Today’s blog comes courtesy of Shari Storm, Vice President and Chief Marketing Officer of Verity Federal Credit Union. Shari is the author of the new book ‘Motherhood is the New MBA”, available at: http://www.amazon.com/Motherhood-New-MBA-Parenting-Skills/dp/0312544316/ref=sr_1_1?ie=UTF8&s=books&qid=1259855999&sr=1-1.
I think some of the financial crisis is due to the inability of numerous creditors to help consumers – not their unwillingness to help consumers – but the sheer logistical inability to help people.
A story to illustrate my point.
I bumped into a neighbor several months ago and he told me he was moving. He was moving because the creditor that held his second mortgage was foreclosing on his home. He told me about how the creditor that held the first mortgage had set up a modification with him but the second wouldn’t budge. He was incredulous because the home was no longer worth enough to cover a penny of the second mortgage, so forcing a foreclosure would leave the second lien holder with nothing. Then, to make matters worse, the night before the trustees sale; after he had sold most of his belongings and moved his family to a smaller apartment, the creditor with the second mortgage called and said they didn’t want to foreclose and they wanted him to keep living there.
I could just picture what happened. Back with this particular creditor, there was probably one collector who hadn’t yet got the message that each new delinquency requires a different solution. They probably weren’t thinking about the fact that foreclosing on a property that they would get no money from probably wasn’t the best move. They were simply following procedure. Three months of short payments = legal proceedings. Then, at the final hour, another person at the organization, maybe a manager, might have looked at the case and said, “This is a losing proposition. We can’t foreclose. It isn’t worth it to us.” And the collector may have said, “How am I supposed to know which ones to foreclose on and which ones to wait on?” and the manager probably said, “I don’t know.”
Add to all of this the likelihood that the creditor probably doesn’t have the proper legal documents to set up modified payments, the right staff to process loan modifications or a systematic way to ferret those requests which are simply consumers who don’t want to pay vs. those that really can’t pay.
So for months, my neighbor didn’t know what to do. He didn’t know if he should move back into his house or stay in his tiny apartment. And nobody at this organization felt comfortable advising him. He lived in limbo for months.
Multiply this by hundreds of thousands of people, thrown into a government program that still doesn’t have all the questions answered, include the NCUA Supervisory Letter that has made credit unions even more cautious about mortgage workouts and you get a pensive economy. Pensive economies don’t thrive. When consumers are uncertain about their futures, they do not behave in ways that are conducive to healthy economies.
Last year, Verity Credit Union set up a counseling system. We modeled it after Consumer Credit Counseling Services (where I used to work). We appointed four people to work on financial counseling. Their primary functions are:
1. Intake: They ensure that we have more information than our bill collectors have gathered in the past. They get paystubs, credit reports, house values, statements from all other creditors and monthly budgets. They also meet with each member in person and get the fullest picture possible of the member’s financial situation.
2. Assessment: The counselors look at the full financial picture of a member; taking into consideration job situations, living expenses and overall debt load.
3. Advocacy: The counselors help members negotiate reduced payments with their other creditors. The counselors provide a wide range of support; from helping people apply for food stamps to evaluating the decision to borrow against life insurance policies.
4. Recommendation: The counselors pass their recommendations on to a committee that includes senior management. Each case is reviewed separately and loan modifications are set based on as much knowledge as possible.
5. Commitment: The counselors meet with the “clients” on a regular basis (often monthly). We make it clear that our loan modifications are offered only to members who are committed to paying their obligations.
What the counseling program is able to provide is the quick transfer of information from the credit union to the consumer. The consumer knows within a week what their loan modification is (or is not) going to be. When a consumer has more information they are able to move through their lives more effectively. When they get immediate responses, they do not have to end up like my neighbor, spending his time and energy trying to figure out if he can keep a roof over his family’s head. Instead, he can focus on returning to the work force and becoming a producing member of our economy.
In turn, our credit union has a better understanding of our true loan exposure. Many of the people who use our counseling services have not been late on a payment yet. In fact, we encourage people to seek counseling before their first late payment. This can be painful for us in the short term. After all, we are taking loan impairments that we would not have necessarily taken without the program. But we believe that the more knowledge we have of our members’ situations, the better off we will be.
I like to think that our counseling program not only helps our members, but helps the economy on the whole. Here in Seattle, there are 93 people who have an advocate in the financial world and are surviving the downturn due in large part to the prompt and thorough assistance of their credit union.
Filed under: Current Issues in Credit Unions | Tags: credit union iPhone applications, Letters of Understanding, operations, Regulation E, Regulation Z
This month Faith, Hal, Katherine and Rob are joined by Tristam Coffin, CEO of Alternatives Federal Credit Union. Here are the topics:
–Never ending Regulation Z update.
–Operational challenges facing credit unions in 2010.
–Reg E Overdraft Rules Effective 7/1/2010.
–What to do when you get an LUA?
–Big K Roundup (The “Robinhood” Foreclosure; Why do Banks Really Hate Credit Unions; www.findacreditunion.com;
Your Credit Union–There’s an app for that–maybe?)
The CIiCU hosts are:
Brian Witt
Hal Scoggins
Farleigh Wada Witt,
Attorneys at Law
121 SW Morrison Street, Suite 600
Portland, Oregon 97204
Telephone:
Fax: 503-228-1741
http://www.fwwlaw.com
Guy Messick
Katherine Weber
Messick & Weber P.C.
The Madison Building, 108 Chesley Drive
Media, Pennsylvania 19063-1712
Telephone:
Fax: 610-891-9008
http://www.cusolaw.com
Faith Anderson
American Airlines Credit Union
P.O. Box 619001
MD 2100
DFW Airport, TX
75261-9001
https://www.aacreditunion.org/default.asp
Robert Rutkowski
Shareholder
Weltman, Weinberg & Reis Co., L.P.A.
323 W. Lakeside Avenue, Suite 200
Cleveland, Ohio 44113
Telephone:
Fax: 216-739-5642
http://www.thatcreditunionblog.com
http://www.weltman.com
Subcribe to the show via iTunes Music Store: http://phobos.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=151785964&s=143441
Filed under: bankruptcy, credit unions, mortgages | Tags: Chapter 13, monthly mortgage payment changes, Western District of Pennsylvania
November 17, 2009
By Holly C. Thurman, Esq.
Effective January 1, 2010, the Western District of Pennsylvania Court Procedure will change regarding notifying the Court and the Debtor of monthly mortgage payment changes. The Chapter 13 Trustee is the acting disbursing agent for ongoing mortgage payments in this district.
Notice of Mortgage Payment Change must be filed with the Court at least twenty-one (21) days prior to the date that the change is to become effective or the Creditor is forever barred from collecting the difference in the change. In order to comply with this deadline, your attorney will need the information and documents as soon as possible after the escrow changes or the interest rate changes.
The Notice of Mortgage Payment Change must include:
- A complete and accurate loan payment history;
- A computation of the payment change “in a format which is readably understandable by the Court and the Parties-in-Interest;” and
- A declaration under penalty of perjury by a competent official of the Creditor substantiating the veracity and accuracy of the requested change
The Notice can no longer simply state what the monthly payment is and the effective date, rather, we will have to compute and accumulate detailed information justifying the change.
If a loan is transferred or sold, the procedure will now require the new owner to file a copy of any applicable lien assignment evidencing the Creditor’s alleged right to payment if the Creditor is not currently a Creditor “of record”. The assignment must also include, on a separate page, a narrative summary of the chain of title evidencing the Creditor’s authority to act and be paid.
After a Notice of Mortgage Payment Change is filed, the Court will issue a standard order requiring the debtor to:
- Amend the chapter 13 plan;
- File a declaration that the existing chapter 13 plan is sufficient to fund the plan with the modified debt; or
- File an objection to the Notice of Mortgage Payment Change as stated and the Court will schedule a hearing on the matter
If a Declaration is filed by the debtor that the monthly plan payment doesn’t need to change, we recommend a review of the Chapter 13 Trustee’s website to be sure that the changed monthly payment amount is disbursed. If an Objection to the Notice of Mortgage Payment Change is filed, additional documentation may be necessary to defend the Notice of Mortgage Payment Change.
If lenders want to be paid post petition fees, expenses or charges, then within 180 days from the date incurred, lenders must file a Notice of Post-Petition Fees, Expenses and Charges. Examples of fees incurred post petition are attorney fees, BPO fees, property inspections and other administrative fees. The notice must include an itemized list of the fees and expenses and when they were incurred. The Court will issue a standard Order giving the Debtor twenty-one (21) days to amend the plan, file a declaration, or object to the Notice.
Lenders must now be very diligent in administering loans secured by real estate and file the required notices with the court on a timely basis, or they will be barred from collecting increases in payments and other expenses. WWR is continuing to monitor these developments and will advise you as procedures change so that you can take the steps necessary to protect yourself while the debtor is in bankruptcy.
The Administrative Order implementing this new procedure can be found on the Western District of Pennsylvania Bankruptcy Court’s website at http://www.pawb.uscourts.gov.
If you have any questions regarding this client advisory, please contact Ms. Holly C. Thurman, Esq. Holly is an associate in the bankruptcy department within the Real Estate Default Group of Weltman, Weinberg & Reis Co., L.P.A., and is located in the Pittsburgh office. She can be reached directly at 412.338.7105 or via e-mail at hthurman@weltman.com.
For more bankruptcy news and information, visit our bankruptcy blog at wwrbankruptcy.com. Visit realestatedefaultgroup.com for more information on real estate default.
Filed under: suspicious activity reports | Tags: "credit union", bank secrecy act, Money Services Businesses, suspicious activity report
Yesterday at my Bank Secrecy Act Seminar in Cleveland, Jim Furman, the CEO of Port Conneaut Federal Credit Union, asked me a question. I’ve known Jim for many years and I’m privileged to be the credit union’s attorney. I also know that when Jim asks a question, I’m going to be in for a treat.
His question was this: does a credit union have to ask a potential Money Services Business whether it is duly licensed as a BSA requirement on the part of the credit union? In other words, if a company has a member business account with the credit union and it’s bringing in a lot of third party checks that it has cashed for customers or exhibiting other behavior indicative of an MSB, does a credit union have to verify whether the business is licensed as such and then, if it isn’t, warn the MSB that it must be and if it persists in non-compliance, file a SAR?
As we discussed this concept together with the group, some of the BSA mainstay concepts come into play. The Customer Identification Program and Member Due Diligence aspects of the credit union’s BSA policy will require it to ask questions about what the potential MSB member is doing. If the member is taking 3rd party checks from its customers and then depositing these checks at the credit union, the credit union should review whether it wants to take 3rd party checks in the first place. I would recommend that credit unions do not take 3rd party checks because the risk of fraud is too great.
So even without checking with FinCEN, a credit union would be asking probing questions about the potential MSB. The answers to these questions could easily put the MSB into High Risk Member territory and require even further due diligence on the part of the credit union.
In the end, however, Jim Furman was right in thinking that FinCEN does indeed have guidance specifically on point. Check out:
http://www.fincen.gov/news_room/nr/html/20050426.html
At a minimum, if a credit union is dealing with an MSB or thinks it might be dealing with an MSB it must:
• Apply the banking organization’s Customer Identification Program;
• Confirm FinCEN registration, if required;
• Confirm compliance with state or local licensing requirements, if applicable;
• Confirm agent status, if applicable; and
• Conduct basic risk assessment to determine the level of risk associated with the account.
Moreover, if the credit union determines that the MSB is not duly registered under federal, state and local requirements and it should be, FinCEN is unequivocal: “The guidance states that a banking organization should file a suspicious activity report if it becomes aware that a customer is operating in violation of the registration or state licensing requirements.” There is no grace period here or a one time free pass. If the credit union is dealing with an MSB or something that looks like an MSB, it must conduct its due diligence and file a SAR if any irregularities surface. Thanks Jim!
Filed under: Ohio, credit unions, mortgages | Tags: affirmative defense, foreclosure, mortgages, Notice of Default, Ohio
by Larry R. Rothenberg
Many states have statutes requiring the service of a notice of default prior to commencing a mortgage foreclosure. Although Ohio does not have such a statutory requirement, the lender must, nevertheless, fulfill such a condition precedent if it is required by its loan documents. A failure to do so will leave the lender vulnerable to an affirmative defense being raised in that regard in the foreclosure case.
The “Ohio, Single-Family, Fannie Mae/Freddie Mac” uniform mortgage deed form (hereinafter the “Form”) imposes such an obligation on the lender prior to acceleration of the debt and foreclosure of the mortgage. This advisory will discuss how to ensure compliance with the Form’s condition precedent.
Who Must Be Served With The Notice?
The Form expressly states, “Lender shall give notice to Borrower.” This implies that all borrowers, who have not previously been released, are entitled to notice of the default prior to acceleration and foreclosure.
What if the mortgage was voluntarily given by the owner of the real property, to secure a loan given by the lender to another person? The provision of the Form only requires that notice be given to the “borrower” and does not require that a notice be given to a non-borrower mortgagor. However, many judges today are taking a more adversarial posture against lenders, and will not process foreclosures easily where the lender has not thoroughly pursued loss mitigation efforts. Therefore, we recommend that in addition to the borrower, any non-borrower mortgagors be served as well with the pre-acceleration notice in order to notify them that although they are not personally liable for the debt, a foreclosure may be filed if the default is not cured.
What Must Be Included In The Notice?
The Form requires that the notice specify (a) the default; (b) the amount required to cure the default; (c) a date not less than 30 days from the date the notice is given to the borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by the security instrument, foreclosure by judicial proceeding, and sale of the property. The Form further requires that the notice inform the borrower of the right to reinstate after acceleration and to assert the non-existence of a default in the foreclosure proceeding, or any other defense of borrower to acceleration and foreclosure.
Lenders should review the content of their notices to ensure that they strictly comply with these requirements. Even a minor deviation may give rise to a valid defense in some judges’ minds.
When Must The Notice Be Provided?
As indicated above, the Form requires that the notice give a date, not less than 30 days from the date the notice is given to the borrower, by which the default must be cured. Section 15 of the Form states: “Any notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means.”
Hence, if the notice is being sent by first class mail and it provides a 30-day period from the date of the notice to cure the default, the lender must make sure that it is actually mailed, i.e. deposited in a post office mail box or delivered to the post office, on the date that the letter is dated. In the event that an issue is raised in the foreclosure case regarding when the letter was mailed, it may be necessary for the lender to prove that fact with documentary evidence.
If the notice is being delivered by means other than first class mail, for example, by certified mail or hand delivery, the Form provides that the 30-day period prior to acceleration begins to run upon actual delivery. Therefore, if lenders are having the notice delivered by means other than first class mail, they must ensure that it is actually delivered not less than 30 days prior to the deadline stated in the letter, to cure the default.
Where Must The Notice Be Delivered?
The Form states that the address to which to deliver the notice shall be the property address unless the borrower designated a substitute notice address by notification to the lender. Therefore, the lender should deliver the notice to the property address, unless the borrower provided a different mailing address either when the loan was initiated, or in a subsequent notification to the lender of a change of the borrower’s address. The Form places the responsibility on the borrower to promptly notify the lender of a change of the borrower’s address. If the lender specifies a procedure for the borrower to provide a change of address, then the borrower must use that method to report a change.
The Form expressly states that there may be only one designated notice address at any one time. However, even though not required by the Form, it is recommended that the lender serve the notice at multiple addresses if it may be reasonably expected to reach the borrower at one address or another, in order to avoid a defense being raised before a pro-debtor judge.
How Must The Notice Be Delivered?
The Form does not require that the notice be delivered by any particular method. As mentioned above, if the notice is delivered by first class mail, it is deemed delivered when it is sent. However, first class mail is not the exclusive method of delivery. Many lenders use certified mail or personal delivery, although the item is not deemed delivered using those methods, unless and until it is actually delivered.
This issue was illustrated in the 10th Appellate District of Ohio’s recently decided case of Natl. City Mtge. Co. v. Richards, 2009-Ohio-25556. The lender prepared a proper notice and timely sent it by certified mail, which was returned as unclaimed. When the lender’s attorney subsequently filed a foreclosure action and then a motion for summary judgment, the borrower argued that the notice was ineffective because it had not been delivered. The Court of Appeals agreed with the borrower’s argument, stating that certified mail is not the same as first class mail, and therefore, although the mortgage provides that delivery of first class mail is presumed upon mailing, the mortgage does not provide such a presumption for certified mail. Hence, according to the Court, because the certified mail notice was returned unclaimed, it is not deemed to have been delivered, and therefore, the notice failed to fulfill the requirement contained in the mortgage, for a pre-acceleration notice of default. Consequently, the Court of Appeals ordered the foreclosure case dismissed. Lenders who are sending the notice by certified mail or hand delivery can easily avoid this problem by sending it via ordinary first class mail also. For a complete copy of the case, go here.
Conclusion
Lenders can save themselves much aggravation, duplicate court costs, and delays, by reviewing and strictly complying with the default provisions contained in their note and mortgage, before referring it to counsel for foreclosure. If the mortgage requires a pre-acceleration notice, the lender should indicate whether the lender delivered the notice in the referral package to foreclosure counsel, and if so, provide a copy of the notice and evidence or an indication as to how, on whom, and when it was delivered.
If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq. Larry is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at lrothenberg@weltman.com.
Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A . For over 75 years, we have been providing comprehensive creditor representation and legal services to clients. Our approach integrates the filing of legal action with our recovery activity anywhere a debtor or debtor’s assets may be located. We coordinate the handling of files personally throughout our footprint states of Illinois, Indiana, Kentucky, Michigan, New Jersey, Ohio and Pennsylvania, or through our national attorney network. When it comes to creditor representation at WWR, we get it.
Filed under: Current Issues in Credit Unions | Tags: Consumer Protection Agency, credit CARD Act, HOEPA, Pandemic, Regulation GG, The Protocol, Twitter
This month, Faith, Katherine & Rob bring you the following topics:
–Credit CARD Act update.
–HOEPA update.
–Regulation GG.
–Pandemic preparation.
–Ugottaloan
–Big K Roundup (To Tweet or Not to Tweet; New Developments on Consumer Protection Agency; The Protocol–How Will it Impact a Credit Union’s Relationship with its Broker-Dealer)
The CIiCU hosts are:
Brian Witt
Hal Scoggins
Farleigh Wada Witt,
Attorneys at Law
121 SW Morrison Street, Suite 600
Portland, Oregon 97204
Telephone: 503-228-6044
Fax: 503-228-1741
http://www.fwwlaw.com
Guy Messick
Katherine Weber
Messick & Weber P.C.
The Madison Building, 108 Chesley Drive
Media, Pennsylvania 19063-1712
Telephone: 610-891-9000
Fax: 610-891-9008
http://www.cusolaw.com
Faith Anderson
American Airlines Credit Union
P.O. Box 619001
MD 2100
DFW Airport, TX
75261-9001
(800) 533-0035
https://www.aacreditunion.org/default.asp
Robert Rutkowski
Shareholder
Weltman, Weinberg & Reis Co., L.P.A.
323 W. Lakeside Avenue, Suite 200
Cleveland, Ohio 44113
Telephone: 216-739-5004
Fax: 216-739-5642
http://www.thatcreditunionblog.com
http://www.weltman.com
Subcribe to the show via iTunes Music Store: http://phobos.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=151785964&s=143441
Direct download: CIiCU_42_final.mp3
Filed under: Frivolous Friday
For the last few months, in a corner of my mind, an idea has been bouncing around my head, waiting for a Friday to emerge. The idea is simple, really: a new ultra low cost loan product for credit unions that would make members happy, increase a credit union’s loan volume (and its bottom line) and, well, revolutionize the industry.
Ladies and gentlemen, with all the seriousness implied in a Frivolous Friday post, I give you the Ugottaloan!
What do members want? They want money and they want it now. To get a Ugottaloan you need three things (other than a pulse): (1) a driver’s license, (2) an email address and (3) a job. Here’s how it works. The member signs up for the program and gives the credit union all the information required under the Patriot Act, The Bank Secrecy Act and FACTA red flags, etc. Maybe we’ll throw in a genetic scan too and of course a full body search, just to be on the safe side. The important thing, though, is that the member has a job and an email address because that’s how the credit union gets paid and communicates with the member.
The Ugottaloan is pure, raw innovation because it features the Daily Periodic Statement and is 100% paperless (after the ream of initial disclosures of course although I’m thinking we could force the member to scan these in the lobby and then shred them). The Daily Periodic Statement consists of a series of tabular format disclosure that go well beyond anything the Federal Reserve Board could imagine and far exceed any Congressional requirements. Every single day, the member will know exactly where he or she is with the Ugottaloan if he or she chooses to read the email. Just because that will never happen doesn’t really matter, right? Members don’t read what they get now anyway.
But this isn’t even the best part of the Ugottaloan. Members want their money and they want it now. Let’s dig into the inner workings of the product, shall we? I envision this product being in three tiers: $500, $1500, and $3000. After the member is approved (and underwriting here is very simple: pulse, job, email address—approved!) the member can get cash advances any time he or she wants by swiping his or her drivers license in a card reader at the credit union. This loan is hyper-open end. The member can take as many draws as desired up to the balance available at any time. The credit union gets its loan payments via direct deposit every time the member’s paycheck hits the member’s account. The interest rate on the loan is 18% and there are no fees for anything. Totally simple. The monthly payment is based on 4% of the average daily balance.
Wait, you say, this doesn’t makes sense, a member can get cash advances on a credit card right now in a similar fashion. Ah, that’s true, but the member also gets fee’d to death! Here, the member can avoid check cashing companies, overdraft services and cash advance fees. Sure, the 18% rate with a 4% minimum payment is akin to the old company store arrangements that Johnny Cash used to sing about but is it still better than the alternatives!
And Ugottaloan sells itself! Put up a banner: “Gotta job? Ugottaloan!” Later you can add bells and whistles like a Ugottaloan debit card that lets the member use the loan program through ATMs or even allows members to buy things with it. “Doesn’t it become a credit card at that point?” you say. Well, maybe, we’ll have to think about that more, but the point is you can start out slow and think big later. And even if it is, since it is paperless we can pound the member with disclosures and statements constantly and not kill forests in the process.
Ugottaloan is nothing if not honest and it makes everyone happy. The member is happy because money is easy to get and there when the member wants it. Congress and the Fed should be happy because we are bombarding the member with a constant stream of information concerning the loan. The member sees the balance every day and can pay it off anytime he or she want. If that doesn’t happen, it becomes sort of an annuity for the credit union but at the same time the member pays less than with other life blood sucking products available. The credit union wins because it gets paid first through the direct deposit process and if the member messes with that he or she gets cut off immediately and the member gets more tabular format emails explaining what happened. Win, win, win!!!
Ugottaloan: it’s the future of lending.
(Rob Rutkowski has to take the sole blame for this one…)
Filed under: collections, credit cards, credit unions, interest rates, operations, repossession | Tags: banking operations, car loan, credit card debt, Cuyahoga County, debt collection, Eighth District Court of Appeals, Fifth District Court of appeals, interest, interest rate, Ohio courts, post-judgment, pre-judgment interest, purchased debt, repossessed, retail installment contract, Richland County, statutory interest
by Joseph D. DeGiorgio, Esq.
Throughout the first nine months of 2009, Ohio courts issued several decisions with a significant impact on the laws governing banking operations and debt collection. Courts in Ohio have decided cases involving issues such as what proof is required for a bank to recover pre-judgment interest, what party or parties may bring an action on a purchased debt, and what rate of interest should be applied to judgments rendered as a result of a default on a retail installment contract. Following is a general summary of two of the most noteworthy recent decisions in Ohio; WWR clients seeking a more detailed analysis of any of the following decisions or advice on future strategy changes as a result of these holdings should, as a general rule, contact a WWR attorney directly.
On June 1, 2009, the Fifth District Court of Appeals in Richland County, Ohio, decided the case of John Soliday Financial Group, LLC v. Jason Starcher. The Fifth District heard the case on appeal from a decision of the Common Pleas Court; the Common Pleas case, involving an automobile purchase, was filed by John Soliday Financial Group, LLC, and was based on a retail installment credit contract originally signed in 2004. After Starcher defaulted on the car loan, the car was repossessed and sold, leaving more than $3,000.00 owing under the terms of the contract. The Common Pleas court granted judgment for John Soliday Financial Group, LLC on the principal amount, along with accrued interest at the rate specified in the contract, but granted all post-judgment interest at the statutory rate in effect at the time, rather than the rate specified in the contract between the parties. The plaintiff appealed, arguing that it was entitled to the interest rate set forth in the contract, a rate higher than the statutory rate.
The Court of Appeals, citing Ohio Revised Code Section 1343.03, held that since, “[t]he contract set forth the annual percentage rate in bold-faced type and boxed in at 24.95% . . . [and because the defendant] agreed to an annual percentage rate of 24.95% . . . the trial court erred in not awarding [John Soliday] interest [of] 24.95% per the terms of the contract.” The Court’s decision, therefore, stated that when parties to a retail installment contract agree to a specific rate of interest – and the evidence before the court shows the existence of that agreement – then courts should not grant post-judgment interest at any rate other than that specified in the contract (assuming no issue as to usurious interest is at stake), including any statutory rate of interest set by state statute. The decision may seem obvious – that the rate of interest on a judgment will be the rate the parties agreed to – but the fact that the case had to be appealed shows that not all courts apply the law uniformly.
In another important decision, the Eighth District Court of Appeals in Cuyahoga County, Ohio, decided the case of Capital One Bank vs. Linda D. Brown on June 25, 2009. At issue in the case was whether a party (here, Capital One Bank) was entitled to pre-judgment interest on a judgment that stemmed from a credit card debt. The Eighth District case was heard on appeal from a municipal court in Cuyahoga County; the municipal court’s decision granted default judgment in favor of Capital One, along with interest from the date of judgment, but did not grant Capital One the pre-judgment interest it requested in its Complaint. Capital One appealed the decision from the municipal court, arguing that it was entitled to judgment for the principal balance it was owed, interest from the date of judgment, and pre-judgment interest.
On appeal, the Eighth District partially agreed with Capital One, holding that, “when [a] credit card holder uses a card, he or she is then bound to the terms of the credit card agreement.” Therefore, the Court went on to state, since “[t]he agreement in the instant case set interest at 25 percent . . . the court erred in failing to award prejudgment interest at the contract rate.” The Court ultimately remanded the case back to the municipal court, ordering it to, “determine the date on which Brown’s debt became due and payable and . . . calculate and award prejudgment and post-judgment interest at the contract rate.” In sum, therefore, the Court of Appeals disagreed with and reversed the lower court’s decision to deny pre-judgment interest.
While the facts of any individual case may be different from any other, one thing is clear: not all Ohio courts agree on how to apply the laws regarding debt collection. All WWR clients should be aware that the state of the law – and the interpretation of the laws by various courts – are in constant flux, and all financial institutions and WWR clients should proceed with the understanding that a strategy for debt collection should evolve along with the laws.
Moreover, and this may be hard for a lender to imagine, despite these two very clear cases from the appeals courts, county and municipal courts may continue to award both pre- and post- judgment interest as they see fit instead of following precedence. In other words, if a municipal or county judge feels that a lender should not get the benefit of its bargain, precedence is not going to be a barrier to the judge to act according to his or her desire instead of adhering to the contract agreed to by the parties. The only remedy is to appeal and this costs money. Most lenders will find that it is cheaper to accept the lower interest rate and move on.
Joe DeGiorgio is an associate in the Collection Services department located in the Grove City, Ohio office. He can be reached directly at 614.801.2658 or via e-mail at jdegiorgio@weltman.com.
Filed under: Conference feedback, Credit CARD Act of 2009, credit cards, credit unions, marketing, opinion | Tags: Best Practices Conference, brand, branding, credit cards, Jim Perry, Market Insights, marketing, media, National Association of Realtors, public relations, REALTORS Federal Credit Union, Sarah Snell Cooke, The Credit CARD Act, The Credit Union Times, Timothy Kolk, Tom Glatt, TRK Advisors, virtual credit union
Day 2 started with a compelling speaker, Tom Glatt of REALTORS® Federal Credit Union (www.realtorsfcu.org). For those of you who have heard Tom speak before, you know he is full of provincial stories about growing up in Louisiana, complete with his Cajun accent. While I find his act to be a little over the top, you cannot dispute that Tom knows what he’s talking about and conveys his messages effectively. Tom has another feather to add to his cap—he started a new federal credit union (CU) in May 2009! What’s more is that this CU is completely virtual; they don’t have a single branch. Teaming up with the National Association of Realtors (NAR), Tom and his team have put together an impressive organization. Tom admits that their competitive advantage is their association with NAR. Another advantage this CU has is that since it is completely virtual, their cost of operation is low and will remain stagnant, with 31 vendors through whom they outsource everything (the CUs 20 some employees basically function as vendor management). Most CUs’ cost of operation will only continue to rise. The CU offers the complete suite of consumer products, except credit cards. The CU started with a $15M gift from NAR to get things rolling. Since opening four months ago, they have taken in $10M in deposits and made $6M in loans with 2400 members. They have a VERY aggressive growth plan (especially in this environment): By the end of their first year, he hopes to have 24,000 members and $100M in assets; by the end of their fifth year, he hopes for 100,000 members and $500M in assets. I wish Tom and his team luck!
Our next presenter was Jim Perry of Market Insights, who effectively conveyed to us that every CU has a brand. The question is, what are CUs doing with their brands (if anything) and are they exploiting their brands to their advantage? According to Jim, brands are 100% perception and everyone (your staff) and everything (your staff does) contributes to this brand, positively or negatively. It’s important for CUs to realize this and take conscious steps toward shaping their brand into something that not only attracts new members, but keeps them once they’ve come in the door. CUs spend a lot of time on marketing pieces and coming up with promotions to bring in new members and increase business from existing member, but I doubt many CUs spend a lot of time molding their brand. I think what Jim had to say is essential to CUs emerging from this financial crisis stronger, as they work toward differentiating themselves from banks and this includes everything from the smell of the CU branch, to the music playing in the lobby, to the appearance of the staff and the way the staff interacts with its members.
I think one of the most practical presentations of the conference was by Timothy Kolk, of TRK Advisors, LLC (www.trkadvisors.com). His presentation focused on the things CUs need to do in response to The Credit CARD Act to minimize losses in the short run and maximize profits in the long run. His thesis was that we will never return to “normal.” With fewer consumers qualifying for credit cards with other lenders there will be an increased demand placed on CUs to provide this service. Timothy cautioned CUs not to be too excited about this market share opportunity because CUs are going to be stuck with a bunch of members who cannot afford to pay their bills on time. Timothy also encouraged CUs to make changes to their credit card programs now, such as increasing APRs, moving from fixed plans to variable, and increasing fees across the board. From a marketing perspective, it can be tough to sell this to your existing members; it’s hard to tell members that while you are now charging fees that you didn’t charge before, at least they’re not as bad as other lenders’ fees. However, Timothy warned, if these changes aren’t made, it will be nearly impossible for CUs to have profitable credit card programs.
The conference concluded with a cogent presentation by the Editor-in-Chief of The Credit Union Times (www.cutimes.com), Sarah Snell Cooke. Sarah discussed with us the power of public relations, both as a way to bring free publicity to your CU, but also to establish yourself as an expert in the industry. She gave us the following do’s (and don’ts) when interacting with members of the media and to increase your likelihood of being successful with your PR efforts:
- Always be honest
- Know and honor deadlines
- Call back members of the media when they call you
- Never say “no comment”
- Pitch good stories
- Know your relevant media outlets, know their audiences, and know their reporters
- Be of interest
- Send all press releases via e-mail with a clear, accurate subject. Include press release as an attachment as well as photos. Get to the point in the press release.
- Don’t rely on press releases too heavily (too many, too often, OLD, and poorly written)
- Don’t list somebody as the media contact on a press release who is going on vacation, out on maternity leave, etc.
- Don’t combine PR with marketing (also suggests not using an outside firm)
- Don’t be a pest
I think using the media to get your message out to your potential members is an excellent (and did I mention FREE) approach. Along the way, you will be able to establish yourself as an expert in the field which will increase your clout among your peers and with your members. Just be careful that you don’t turn into a media fiend like Donald Trump!
Overall, this was a worthwhile conference. The topics were relevant, the speakers were qualified and some were even engaging. The facilities were nice and the entire conference was well organized. My hat goes off to Sarah and her team at The Credit Union Times for a job well done.
John B. C. Porter, Esq.
jporter@weltman.com
Filed under: Conference feedback, credit cards, credit unions | Tags: Bluepoint Solutions, Christopher Joy, conference, Credit Union Times Best Practices Conference, credit unions, economic downturn, Eric J. Lucas, Hal Tilbury, Jim Blaine, NACUSO, Peter Duffy, PSCU Financial Services, Sandler O'Neill & Partner, State Employees' Credit Union, Thomas Davis, Tom Chandler
Let’s get the superficial stuff out of the way: The hotel (The Westgate Hotel www.westgatehotel.com) is lavishly appointed with brass fixtures and marble counters, spacious rooms, soft sheets and large windows. The food is perfectly prepared and served in bounty. The staff was courteous and proficient.
This all provides the prefect setting to be told the cold, hard reality: We’re facing unchartered, tough economic times. Some Credit Unions (CUs) won’t survive and those that do will face an economic and regulatory climate very different from the environment in which CUs operated before the economic downturn of 2008. So what do we do with that information? What can CUs do today, to position themselves most successfully to emerge from these challenging times? I guess it depends on who you ask.
The morning started off with Jim Blaine, CEO of State Employees’ Credit Union (www.ncsecu.org), sharing with us how he grew this CU into the second largest CU in the country (assets of $19B). Interestingly, this is a SEG based CU, the same SEG the CU started with in 1937 (state employees, teachers, and their families). He had a lot of interesting information to share with us. One thing I found striking was that he stated that his CU does no marketing and doesn’t believe in it. I think this works for them because they are SEG based and have 1.5 million members throughout the state. They don’t need to market; even if they did, it would probably be a waste of money. Jim’s justification was that this freed up money to return to the membership, but I don’t think for most CUs, especially those that are community chartered, they can survive without marketing. Specifically, Paul J. Lucas (www.pauljlucas.com), who has developed a niche in assisting CUs with their branding/marketing strategies, stated in his presentation that CUs need to spend (at a minimum) 0.25% of their assets (annually) on marketing.
Jim did cite studies that, time after time, rank members’ preferences when it comes to CUs and what members want: 45% stated that convenience was their top priority; 25% stated that consistency was their top priority; 15% cited price and the same percentage stated service! Jim poignantly stated that Wal-Mart was no accident! Jim wasn’t the only presenter who referenced Wal-Mart. Thomas Davis, of NACUSO (www.nacuso.org) used Wal-Mart as an example of how organizations need to undercut their competitors in providing a lower-quality service at a lower price (as compared to Sears and K-Mart). His thesis was that consumers’ needs plateau, and most service providers’ products surpass the needs of their consumers.
We then heard form Peter Duffy of Sandler, O’Neill & Partner (www.sandleroneill.com), who was a nice counter-point to Mr. Blaine. While I felt that a lot of what Peter had to say was rather abstract, much of his commentary was on point. It is fair to say that Peter is a capitalist. In fact, on more than one occasion, Peter stated that CUs need to be “ravenous pigs” when it comes to profit. Of course, we all know that CUs are not for profit, but I think Peter’s point was well taken: CUs need to survive to serve their members; CUs pass their profit on to their members through increased services, lower rates on loans, or increased dividends on deposits. While I think Peter’s phraseology was a little crude, no one can accuse me of being subtle, so I probably shouldn’t throw stones. Peter also pointed out that once you get past the “factory floors”, CUs realize that communities are not their supporters—a nice contrast to Jim’s success as a SEG based CU. Overall, I felt like Peter’s message was a little too much, “Chicken Little the sky is falling” for me. He posited that CUs are at a regulatory disadvantage to their “similarly situated” community banks. For that reason alone, he felt CUs faced large obstacles when it came to successfully exiting the economic crisis facing this nation. I was hoping for a little more optimism from Peter. Specifically, I was looking for encouraging signs, or a roadmap out of this quagmire. Unfortunately, Peter failed to deliver. Maybe it is hopeless, but I, for one, refuse to accept defeat in this era of challenge and ingenuity!
One thing that surprised me from both of these presenters, and after speaking to many of the attendees of the conference, was the sheer hostility toward courtesy pay and indirect lending. The presenters stated that both features separated CUs from their membership and would ultimately be eradicated by regulation. While I’ve never endorsed courtesy pay as a practice, I was slightly surprised by the number of attendees who do not offer this feature to their members. Needless to say, the opinion of both presenters was that by the end of the year, courtesy pay will be a relic of our past.
Reward programs for credit and debit cards was also a hot-button issue at the conference. Jim was of the opinion that reward features of a credit/debit card program was a race to the bottom (obviously, his CU doesn’t offer reward points), while Peter was of the opinion that CUs need to respond to the demands of the marketplace. Good or bad, your members want reward features…so you better provide them if you wish to remain viable. I have to admit that I side with Peter on this one.
Another presenter, Hal Tilbury of Bluepoint Solutions (www.bluepointsolutions.com), addressed attendees about the importance and efficiency of document management. His main complaint was that most CUs look to their data processors for document management. The downfall, in his opinion, is the dysfunctional document management system: they don’t save money, they don’t save time and they don’t function the way a document management system should. He provided us with his “10 Commandments” of document management—although he acknowledged he wasn’t Jesus, he suggested he might be Moses. Essentially, the 10 Commandments outlined what a document management system should result in: substantial cost reduction, improved employee productivity, and enhanced member service. He presented a compelling case of capturing electronic images at the time of presentment and the savings in cost. According to Hal, having his software, a scanner, and a shredder at every employees’ station only costs $0.15 per hour/per employee over a seven year period. You do the math 
We also heard from Tom Chandler and Christopher Joy of PSCU Financial Services (www.pscufs.com) regarding the all-relevant Credit CARD Act of 2009. Through their analysis, this Act will cost CUs a net loss of 1.56% on their credit card portfolio. If you consider that, at best, CUs realized a 4% Return on Assets (ROA) on their credit card portfolios in 2008, which means that in 2010, CUs will realize, at best, a 2% ROA. They also provided several appropriate ways in which CUs can respond to this new regulation:
- Increase APR on entire portfolio
- Re-price high risk accounts
- Increase margin on variable rate products
- Convert fixed APR portfolios to variable rate
- Risk-base price new accounts
- Consider different rates for purchases and cash-advances
- Eliminate life-of-balance promotions (lower rate gets paid last)
- Run fixed duration promotions
- Prepare to set penalty/default pricing for existing balances at 3 cycles (60 days) with 45 day notification—squeeze out the revenue
- Lock-in low cost funding
- Increase late fee and trigger at cycle-end
- Consider adding cash advance fees and foreign transaction fees
- Review and reset balance transfer rates, fees and criteria
- Review returned check fees, minimum finance charges and other incidental fees
- Hold off instituting new annual fees—may be last line of defense against any modification to interchange fees pending in legislation
By implementing all of their strategies (all of which are not outlined above), Tom and Christopher submitted that CUs could reduce their net loss to less than 0.50% on their credit card portfolios.
Overall, I found the first day of this conference to be informative and instructive. I look forward to what tomorrow has in store…
John B. C. Porter, Esq.
jporter@weltman.com
