Posts tagged ‘Treasury Department’

The Known Unknowns About The Transaction Reporting Proposal

The more I think about the IRS’s tax proposal, the more I want to channel my inner Donald Rumsfeld. The late secretary of defense famously explained that “There are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.”

In the last couple of days I have started to get calls not only from the usual policy crowd that recognizes the Account Transaction Reporting requirement for the lousy idea it is, but also from the compliance crew that would be responsible for translating the idea into a tangible framework. 

Here is some information about what we know and don’t know about this extremely fluid idea:

Where can I find this legislation?

  • No legislation has actually been introduced. What we are debating is a proposal originally outlined by the Treasury as part of the Administration’s Revenue Proposals (starting on page 88).

When would this proposal take effect?

  • If the Treasury has its way this proposal would take effect for the 2023 tax year.

What exactly is the Treasury proposing?

  • In its own words, the Treasury is proposing a “comprehensive financial account reporting regime” (that doesn’t sound too scary does it?) Financial institutions would play a crucial role in this process. They would be responsible for reporting gross inflows and outflows out of accounts.

What information would financial institutions be required to report to the IRS?

  • In a caustically worded fact sheet released two days ago, the Treasury stressed that financial institutions would not report individual transactions to the IRS. Instead, they would only have to provide a mere “two additional data points”.  These data points would be:
  1. The total amount of funds deposited; and
  2. The total amount of funds withdrawn over a year.

(Gee I can’t imagine why your members would be upset upon learning you have to turn this information over to the IRS.)

How exactly would an account transaction be defined by the Treasury?

  • This one’s going to be tougher to clarify than the Treasury may realize. For example, if I internally transfer money from my savings to a checking account, is that an account transaction? This is a particularly important question for credit unions which still utilize the concept of “master” and “sub” accounts (by the way, this terminology drives me nuts but that can be the subject of another blog).

Are there thresholds below which this report would not be issued?

  • As originally proposed by the Treasury, the plan would not have applied to accounts with $600 or less in transactions. In recent weeks there have been proposals to raise that threshold to $10,000.  But remember this is an aggregate threshold.  Over the course of a year, almost all your members would make transactions that in the aggregate exceed this threshold.  Furthermore, with or without a transaction threshold by Congress, your credit union would be responsible for ensuring that this information is appropriately tracked. At the very least this translates into more time and expense working with your core operating system provider. For smaller credit unions, this mandate will be an extremely labor intensive mandate with which to comply.

Isn’t Congress going to ensure that this only applies to certain members?

  • This is where we really need to see actual language. According to the Treasury’s press release, Congress has modified the proposal to include an exemption for wage and salary earners and federal program beneficiaries. Under this approach “such earners can be completely carved out of the reporting structure.”

This is the type of language which drives compliance people crazy. Among the questions that come to mind are: How exactly are financial institutions supposed to differentiate transactions involving employer wages from other types of legitimate transactions not involving an employer?  For instance, many members derive income from driving Uber or having small businesses.

October 21, 2021 at 11:02 am 1 comment

Untangling the Mortgage Mess

In the immortal words of William Shakespeare “Oh, what a tangled web we weave when we try to mess up the regulatory agenda of the incoming administration”. 

Over the last few months yours truly has been hesitant to talk too much about changes to the Qualified Mortgage regulations since the rules are as likely to take effect as Joe Biden is to be endorsed by a coal miner union.  But, those of you who originate mortgages for sale to the GSEs are experiencing one of the most confusing periods of regulatory uncertainty in more than a decade.  It is beginning to have some real consequences.  Here is some background. 

Dodd-Frank mandated that the CFPB promulgate regulations defining a Qualified Mortgage. As readers of this blog also know, Dodd-Frank also stipulated that mortgages purchased by Fannie Mae and Freddie Mac would also qualify for Qualified Mortgage protections.  This exemption was only expected to last as long as Congress figured out what to do with the GSEs, or January 10, 2021.  The CFPB finalized regulations late last year eliminating the QM patch and amending the general QM regulations.  Under these new regulations qualified mortgage designation would be determined based on a mortgage’s APOR.  The Bureau issued a final rule to amend the General QM definition in December of 2020. This rule took effect on March 1, 2021 and has a mandatory compliance date of July 1, 2021. 

To the surprise of absolutely no one, the new leadership at the CFPB announced that it was considering making changes to the revised QM definition.  It has proposed extending the compliance deadline until 2022.  In the ensuing months it will undoubtedly be coming up with a new QM definition. 

But here is where the deal gets even more complicated.   Remember back in 2008 when the federal government had to bail out Fannie and Freddie for fear of triggering a Great Depression?  As part of that bailout, a conservatorship was created for the GSEs and since that time the Treasury has imposed contractual obligations on the GSEs in return for the hundreds of billions of dollars they received from the American tax payer.  (We don’t like using this term in America, but Fannie and Freddie have been nationalized.)  This agreement was recently amended.  Under this agreement, as things currently stand, the GSEs are obligated to begin implementing the new APOR standard on July 1st.  This means that even though the CFPB has already signaled its intention to reconsider the new QM definition, lenders that work with the GSEs have to start preparing new policies and procedures for the July 1st deadline.

Against this sordid backdrop, CUNA yesterday issued this letter urging the Treasury to promptly remedy this situation.  As CUNA noted, forcing the GSEs to implement these changes “would be unnecessary, wasteful, and ultimately harmful for consumers as the implementation cost may also increase the cost of credit.”

It is hard to underestimate the man hours involved in preparing for these types of major changes.   

Let’s hope this glitch gets resolved quickly before all of this confusion begins to have practical consequences. 

NCUA Meeting Recap

Here is NCUA’s recap of yesterday’s Board meeting.  Remember that the Board already approved the interim regulations giving credit unions greater PCA flexibility.

On that note, enjoy your weekend.  Let’s hope it gets warmer. 

April 23, 2021 at 10:28 am Leave a comment

Is Your CU Eligible For ECIP?

On Thursday the Treasury unveiled regulations and guidance implementing the Emergency Capital Investment Program (ECIP) which sets aside $9B to invest in Community Development Financial Institutions (CDFI’s) and Minority Depository Institutions (MDI’s) which can use the money to assist communities negatively impacted by the pandemic.  It has created a lot of interest in CU Land because of its extremely attractive terms.  Funds provided to CUs under the program are interest free for the first 24 months. The program however is trickier than it appears, particularly as it relates to secondary capital.

 To be eligible for funding, your credit union must be either a CDFI or a MDI.  This means that even if your credit union has become a Low Income Credit Union (LICU) it does not qualify to participate for these loans.

Congress created the program in the second round of stimulus funding in December. Under Section 104A the program was created   

“…to support the efforts of low- and moderate-income community financial institutions to, among other things, provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities, including persistent poverty counties, that may be disproportionately impacted by the economic effects of the COVID-19 pandemic, by providing direct and indirect capital investments in low- and moderate-income community financial institutions.”

With this charge it is still not entirely clear how the treasury will decide how much $ eligible FIs will be awarded.

Here is where I will get a little into the weeds.  If a credit union does qualify for funding under the program your credit union will still have to be eligible for and be approved by NCUA to have the funds classified as Secondary Capital.  Otherwise it will reduce your net worth ratio.  These funds are not being set aside for financially struggling institutions they are being set aside for financial institutions in financially struggling communities.  

What regulations apply in making a secondary capital classification request?  Good question.  As readers of this blog know NCUA has approved regulations basically replacing secondary capital with subordinated debt.  However, these new regulations don’t become effective until next year.  Credit unions should follow the existing secondary capital regulations, paying special attention to this detailed and, in my ever-so-humble opinion, overly burdensome guidance on secondary capital.

Vaccine Eligibility Expansion

As you may have heard, and judging by the number of emails on the subject, many of you did, the Governor announced yesterday that vaccine eligibility would be expanded to include:

  • Public-facing government and public employees
  • Not-for-profit workers who provide public-facing services to New Yorkers in need
  • Essential in-person public-facing building service workers

At this point we are just dealing with a press release.  The Association has reached out for clarification on precisely which employees are going to be included in this expansion and once we get additional information we will pass it on.   

March 10, 2021 at 9:08 am Leave a comment

Like it or Not, CUs must Engage in the Climate Change Debate

Good morning, folks.

First, I want to assure you that the purpose of today’s blog is not to debate the science of climate change, or to suggest where I think it should be on the list of concerns considered by your executive team as it tries to position your credit union operations for the months and years ahead. The purpose of this blog is instead to inform you that, with yesterday’s announcement of executive orders calling for a government-wide approach to climate change, the industry at large as well as your individual credit union has become part of a discussion. It’s not if your credit union is going to take steps to mitigate the impact of climate change – but what those steps are going to be when regulators come knocking.

In reviewing yesterday’s executive order, the President didn’t specifically mention banking initiatives, but by including the Treasury Department and the HUD Secretary on the task force and emphasizing the relationship between economic justice and climate change initiatives, there’s little doubt that financial institutions will be asked to play a role in mitigating the effects of climate change. Plus, even though NCUA is an independent agency, there’s nothing to stop it from voluntarily working with the Biden administration on these issues and efforts. 

New York State’s Department of Financial Services has been at the forefront of this debate. In October, it issued this guidance making the argument for financial institutions to take an active role in integrating climate change considerations into their operations. It pointed out, for example, that extreme storms could have a disproportionately negative impact on regional and community banks which provided mortgages in impacted areas. On a more nebulous note, it argued that the transition away from a carbon-based economy will over time impact the underlying value of assets. DFS also issued specific expectations for the institutions it regulates. These include that they “start integrating the financial risks from climate change into their governance frameworks, risk management processes, and business strategies,” as well as to “start developing their approach to climate-related financial risk disclosure.” New York’s Superintendent Lacewell has recently highlighted the importance of this initiative. 

I know how much work all of you already have on your plate, and I also know that this has become one of those issues that can end a dinner party quicker than one hurricane can put a significant portion of Long Island underwater. But the sooner we lay out how we’re going to do our part, the better positioned we will be to prevent overly cumbersome, one-size-fits-all mandates.

January 28, 2021 at 9:49 am Leave a comment

Some Good News About This Lousy Pandemic

I actually found some good news to talk about regarding this lousy pandemic. 

First, the Treasury Department announced late last week that it was streamlining the loan forgiveness process for loans of $50,000 or less.  This is a lot less than the $150k that has been proposed in legislation advocated for by credit unions, but hey, it’s a start. 

The news that has really cheered me up a tad has to do with the American entrepreneurial spirit.  Despite all the uncertainty we see around us, it appears that it is alive and well.  Who knows?  Maybe the next Microsoft, Apple or Facebook is taking shape right now, perhaps with the help of a credit union loan. 

According to the Census Bureau, there’s been a 93.6% increase in the number of business applications compared to last year.  Furthermore, according to this survey, many of these entrepreneurs are first time business people, many of whom are trying their hand at businesses that have been hardest hit by the pandemic including restaurants and bars.    

Even allowing for the fact that some of this increase in entrepreneurial zest is attributable in part to a not so admirable attempt on the part of some to cash in on PPP loans, cynicism alone does not account for this increase.  As the Economist (subscription required) magazine pointed out recently “the entrepreneurial boom bodes well for the future.  A recovery with lots of start-ups tends to be more job rich than one without, since young firms typically seek to expand” at a quicker pace. 

For me, it’s just good to see that one of the core attributes of the American ethos remains alive and well.  Let’s not ever underestimate the value of small business loans and the importance of continuing to fight for the right of credit unions to provide them to the same extent as the local bank.     

October 13, 2020 at 9:17 am Leave a comment

Treasury Releases its Post-GSE Blueprint and Why it Matters

Yesterday, the Treasury Department unveiled its long-awaited vision of a post-GSE housing market. Here are my initial takeaways:

  • RIP to “the Patch.” As I explained in previous blogs, Dodd Frank authorized mortgages eligible for sale to Fannie or Freddie to be classified as “Qualified Mortgages.” This is an important designation, as it provides mortgage holders a presumption that the borrower had the ability to repay a mortgage loan should it have to be foreclosed on. To the surprise of no one, the report recommends that this important exception for the GSE expire. The CFPB is already preparing for a post-Patch world. The Patch is set to die in July 2021.
  • Fannie and Freddie would become recapitalized entities, no longer having a government charter with the implicit backing of the U.S. Treasury. In addition, the Treasury recommends that Congress encourage the creation of competitors to the GSEs. To ease the barrier of entry into the industry, it suggests that Fannie and Freddie would have to make some of their proprietary information available to the public. This idea intrigues me as I think it’s an approach that should be used in many other big data contexts, but that’s a blog for another day.
  • One of the primary concerns of credit unions and community banks is that a world without Fannie or Freddie would be a world in which they could not cost-effectively and competitively sell mortgages. The big guys with their volume will always be able to undercut smaller institutions. To address this issue, the Treasury recommends that the new GSE-like institutions be required to purchase mortgages for cash and give the seller the option of whether or not to sell their servicing rights. The buyers would also be prohibited from offering volume discounts.

What does all of this mean? Realistically, there is no way that serious housing reform will be undertaken before the November 2020 election. That being said, the demise of the Patch gives whoever is in power real leverage to get Congress talking following the election. Translation: expect housing reform to be the top issue following the next election and at least some of these ideas to gain traction.

On that note, enjoy your first weekend of football. Let’s hope for real lousy weather on Sunday so that those of us committed to forgoing any physical movement or interaction with the family for approximately the next 22 Sundays don’t have to feel too guilty.

September 6, 2019 at 8:54 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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