coffee, and I wanted to convey that the NCUA had one of its most substantive get-togethers in months. What the Board did yesterday helps clarify the steps federal credit unions can take to deal with that disruptive member. It also gives you greater flexibility to provide payday alternative loans.

First, the PAL loans are getting all the attention, particularly since the proposal passed only after a dissenting vote by Board Member Todd Harper. But let’s not overreact here. Since 2010, NCUA has given credit unions authority to exceed the usury cap, provided they are offering members short-term loans as opposed to predatory payday loans. The problem is that the requirements are so restrictive that credit unions have been slow to embrace their authority. As of 2017, 518 FCUs reported offering PAL loans. With its actions yesterday, NCUA gave credit unions greater flexibility in offering these loans by, among other things, authorizing them to make loans up to $2,000 and doing away with a minimum loan amount requirement. I love this last change because it reflects the reality of what many credit unions do for their members: they give them what they need, not more. They have simply never classified it as a PAL loan before.

I know that there are blog readers out there who will be happy to know that NCUA has finalized the bylaw changes. Stylistically, I think creating a specific section of the bylaws dedicated to defining a “member in good standing” will make it easier for everyone to understand precisely what a member’s obligations are, and how he or she can lose some of the privileges of membership. In addition, codifying legal opinion letters explaining what steps credit unions can take against members behaving badly is long overdue. On the negative side, the new Section 5 definition of a member in “good standing” stipulates that you cannot limit services to a member “who is not significantly delinquent on any credit union loan…who has not caused a financial loss to this credit union.” This qualifier may create much angst for credit unions seeking to define what exactly constitutes a “significantly delinquent” member.

Incidentally, it seems that some credit union are a little gun shy when it comes to dealing decisively with members engaging in clearly inappropriate conduct. I love this summary in the preamble to yesterday’s bylaw amendments: “an FCU may take immediate action to address situations in which a member is violent, belligerent, disruptive, or poses a threat to the credit union, or other members, or its employees even if the FCU Act prohibits the FCU from immediately expelling the member.”

Finally, this regulation makes updates to audit requirements. There doesn’t seem to be any big changes here, but you should probably run this by whoever works with your supervisory committee.

On that note, enjoy your weekend.


September 20, 2019 at 9:41 am 1 comment

Three Quick Hits For A Thursday Morning

Don’t look now but common sense might be breaking out in at least one small corner of the nation’s capital. Yesterday, the House Financial Sub Committee on Consumer Protection and Financial Institutions held a hearing laying out why it makes sense for marijuana related businesses to be legalized as a matter of federal law if the goal is to provide safe, affordable banking services to these legal businesses.

Speaking on behalf of CUNA was Rachel Pross, the Chief Risk Officer of Maps Credit Union based in Oregon. Maps is a particularly noteworthy institution when it comes to the issue of financial services for marijuana related businesses because it has been providing these services since 2014 making it one of the most experienced financial institutions in this space. She explained that her Board of Directors ultimately decided to provide banking services despite the legal uncertainty because it concluded that doing so was consistent with the credit union’s mission to serve the underserved and to enhance the safety of the local community.

The Independent Community Bankers offered the testimony of a $145 million asset state chartered community bank based in Spokane, Washington which has so far declined to offer banking services to marijuana related businesses. Its board of directors has concluded that the “legal stakes are simply too high” for the board to tolerate. He explained that a wrong decision on marijuana banking services could put the survival of his bank at risk.

The solution to this uncertainty is “the Secure and Fair Enforcement Banking Act of 2019.” The bill would legalize the provision of banking services as a matter of federal law in those states that choose to legalize marijuana.

I continue to be optimistic that this is one of the few issues you may see resolved by Congress over the next two years. Whether you are in favor or opposed to marijuana legalization, having an industry dependent on unprotected cash transactions risks for the public as a whole; if you are a republican who believes in state’s rights then this legislation makes sense because you are letting states effectively regulate the choices that their legislatures make and if you are from the progressive wing of the party, this compromise will act as a catalyst for making sure that marijuana businesses will have access to the money they need to grow.

NCUA Board Nomination Hearings Today

Later today the Senate Banking Committee will be holding hearings on the nominations of Todd Harper and Rodney Hood to join the NCUA board.

Where’s the beef? Here’s the beef.

Wendy’s has reached a $3.4 million settlement with consumers impacted by the 2016 data breach of the chain. Specifically the settlement authorizes consumers to receive up to $5,000 to individuals who attended one of the impacted Wendy’s between October 25, 2015 and June 28, 2016.

February 14, 2019 at 9:00 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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