Posts tagged ‘wild card’

MLA guidance Clarified; Wild Card Power Requested

Good morning folks. Grab an extra strong cup of coffee before reading this blog. Yours truly has a busy morning but I wanted to give you a heads up on two esoteric but important compliance issues for credit unions. I will provide more detail at a future date.

Our national trade associations deserve a lot of credit this morning, now that the Department of Defense has decided to amend problematic guidance issues implementing the Military Lending Act (MLA). The Military Lending Act is federal legislation which extends credit protections to military personnel and their families. Most importantly, loans made to military personnel are subject to a unique Military Annual Percentage Rate capping interest on covered loans at 36% and requiring certain disclosures.

In 2015 the DOD extended the MLA’s protections to most closed end and open ended consumer loans. To put it nicely, the regulations which accompanied this change created a great deal of confusion. The DOD ultimately issued two sets of interpretive guidance to help lenders comply with the new regulations. The second guidance included a question and answer (Q&A No. 2) which raised concerns about the ability of credit unions to offer additional products with car loans most importantly, GAP insurance. By repealing Question No. 2 the DOD has eliminated this confusion.

New York’s Department of Financial Services has issued a detailed Wild Card request clarifying the ability of state chartered credit unions to engage in loan participations involving liquidating credit unions as well as loans from any source which are being purchased to facilitate the packaging of loans to be sold on the secondary market. The application clarifies that state charters can exercise the same powers that federal credit unions can, pursuant to 12 CFR § 701.21 provided they meet certain conditions.

On that note, have a good weekend.

February 28, 2020 at 9:16 am Leave a comment

Six Things You Need to Know to Start Your Credit Union Day

Yours truly was looking at his list of potential blog topics the other day and realized there’s a lot of information that I need to get out to my faithful readers. So, with the usual qualifier that each one of these is worthy of more extensive review, here is a look at six developments that impact your credit union.

Regulators Issue a Proposed Joint Guidance on CECL

NCUA has joined with the other financial regulators in proposing a joint policy statement on the proper accounting for credit losses under the Current Expected Credit Loss (CECL) as well as proposed industry guidance on Credit Risk Review Systems. In other words, this is a long awaited policy statement which establishes the framework that examiners will use when assessing how your credit union is accounting for expected credit losses. The proposed policy statement includes a list of policies that examiners expect to see when CECL takes effect, which, for credit unions, has been pushed back to 2023. The examiners also issued a closely related proposed guidance on what constitutes an appropriate Credit Risk Review System.

State Approves Another Wild Card Request

New York’s Department of Financial Services has approved another Wild Card request allowing state chartered credit unions to exercise powers that previously could be exercised only by their federally chartered counterparts. Specifically, state chartered credit unions can now make unsecured loans to employees without seeking board approval. State chartered credit unions interested in utilizing this power are expected to have policies and procedures in place “acceptable” to the Department of Financial Services.

Budget Briefing Set for November 20th

NCUA has announced that it will be holding a public “briefing” on its proposed $316.2 million budget for 2020-2021. I put “briefing” in quotes because of NCUA’s refusal to acknowledge that it holds a hearing on its proposed budgets. It wasn’t too long ago that the NCUA’s refusal to hold budget hearings under then Chairwoman Debbie Matz was one of the biggest controversies in credit union land. If you want to provide testimony at the briefing, or submit a comment letter on the budget, this resource provides the information you will need.

The Litigation Continues

Even though settlements have already benefited the industry, NCUA’s litigation against the investment banks that participated in selling or underwriting the mortgage-backed securities which led to the demise of the industry’s largest corporate credit unions is continuing. In this recent decision, the court dismissed some of NCUA’s claims against Deutsche Bank National Trust, but allowed the litigation to go forward.

News Flash: Cyberattacks Against Credit Unions Are a Big Deal

The headline in NCUA’s press release following its most recent board meeting read: “Financial Services Industry a Prime Target for Cyberattacks.” The press release went on to explain that NCUA is developing a “multi-year plan to combat cyber threats.” Wow. With press releases like this, it’s only a matter of time before the Department of Defense tells Hawaiians to be on the lookout against a possible attack on Pearl Harbor.

I understand why a new leadership team wants to underscore the importance of cybersecurity preparedness. It is the number one issue facing the financial industry. That being said, headlines like this make it sound as if NCUA is only now reacting to cyberattacks that have already taken place. It also may come as a bit of a surprise to both large and small credit unions, many of which have been subject to cyber evaluations as part of their examinations. My suggestion to the NCUA communications team would be to tone down the rhetoric. It only makes NCUA sound like it’s late to the party.

A Mortgage Match Made in Cybersecurity Heaven?

Finally, a colleague of mine gave me a heads up on the announcement of a merger between Ellie Mae and Capsilon. If you deal with mortgages, there’s a good chance you deal with Ellie Mae. Its Encompass platform is the leading software system used by mortgage lenders. Capsilon provides artificial intelligence services. I thought this announcement was blog-worthy because of Ellie Mae’s stated goal of providing “the most comprehensive end-to-end SaaS solution for companies in the mortgage industry.” I would say that if you don’t have a plan in place to make originating mortgage loans for your members about as easy as downloading Candy Crush in the next five years, or working with a vendor who does, you won’t have much of a future in the mortgage lending industry.

Then again, I am the same guy who would’ve predicted that the Astros would beat the Dodgers in the World Series. Instead, the Nationals are still alive. Enjoy the game and your day.

October 30, 2019 at 9:32 am Leave a comment

Time for the Arbitration Talk

It’s time to sit everyone down and have “The Talk.”

I’m bringing this to your attention because of an article in the American Banker (subscription required) detailing the travails of a New Jersey pastor who was falsely accused of passing fraudulent checks by- who else- Wells Fargo. The misidentification of the pastor was quickly resolved, but when he went to sue the bank, he discovered that he would have to arbitrate his dispute.

While I empathize with the pastor’s plight, everyone reading this blog has an obligation to balance consumer needs against fiscal and legal realities. I have been doing my annual review of cases in preparation for next week’s legal and compliance conference (again, shameless plug) and, whereas the difficulty used to be finding enough cases to talk about, now the challenge is deciding what cases to exclude. The leading culprit in this explosion in litigation against credit unions is class action lawsuits claiming violations of account agreement disclosures. Another factor fueling the rise in litigation is that employees seem much more willing to sue their employers than they used to be, particularly in a state like New York, which adds so many protections to the federal baseline.

Given this reality, it’s time to call up your outside counsel and have a discussion about the costs and benefits of integrating an arbitration clause into your account agreement, and even into your employee handbook. Both Congress and the courts have given employers and financial institutions the green light to use arbitration clauses. Congress took the unusual step of voting to repeal CFPB regulations banning arbitration clauses, which banned class action lawsuits. And last year, the Supreme Court issued the latest in a string of cases emphasizing that the Federal Arbitration Act should be expansively interpreted, and understood as preempting state laws which try to limit its impact. Lamps Plus Inc. v. Varela upheld the enforceability of an arbitration clause in an employee handbook against a challenge that it was too vaguely written to be enforced.

To be clear, arbitration clauses don’t make sense for all credit unions. For example, if you’re more likely to be sued in small claims court than you are to be made subject to a class action, then including an arbitration clause in your account agreement may actually increase the amount of member litigation you have to deal with. In addition, your employees may not respond well to having to agree to arbitration clauses as a condition of employment. But given the state of the law, your credit union should at least be having a conversation. From a strictly legal standpoint, arbitration makes an awful lot of sense.

New York extends Wild Card provisions for another five years

                Legislation extending existing law is the lobbying equivalent of getting a new roof on the house; it’s something that has to be done, but it does not generate all that much excitement. Nevertheless, let’s not underestimate the importance of news that Governor Cuomo has extended New York’s Wild Card provisions for another five years.

The Wild Card law permits state chartered financial institutions to apply to the State’s Department of Financial Services for permission to exercise a power which a federally chartered institution has, but which state charters do not. It was originally passed in 1996 to aid banks, and was extended to credit unions in 2007. In recent years, it has played a crucial role in enticing federally chartered credit unions to look at the state charter. Aside from some of the specific powers which have been authorized under the legislation, it signals to federally chartered institutions that New York wants their business, and is willing to talk to them about minimizing the paint points of a conversion.

On another note, the Governor has approved legislation dealing with the creation of a state task force to provide the Governor and Legislature with information on the “effects of the widespread use of cyber currencies” in New York State. The task force will have a year to submit its findings. A great place for it to start would be to review the findings of a multiday hearing that the DFS held several years ago, examining cyber currencies. It was this hearing which led to the creation of New York’s cyber security licensing framework.

September 3, 2019 at 9:46 am Leave a comment

Another Day, Another Data Breach

As faithful readers of the blog know, when I start with a sentence reporting the latest data breach uncovered by Krebsonsecurity, it means that a massive number of credit and debit cards have once again been stolen by hackers. According to the website, a popular underground store selling credit and debit cards is offering to sell more than 5.3 million new accounts belonging to cardholders from 35 states. It now appears that this treasure trove of information was stolen from the Hy-Vee Supermarket chain, which apparently has hundreds of stores in the Midwest.

On August 14, the company announced that because it “takes the security of payment card data very seriously,” it wanted to make its customers aware of an investigation it was conducting into a “security incident” that focused on payments made at affiliated gas stations, restaurants, and supermarkets.

Since the supermarket chain is based in the Midwest, hopefully this will not impact your members; it does, however, give me the opportunity to once again point out obvious points that so many of our policy makers refuse to acknowledge or act on.

  • When are we going to stop calling the black market for credit and debit card information a black market? On a practical level, people can go onto the web and sell this information with virtual impunity. In reality, it’s become a de facto secondary market. Consumers and businesses are paying the price.
  • The legal system works best when the parties most responsible for a given injury bear the burden of the cost associated with their mistake. By this standard, liability for data breaches remains woefully inadequate. This breach will undoubtedly spark several lawsuits and result in a large multimillion dollar settlement, but so long as consumers have to prove not only that their data was exposed to a data breach, but that their data actually was used in a way that cost them money, consumers will have a difficult time making businesses pay for the harm they are inflicting. As for financial institutions, courts and legislators have to stop viewing data breaches as contract violations as opposed to torts for which there are wide ranging damages.
  • Of course, all of this could be resolved by Congress, but it won’t be; at least not in the near future.

Wildcard Legislation Sent to Governor

Late last week, legislation was sent to the Governor to extend the Department of Financial Services’ wildcard powers for banks and credit unions. This is absolutely critical legislation which we expect the Governor to approve. Without action by the Governor, this power expires in September.

Originally passed in 1996 to make the state banking charter more competitive with its federal counterpart, the law has applied to credit unions since 2007. The basic idea is that state chartered financial institutions can apply to the Department of Financial Services for permission to exercise a power that federally chartered institutions have, but that state chartered credit unions do not. In recent years, the Department of Financial Services has utilized its authority to help both banks and credit unions, and so doing, has made the state charter more attractive to federal credit unions.

The Association has of course signaled its support of the measure and we will tell you when the Governor takes action on the bill.

August 27, 2019 at 9:31 am Leave a comment

New York State Proposes Expanded Student Branching Powers For State Charters

Good morning, folks.

New York State’s Department of Financial Services continued to signal its increased support for the State credit union charter by providing notice that it intends to allow state chartered credit unions to operate student branches to the same extent as their Federal brethren. The proposal will provide much needed guidance and flexibility for state chartered credit unions interested in offering such branches. The beauty of wild card is that it also provides assurances to existing Federal charters that if they were to flip to the state’s oversight they can be assured of exercising the same powers.

While state charters have long had the ability to operate student branches in New York State (See §450-b) Federal credit unions have much more flexibility in operating such branches as I explained in this previous blog under the DFS’s proposal, state charters will be able to open student branches provided they give the Department at least 30 days prior notice. Eligible members would include all students enrolled in the school as well as teachers and staff.

If approved, this would be the most important use of the wild card power ever authorized on behalf of credit unions so comments in support of this notice would be appreciated. Remember, a strong state charter helps both Federal and State credit unions.

NCUA Board Meeting Today

The NCUA has a Board meeting scheduled for today. If all goes according to plan, NCUA will quickly be finalizing its proposal to create a more formalized appellate process for credit unions challenging material examiner findings. I think this is potentially a very big development but I will talk about that more in tomorrow’s blog. Incidentally, tomorrow’s blog should be timelier than other blogs have been in recent days as there’s no Yankee game tonight. For those of you interested, the next game is tomorrow night.

 

 

October 19, 2017 at 9:11 am Leave a comment

Two Things I Wanted You to Know before I Travel to Grandma’s House

I just went through my email folder containing ideas for future blog content and there are two things I would like to share with you before heading off to God’s country (i.e., Long Island to visit my family).

First, I have been remiss in failing to inform my faithful readers that the New York State Department of Financial Services recently approved a Wild Card application that will allow state chartered credit unions to limit the oath taking requirements to board members. Let me explain.

Section 468 of the New York State Banking Law requires each “director, officer and member of a committee” to own a credit union share and to take an oath of office when appointed. In recent years this requirement has become increasingly burdensome to state chartered credit unions; it has been interpreted as applying not only to board directors but also to individuals such as lending officers.

The approval of the Wild Card power, under which state chartered credit unions have no greater oath obligations than their federal counterparts, is important not only because it helps state charters operationally, but because it is another example of how Superintendent Vullo is backing up her public commitment to helping makes the state charter option as attractive as possible. Remember, all credit unions in New York State, irrespective of their charter type, have an interest in a strong dual-chartering system.

The second thing I would like you to know was that NCUA recently released a supervisory letter to examiners updating the risk factors that should be considered when evaluating credit union compliance programs. The update reinforces a guidance issued by NCUA 15 years ago when it began to implement a risk focus examination process designed to eliminate the need for annual examinations of well performing credit unions. With the NCUA once again expanding its examination timeline it makes sense to revisit the criteria once again.

On that note, I will be back on Tuesday – enjoy the weekend

 

April 13, 2017 at 8:58 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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