Filed under: Consumer Financial Protection Bureau, Dodd-Frank Act | Tags: politics
By Matthew D. Urban, Esq.
As the 2012 presidential campaign heats up, so does the partisan rhetoric between political parties. Beyond the rhetoric however, the fallout from the Dodd-Frank Act continues to ripple through the financial sector. The agency tasked with implementing Dodd-Frank is the Consumer Financial Protection Bureau (CFPB). Since the CFPB is tasked with overseeing financial institutions with assets over ten billion dollars in assets, almost all credit unions will not come under its enforcement jurisdiction. Despite not being directly regulated by the CFPB, credit unions are subject to the regulations it enacts and as a quick search of the CFPB’s website reflects they have been given broad authority to regulate the financial sector, as well as those directly and indirectly involved. Since many credit unions may not yet realize the impact that the actions of the CFPB will ultimately have over their day-to-day operations, they may also fail to realize that the growing political polarization in America, which ultimately led to its creation, is also allowing it to continue to grow in size and influence, much of which is unchecked by any branch of government.
Of course, an excellent example of where credit unions are losing out in today’s current environment is in the regulation of the mortgage loan market. One of the main focuses of the CFPB has been to establish and define what is or is not deemed to be a quality mortgage. While the final rules continue to be ironed out, the message has been sent that financial institutions must carefully establish, document and report the standards being used in their lending practices while continuing to ensure that those lending practices do not discriminate against any group. However, it appears that the ultimate goal is to regulate the risk out of risk based lending.
While this appears to be a laudable goal, attempting to eliminate the risk from lending is not based in economic reality. That aside, most credit unions simply do not have the resources to comply with the onerous regulation being enacted by the CFPB and enforced by their NCUA regulators. Instead of completing their mission of serving their membership, credit unions must devote untold time and resources towards complying with one-size-fit-all regulations that do not account for the unique place credit unions hold in the financial sector. A fitting example of the increased regulatory burden within the mortgage market being placed on credit unions can be seen in the NCUA’s reporting requirements of first and second mortgages.
Specifically, in the NCUA’s Second Quarter Call Report (Call Report), credit unions are being required to report loans, including home equity lines of credit that are secured by a first lien as first mortgages for interest rate risk purposes on form 5300. While the requirements on its face may not seem particularly onerous, credit unions are now being instructed by their examiners that in order to comply with the requirements of the current Call Report that they must also report loans initially having second lien position which subsequently assume first lien position as a first mortgage on form 5300. Setting aside the fact that a loan with second lien position subsequently assuming first lien position is one of the least risky types of loans a credit union can have in its loan portfolio, the position being taken by the NCUA and the examiners in enforcing this reporting requirement borders on the absurd. The practical application however, is that credit unions will have to endure additional and unnecessary costs in terms of both time and money to comply with this requirement.
Credit unions have always had to endure the results of political battles in Washington. Unfortunately, the political climate in America continues to become increasingly polarized which has led to rules and regulations not necessarily based in economic reality, but rather that are developed to score political points. As a result, credit unions are having to devote more time and resources to comply with an ever-growing regulatory burden in lieu of focusing on providing services to its members. Unfortunately, the current political polarization is likely to continue even after the election in November. As such, it is up to the credit unions, its members and the supporters of the movement to ensure that the politics of the day do not continue to further impact the ability of credit unions to serve their current members and to attract new ones.
Matthew is the managing attorney of the Credit Union Group in the Pittsburgh office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 412.338.7134 and murban@weltman.com.
By Cheryl D. Cook, Esq.
Student loan debt was recently identified as the “leading source of U.S. household debt outside of mortgages,” approximately $150 billion of which represents private loans. At $904 billion as of the end of March 2012, the total amount of student loan debt is more than the amount of credit card debt in the United States, according to the New York Fed Quarterly Report (May 2012). Of the total amount of student loan debt, more than $8.1 billion is in default.
Richard Cordray, Director of the Consumer Financial Protection Bureau (“CFPB”), and United States Secretary of Education, Arne Duncan, recently presented their findings[1] to various Congressional committees, concluding that a significant number of student loan borrowers “simply did not understand what they signed up for.”
At a July 24, 2012, hearing before the U.S. Senate Banking subcommittee, Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, testified that borrowers struggling with private student loan debt would benefit from refinancing options.
The CFPB’s “Know Before You Owe” program (discussed in the Winter 2012 Newsletter) includes a project to help consumers “Know Before You Owe” about private student loans. In connection with this project, they have developed a new online tool called the Student Loan Debt Collection Assistant, along with a Financial Aid Shopping Sheet, that can be accessed on the CFPB website. The goal is that colleges and universities will use the tools, especially the Financial Aid Shopping Sheet, to assist student loan borrowers in understanding and evaluating the types of loan products available, based on their own qualifications.
The CFPB has asked for feedback about the tools, asking responders to rank items in their order of usefulness. Both the CFPB and the Department of Education plan to use the feedback to improve the tools. In addition, the Department of Education plans to publish a model form that schools could use to provide clear student loan and financial aid information to prospective students. International credit rating agency, Fitch Ratings, also pointed out that analysis of post-graduation outcomes may prove useful in underwriting, as borrowing and earning potential tend to influence default and delinquency rates.[2]
While declining to speculate about what the CFPB may do to regulate private loan terms, Cordray, Duncan and Chopra emphasized greater transparency in the lending process, greater coordination between schools and lenders to educate student loan borrowers, and mandatory school certification of private student loans.
Cheryl is an attorney in Bankruptcy of Weltman, Weinberg & Reis Co., LPA located in the Detroit office. She can be reached at 248.989.3089 and chcook@weltman.com.
[1] Report to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Health, Education, Labor, and Pensions, the House of Representatives Committee on Financial Services, and the House of Representatives Committee on Education and the Workforce., July 20, 2012, CFPB.
[2] Fitch Report, July 20, 2012.
By Matthew M. Young, Esq.
Last year, I wrote an article on the Americans with Disability Act (ADA) Automated Teller Machines (ATM) Compliance deadline. At that time, there was confusion surrounding the accessibility requirements for ATMs. Was the deadline for compliance March 2011 or March 2012? Of course, that question is now moot as both deadlines have since passed. Despite the passing of this compliance deadline, confusion remains surrounding the new compliance standards – many credit unions are still not compliant with the new ADA requirements. If your credit union is among those out of compliance, there are several factors you should consider in moving toward compliance.
Much of the existing confusion relates to certain ATMs being exempted from the new requirement. Indeed, certain mobile ATMs may be excluded from these new ADA standards. If the ATM is not a fixture, meaning attached to the credit union’s building, the new standards may not apply to that ATM. I contacted the Department of Justice (DOJ), who enforces the ADA, to get clarification regarding the extent of an exemption from the new requirements. The DOJ advised that any ATM that is fixed to the floor is subject to the new ADA requirements. According to the DOJ, “If you were to turn your building over and the ATM would fall to the floor” it is not covered by the ADA’s requirements. So, if you have a mobile ATM that is bolted down, it is covered by the new requirements. Similarly, exterior ATMs that are within their own outbuildings would be subject to the new requirements.
As it relates to enforcement, the new regulations will be enforced by private right of action or in instances where a complaint is filed with the DOJ. In the near term, expect most enforcement to occur by private right of action. In fact, in Ohio, one visually impaired person has filed a lawsuit against a number of large financial institutions based upon purported violations of the ADA’s new requirements. In the instance where the DOJ receives a complaint, it will look to the reasonableness of a plan provided by a credit union that is not 100% compliant. “Reasonableness” is key. Asset size and the number of ATMs that need to be retrofitted/replaced will be considered. A court will likely consider similar factors when addressing lawsuits filed by consumers.
If you are not compliant but are putting a compliance plan together, you should prioritize which ATMs should be addressed first, considering the number of ATMs in a particular geographic area and the amount of traffic each ATM receives. Having zero compliance will likely not be reasonable. One exception relates to provider delay. For example, if your ATM provider is on a scheduling delay, that would be accounted for in the DOJ’s assessment. Ideally, your credit union is already compliant, however at a minimum, you must have a plan in place to get there. That way, if you are subject to claim by a consumer or the DOJ, you have a basis to defend the credit union.
Matt is an attorney in the Credit Union Group of Weltman, Weinberg & Reis Co., LPA located in the Brooklyn Heights office. He can be reached at 216.739.5726 and myoung@weltman.com.
Filed under: Uncategorized | Tags: cloud computing, Federal Financial Institution Examination Counsel, FFIEC
By Amanda R. Yurechko, Esq.
On July 10, 2012 the Federal Financial Institution Examination Counsel (FFIEC) issued an opinion on cloud computing and the associated risk to the financial industry. Cloud computing is the buzz word used to describe a wide variety of business practices. The FFIEC struggled to find one definition of “cloud computing,” but in general described it as, “a migration from owned resources to shared resources in which client users receive information technology services, on demand, from third-party service providers via the Internet ‘cloud’.” Cloud computing as a term can be used to describe service related products, meaning the provision of infrastructure, computing platforms and software, or deployment related products, meaning how the cloud service is provided. Clouds can be private to one organization, shared by communities of organizations, or public – open to any paying user.
When financial institutions outsource cloud computing, the risk increases just like with any other outsourced service. The FFIEC directs financial institutions to its’ previously published, FFIEC Information Technology Examination Handbook (IT Handbook), and its Outsourcing Technology Services Booklet for discussion of these risks.
Highlighted by the FFIEC’s opinion are the following areas of risk that should be considered:
- Due Diligence – Insuring the third-party’s activity is conducted in compliance with applicable laws and regulations in a safe and sound manner, in-line with the institution’s strategic plan and corporate objectives. The FFIEC opinion asks the financial institution to consider the classification of the data placed in the cloud. For example, will the data be properly encrypted to protect non-public information from disclosure? Will the information be housed on servers used by other clients and what controls will the vendor use to protect the data? Finally, does the vendor have a disaster recovery plan?
- Vendor Management – Vendors familiar with the regulations placed upon financial institutions should be chosen, and the financial institution should watch to ensure the proper changes are made by the vendor as regulations change. Also, the contract should clearly spell out who owns the data and how disputes may be resolved.
- Audits – Financial intuitions should perform audits to ensure internal controls are functioning properly by auditors familiar with issues presented by cloud computing.
- Information Security – Before entering into a relationship with a cloud computing vendor, the financial institution should ensure this relationship is in line with its own security policies, standards and practices. The FFIEC notes that continuous monitoring may be necessary to ensure the provider is maintaining the effective controls. Controls on information in the cloud should include identity and access management, and encryption. The financial institution should have a process to monitor, investigate and document security threats and incidents on its own server, as well as the cloud. The financial institution should also confirm that any data stored in the cloud can be completely removed at the end of the relationship.
- Legal, Regulatory and Reputational Considerations – Contracts with the provider should clearly spell out the legal and regulatory requirements that the financial institution is bound by and that are attached to the storage of the data. The vendor may be overseas, the data stored overseas or the vendor is handling data from numerous sources with distinct requirements. The financial institution cannot rely on the vendor to know the applicable regulations.
- Business Continuity Planning – Does the vendor have adequate plans and resources to restore data after destruction?
The FFIEC opinion notes that cloud computing may not be in every financial institution’s best interest if each of these issues can not be satisfactorily resolved before the start of the relationship.
Amanda is an attorney in Consumer & Commercial Collections of Weltman, Weinberg & Reis Co., LPA located in the Cleveland office. She can be reached at 216.685.1060 and ayurechko@weltman.com
Filed under: credit unions, Uncategorized | Tags: loan modification agreement
Some mornings, I will listen to NPR to catch the news. I caught the tail end of a piece on mortgages and foreclosures. They had a plaintiff’s lawyer talking about how bad banks are and the announcer made a comment to the effect about people being forced out of their houses because banks wrongfully failed to modify their home loans. “What?” I thought. “Did I hear that correctly?” Since homes have generally declined in value and since unemployment is high, I suppose it is easy to get to a point where people believe that banks and credit unions not only should work with their borrowers but that they have a legal obligation to do so.
Generally speaking, they don’t. Sure there are special plans under HAMP and there may be local work out requirements before a foreclosure goes forward, but the decision as to whether to grant a borrower a loan modification still rests with the lender. And you know what? It should. It is easy to look at one side of this story, but we do so at our peril. All of our credit union readers understand the concept of Asset Liability Management. Credit unions must balance their assets with their obligations over time. Things must match up, more or less, or catastrophically bad things will happen. For example, if a credit union has a very large portfolio of real estate loans at 4% with an average length of 10 years, it must correspondingly make sure that its assets, expenses and dividends don’t exceed the performance of these loans. There is more to it than that, but essentially, it is simply planning so that you don’t make commitments that exceed your income.
The U.S. Government (which is known to have a problem understanding that concept) mandates strict rules on ALM for credit unions via the NCUA. In fact, up until a few years ago, a credit union would have been in trouble if it did too many loan modification agreements! The NCUA would have suspected that the credit union was trying to hide delinquency in the form of loan mods. It’s an old trick. Today, of course, it often makes sense to do loan modification agreements and they are encouraged. But the idea that loan modification agreements are obligatory and that financial institutions must adjust interest rates on fixed rate mortgages to meet the needs of the borrower remains a pipe dream in the minds of class action lawyers.
By Shari Storm
I was talking to two friends who both work at a trendy company in Seattle. After listening to them complain about their jobs for a bit I stopped them and asked, “Isn’t your company voted ‘best place to work’ in every employer list ever published?”
They both rolled their eyes and proceeded to tell me how the judges of these awards go ga-ga over ‘Beer Fridays’ and the foosball tables in the lounge. The truth, they confided, is that the employees hate beer Fridays because it means they have to come out of their office and pretend to like people who they don’t like when really all they want to do is wrap up their work for the week and get the heck out of the salt mine.
“If they would just do things like acknowledge me when I send them my sales numbers, I would like the executive team a lot more.” My friend lamented to me.
How often have we been in that situation where we hate our jobs but we grudgingly attend the company picnic? It’s the worst.
You can’t force fun on people and when you try, you achieve the opposite of what you set out to do. Your employees don’t feel better about the company, they feel worse.
We all want engaged employees. Employees who are happy with their jobs tend to show up more, produce more and stay longer.
Kerry Liberman, president of People Perspectives LLC, wrote an excellent article in the April 2012 edition of Credit Union Management. Her main point of the article is to learn if your employees are engaged, and if they are not, start taking steps to ensure that you and your management staff do the things necessary to make employees committed to your company.
Gallup came up with a questionnaire to help you determine how engaged your employees are at work. You can read more about it here: http://businessjournal.gallup.com/content/811/feedback-real.aspx
Their 12 questions are:
- I know what is expected of me at work
- I have the materials and equipment I need to do my work right
- At work, I have the opportunity to do what I do best every day
- In the last seven days, I have received recognition or praise for doing good work
- My supervisors, or someone at work, seems to care about me as a person
- There is someone at work who encourages my development
- At work, my opinions seem to count
- The mission or purpose of my company makes me feel my job is important
- My associates or fellow employees are committed to doing quality work
- I have a best friend at work
- In the last six months, someone at work has talked to me about my progress
- This last year, I have had opportunities at work to learn and grow
It’s tempting to think that providing your employees with fun things (a Wii in the break room, jeans-day Friday, bring your dog to work days) will help you win awards and have shiny happy employees, but unless they are already happy with the way they are being treated, your attempts will backfire and make you seem silly.
So instead, dig in deep and find out what is bugging your employees and then pull together a team and start fixing some of the fundamentals. It’s not as fun, and it’s not as easy, but in the long run, you’ll have better employees.
When it comes to this predicament, credit unions have an advantage over many industries. Many employees are drawn to working at a credit union because we are not-for-profit co-ops dedicated to enriching the lives of our members. If you have star employees, consider sending them to DE training or CUNA Management School or a CUES conference or anything that introduces them to the most passionate people in our industry. Their passion is contagious and can rev up almost anyone.
And when your employees are more engaged, satisfied and happy at work, the fun activities will present themselves naturally and your group will have a blast doing them together.
Shari Storm is Senior Vice President and Chief Marketing Officer of Verity Credit Union and is the author of the book “Motherhood is the New MBA”, available here: http://www.amazon.com/Motherhood-New-MBA-Parenting-Skills/dp/0312544316/ref=sr_1_1?s=books&ie=UTF8&qid=1314126290&sr=1-1
Filed under: Uncategorized
This month Faith, Katherine and Rob bring you the following:
–Multi-Featured Open-End Lending (MFOEL)
–Treatment of 2nd mortgages in 1st position on the 5300
–Member incentives.
–Bank fined for SSCA violations.
–CFPB update
–Big K round-up.
Download here.
(Bonus: in the last 60 seconds of the recording, Katherine & Victor sing a duet)
Filed under: mortgages
by David Cliffe, Attorney
On July 17, 2012, the Tenth Appellate District in Columbus, Ohio, issued a decision that, while not groundbreaking from a legal standpoint, could result in about a three to four-week delay in the granting of default judgments for a significant percentage of foreclosure cases in Franklin County.[1] In the case, the borrower requested and attended a mediation hearing through the county program with unsuccessful results. The lender filed a motion for default judgment, which the trial court granted seven days later without a hearing.
On appeal, the appellate court reversed the judgment granted by the trial court. The appellate court, citing the language of Civil Rule 55 and Franklin County Local Rule 55.01, determined that the borrower’s request for mediation constituted an appearance under those Rules, thus requiring a hearing to be set on the motion for default with prior notice to the borrower.
As a result of this decision, the trial courts in Franklin County will now set a hearing and send out notice to the borrower upon the filing of any lender’s motion for default judgment in a foreclosure case where the borrower previously requested mediation. While it appears likely that the hearings will be non-oral in nature and not require the lender’s attorney to make a personal appearance before the court, the addition of this hearing will likely add about three to four weeks to the process of obtaining judgment in these circumstances. In the future, the lender’s attorney will add a request for a non-oral hearing to any motion for default matching this scenario.
One concern this decision causes is that borrowers, who in prior, similar cases were defaulted, will now seek to have the default judgments against them set aside. While there may be a few borrowers who will attempt it, those borrowers will need to allege a meritorious claim for relief and also incur the expense associated with filing a motion for relief under Civil Rule 60B. Based on those factors, borrowers seeking relief will likely be few in number.
In conclusion, lenders involved in foreclosure proceedings in Franklin County should anticipate up to four additional weeks for the date of recovering a default judgment when a case submitted to mediation failed to result in a complete resolution.
If you have any questions on this matter, please contact Mr. David Cliffe, Esq. Dave is an attorney in the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA focused on foreclosure and eviction services. He can be reached at 513.333.4054 and dcliffe@weltman.com.
[1] Union Savings Bank v. Duffy, 2012-Ohio-3232
