Posts tagged ‘Yellen’

The CFPB Is Constitutional…For Now

Oh well, it’s on to the Supreme Court hopefully.

Yesterday the Court of Appeals for the District of Columbia put the dreams of constitutional extremists like myself on hold when it ruled that the single director structure of the CFPB was constitutional. The decision means that the Director can still only be removed for cause by the President.

But the decision by an “en banc panel” of the Court was by no means a complete victory for the Bureau. The panel effectively held that former Director Cordray overstepped his powers when he increased from $6 Million to $109 Million, a fine imposed on PHH for violating RESPA. It was this excessive fine which triggered the litigation in the first place.

Let’s take a trip down memory lane. PHH, like many large lenders, owns a captive mortgage insurance company. In 2014, the CFPB brought charges against PHH and its captive reinsurer, Atrium. It claimed that the money transferred to PHH through Atrium violated RESPA because a company was not being paid for services being performed or was being paid in amounts that “grossly exceeded” the value of its services. Ultimately PHH contested this finding in an administrative law proceeding and it was this finding and Director Cordray’s fine which triggered this litigation.

What happens now? We will have to wait and see if either side feels that the remaining issues are worthy of the Supreme Court’s review. PHH has secured an important victory and may not feel that it ultimately has a dog in the fight now that the initial penalty has been addressed.

Personally, this is one issue that I sure do hope ends up before the Supreme Court. At some point the court has to reexamine its precedence. In my ever so humble opinion, the constitution was never intended to permit an explosion of independent quasi law making entities which are neither answerable to Congress or the Presidency.

Incidentally the CFPB also released a request for information yesterday in which it signaled that it is considering scaling back the use of administrative adjudications to resolve enforcement disputes. For example, it wants stake holders to discuss the positive and negative aspects of the Bureau’s administrative adjudication processes, including whether a policy of proceeding in Federal court in all instances would be preferable.

Yellen’s Term Comes To An End

Janet Yellen’s term as the first woman to head the Federal Reserve Board came to an end yesterday. Here is the latest statement of the Fed’s Open Market Committee. Incidentally, Yellen is the first Fed Chairman in forty years not to be reappointed to a second term.

February 1, 2018 at 8:59 am 4 comments

Busy day in DC..sort of

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here:

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates.

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber.

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citi Bank over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.”


July 16, 2014 at 8:55 am 1 comment

The Latest From the FED’s Crystal Ball

Yesterday, Federal Reserve Chairman Janet Yellen testified before Congress’s Joint Economics Committee.  Here are some quick takeaways for your credit union to keep in mind as it looks over the horizon.

My guess is that your examiner is more concerned about interest rate risk than Chairman Yellen.  She took pains to stress that even though the FED is on course to end its quantitative easing bond buying binge some time in the Fall, don’t expect it to start raising interest rates as a matter of course.  Why?  Because even though the economy is improving, it’s by no means booming and there are plenty of warning signs on the horizon.

Most notably, the FED is seeing signs of a flattening housing market.  In addition, even though the unemployment rate is dropping, that number alone doesn’t provide a full picture of how bad it still is out there for people looking for work.  She pointed out that the number of long term unemployed remains at historically high levels and that the number of people settling for part-time employment is also skewing the economic picture.  If Yellen has her way, you won’t see the FED taking steps to push up long term interest rates until economic growth is clearly on solid ground and she clearly doesn’t think we’re there yet.  Plus, the economy is so weak that she doesn’t see inflation creeping up over 2% any time soon.

A contrary view of the state of the economy and what the FEDs should do about it was provided in an op ed piece in yesterday’s Wall Street Journal, no doubt timed to coincide with Yellen’s appearance.  In it, Carnegie Mellon professor Allan H. Meltzer argues that the FED is ignoring warning signs of inflation — he points to rising food prices — and also that “never in history has a country that financed big deficits with large amounts of central bank money avoided inflation.  Yet, the U.S. has been printing money — and in a reckless fashion — for years.”  Yellen was repeatedly asked about this critique and she agrees that long term deficits are a danger that Congress should deal with but she parts company with the inflation hawks in two important areas.  First, critics of the FED’s quantitative easing program have always argued that it will eventually result in a surge or inflation s the FED reduces its huge number of purchases.  Yellen was emphatic that the FED has the determination and the tools to keep inflation under control.  Secondly,  she disagrees with the extent to which the current state of the economy presents inflation risk that the FED has to address immediately.  For your credit unions, that means that you will continue to search for yield as your examiners continue to warn against interest rate hikes.  Eventually, they will be right.  But let’s hope that credit unions don’t have to leave too much money on the table to address these concerns.


May 8, 2014 at 8:30 am Leave a comment

NCUA Makes Share Insurance Fund Safest In The World!

As readers of this blog will know, there are days when the amount of news is so great that I do away with my normal commentary to highlight the latest developments.  This is one of those days.

Most importantly, NCUA announced late last evening that it would modify its Risk Based Capital proposal to both accommodate credit union concerns for greater flexibility and NCUA concerns about protecting the all important Share Insurance Fund.  NCUA has decided to scrap its proposed placement of credit union assets into ten risk-rated categories.  Instead, all assets held by credit unions will be given asset ratings of 1250%.  This means that all credit unions will have to back up all their loans with 100% collateral. 

For example, if you want to make a $100,000 member business loan, the member will have to provide you with collateral equal to 100% of the loan. Chairman Matz pointed out that the new system will make the SIF the safest of all bank insurance systems in the world.  In addition, whereas the initial proposal effectively penalized credit unions for holding concentrations of residential mortgages and investing in CUSOs, the new system doesn’t discriminate against any type of lending activity.  When asked how credit unions could survive under this new regime, Matz responded that “the key is going to be volume, lots and lots of volume.”

“Besides,” she explained, “NCUA’s ultimate responsibility is to protect the Share Insurance Fund, not credit unions.”


Following up on a ground-breaking speech yesterday in which she tried to convince people that the Federal Reserve Board really does care about Joe Six Pack when it artificially depresses interest rates that could otherwise be used to help fund retirements and help credit unions and community banks make more mortgages, Chairman Yellen announced that she would be converting the Federal Reserve Banks to credit unions.  She explained that credit unions really do care about their local communities and if they modeled the Fed after the credit union corporate system, what could possbily go wrong?  If the conversion goes through, it will reflect a trend where banks are converting to credit unions by the thousands to take advantage of the credit unions’ tax exempt status.  Once the conversion is finalized, Yellen will be stepping down and her job will be taken over by credit union expert Keith Leggett.  I have a soft-spot for Keith since he’s one of the few people I am certain consistently read this blog.  His new job as head of the credit unions will enable him to take advantage of the low rates and great service offered by credit unions without being fired by the Bankers’ Association. 


Speaking of new jobs, CUNA has responded to the clear, decisive guidance of credit unions by publicly announcing the criteria it will be using to recruit a new CEO.  Specifically, CUNA has been tasked with finding someone who’s a cross between Mother Teresa and Karl Rove.  Rumor has it that CUNA already reached out to Pope Francis about taking the job, but he declined explaining that Popes cannot resign.  Another early candidate was Oprah Winfrey but she declined as one of the few candidates for whom the CUNA job would represent a pay cut.


Yesterday was the drop dead deadline for the American public to sign up for health insurance or be required to pay a fine — I mean tax, sorry Judge Roberts — for refusing to purchase health insurance.  But if you haven’t signed up yet, don’t worry.  The Department of Health and Human Services is expected to announce later today new regulations under which only the politically popular parts of Obamacare will take effect and the public can ignore those aspects it doesn’t like.  The HHS explained that while the regulation may seem broad, it is perfectly consistent with the President’s power to do whatever he wants to do when Congress refuses to go along with his proposals.


Speaking of Congress, House Republicans reacted with anger to Chairman Yellen’s speech yesterday.  They announced their own policies to increase employment highlighted by a bill to do away with all unemployment benefits.  They explained that by completely eliminating government handouts people will have to go out and finally get a job. 




Finally, New York State passed an on time budget for the fourth year in a row late last night.  This is no joke, although if I said this just a few years ago, it would have been.  The truth is your erstwhile blogger can remember sitting around the Capitol on Easter Sundays watching the Ten Commandments while Legislative leaders tried to hammer out a budget.

On that note, enjoy your April Fools Day.

April 1, 2014 at 8:04 am Leave a comment

Yellen Takes The Helm Of The Good Ship Lollipop

. . .Some day I’m going to fly,
I’ll be a pilot to,
And when I do,
How would you,
Like to be my crew?

On the good ship
Lollipop. . .

Janet Yellen had her political debutante ball yesterday when she gave her first Congressional testimony before the House Financial Services Committee as Chairman of the Federal Reserve Board. Considering that one of the primary goals of a FED Chairman at these events is to informatively speak for hours without actually saying anything, she passed with flying colors. Nevertheless, her testimony underscores the likely continuity of FED policy and its limits. The Good Ship Lollipop has set its course.

Just as Shirley Temple cheered people up for a couple of hours during the Great Depression, the FED Chairman is in the unenviable position of defending FED stewardship of an economy, which on paper is gaining strength, but has yet to gain hold in a way that would benefit your unemployed member struggling to make payments or give confidence to another member who is afraid to start looking for a new house.

In her prepared testimony, Yellen took pains to stress that she fully endorsed the policies adopted by Chairman Bernanke and the Fed’s Open Market Committee. This means we can expect the FED to continue to reduce its bond buying purchases. Don’t read too much into her qualifier that continued reduction in bond purchases is contingent on economic growth. The FED has always given itself this flexibility. Absent a major deterioration of the economy, don’t expect the FED to change course.

While the economy is strong enough to reduce bond buying, don’t expect the FED to increase interest rates anytime soon. Yellen stressed that based on its “assessment of a broad range of labor market conditions, inflation expectations, and readings on financial development it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%.”

This last point is particularly important because Yellen is not only signaling the future direction of FED policy, she is also stressing that given the weakness of the economy, inflation fears do not have to color her decisions at this point.

The bottom line with all of this is that the FED has reached the limit of its influence over positive economic developments. Although the economy dodged a bullet when Speaker Boehner came down on the side of sanity and allowed the House to vote on a measure increasing the debt limit, as this article in the Times this morning demonstrates, there are plenty of warning signs that the economy isn’t out of the woods yet.

February 12, 2014 at 8:38 am Leave a comment

Is A Little Inflation Good For The Economy?

Sunday’s New York Times included the type of headline which borders on heretical to anyone who has been keeping an eye on monetary policy since the days of Paul Volcker:  “In FED and Out, Many Now Think a Little Inflation Helps.”  Don’t underestimate how big a deal this assertion is or how much it could further politicize the nomination of Janet Yellen to be the next chair of the Federal Reserve  Board.

Conventional wisdom has it that in the early 1980s Paul Volcker ruthlessly raised interest rates in order to tame inflation.  His actions may have exacerbated an economic downturn, but they also laid the groundwork for more than two decades of solid economic gains.  As a matter of fact, while the FED has a mandate to both keep inflation in check and maximize employment, almost every FED chairman has inflation fighting credentials at or near the top of his curriculum vitae.  As explained in the article, this bias reflects the country’s past experience with inflation eating away at the standard of living while producing little countervailing economic gain.

As Keynesian economics became the predominate economic school after World War II, there was wide acceptance of the view that inflation was a necessary trade-off for a growing economy.  More people with jobs meant more people with money; more spending meant more inflation.  However, starting in the late 1960s, Milton Friedman began to argue that over the long-term intolerance of inflation in the name of maximum employment would simply lead to a stagnating economy where prices rise but spending power diminishes and fewer people can ultimately find work.  His views were vindicated by ’70s stagflation laying the groundwork for Volcker’s actions.

But suddenly, inflation doves are coming out of the closet.  I was a little surprised to see the number of people who are willing to talk boldly about the need for the FED to tolerate inflation and even encourage it.  In a blog post yesterday evening expounding on his views, Jared Bernstein, who was formerly Vice President Biden’s top economic advisor, explained that higher inflation rates would have the effect of reducing debt burdens and enticing companies with inflated profit margins to borrow more money for expansions.  You may be charging a member $350 each month now to repay a car loan, but if that same member suddenly sees an increase in salary, you won’t be able to make that member make higher monthly payments.  In addition, a rise in inflation, he argues, might actually increase consumer confidence by increasing the wages of the American worker.

The problem with this argument is that it smacks of desperation at a time when more and more people are trying to figure out what can be done to jump-start the economy.  We’ve been down this road before, and the danger is that if the FED decides to tolerate inflation and is wrong, then there’s nothing it can do to fix its mistake except cut back on the money supply at a time when more money is exactly what we need to further economic growth.  Furthermore, it’s already difficult enough for credit unions to find safe yields.  Can you imagine how much trickier the search will become if inflation starts creeping up in the name of economic expansion?

This may seem like abstract stuff, but it isn’t.  One of the primary arguments in favor of the FED tapering its bond-buying program when it meets this week is the fear that the program has the potential to create a sudden surge of inflation if and when the FED stops artificially manipulating bond prices.  Conversely, proponents of bond buying don’t see inflation as much of a risk.  Now we have some economists who are willing to argue not only that inflation is not a risk, but that it could produce a significant number of economic benefits.  This is a debate that will be played out for years to come.  But let’s remember that those who fail to heed the mistakes of the past are bound to repeat them.

October 28, 2013 at 7:30 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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