Filed under: compliance
By Matthew D. Urban, Attorney
Ever since the enactment of the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau (CFPB), compliance related issues have increasingly impacted credit unions’ day-to-day operations. Tasks that used to be handled internally by one or a small group of employees and management, now requires the hiring of additional staff, including but not limited to third party vendors. Not surprisingly, this additional devotion of time has also meant an additional allocation of resources. However, while this increase can easily be measured in terms of money allocated, what often gets overlooked is that these “costs” ultimately trickle down to the member whether it be through an increase in fees or a loss of services or products.
Recently, the CFPB indicated an interest in determining how much it costs financial institutions to comply with the regulations that are issued. Specifically in a March 20, 2013 blog post on its website (www.consumerfinance.gov), the CFPB indicated that their Research, Markets and Regulations team was going to study the costs of the rules that are issued as they “hope to become better and smarter regulators.” While this promise may seem laughable to those closely following the progress of the CFPB, perhaps their acknowledgement of the issue may offer a sliver of hope to credit unions that are already well aware of the costs the CFPB is pledging to look into. However, instead of waiting for a CFPB report to be issued, I solicited opinions and information from several CEO’s of credit unions of varying sizes in Pennsylvania in order to better understand the exact nature of the impacts of recent regulations.
Not surprisingly, all of the credit unions surveyed specifically mentioned the increase in employee costs as the main impact of the increased emphasis on compliance issues. While the larger credit unions typically have hired additional employees for newly created compliance positions, the smaller credit unions have not been able to absorb those costs, but rather, have relied on the cross-training of existing employees or otherwise re-assigning employees from one job within the credit union to a compliance position. No matter how they have gone about increasing their compliance staff, those CEO’s surveyed all indicated that in order to compensate for the rapid growth in their personnel costs, they have been looking for ways to generate new sources of revenue through an increase in existing member fees or the creation of new fees such as application fees where they may have not existed in past. While many of these fees may not be overwhelming to the membership at large, the inclusion of the new fees are serving to further create a competitive disadvantage between credit unions and other financial institutions such as banks that may be better situated to absorb those additional costs. However, it should be noted that not only does this disadvantage exist between credit unions and banks; it has also created similar disadvantages between small and large credit unions.
Perhaps the more subtle impact of growing compliance costs is the impact on services and products offered. Although each CEO questioned indicated they had no intention of eliminating any existing products, all acknowledged that member services such as courtesy pay have already or may have to be eliminated. Additionally, the CFPB’s new one-size-fits-all regulations governing mortgages have led CEO’s, particularly those at smaller credit unions, to re-consider whether or not they will be able to offer affordable and competitive mortgage products to their membership due to issues such as SAFE Act certification for staff and new requirements for the establishment and maintenance of escrow accounts. However, most troubling was the suggestion by the CEO’s queried that while they are hopeful that they will not have to eliminate any products, any credit union that is not already offering a product to it’s members may not be able to financially justify the risk and exposure required to add anything new, such as mortgage and home equity loans, that in the past helped to increase income but also attract new members which in turn have helped sustain and even grow many small and mid size credit unions.
As member owned financial institutions, credit unions have always held a unique position within our financial system. Being member owned, the focus has naturally always been on serving the diverse financial needs of their members and by tailoring their products and services to a specific membership base which represents all levels of the economic ladder. While direct and measureable impacts of new regulations include an increase in employee costs, elimination or reduction in services, increase in fees, elimination of products or an unwillingness to offer new products, there are many indirect impacts that credit unions and the economy at large will experience that will never show up in a CFPB study on the issue. Ultimately, the pathway to a modern economy and economic freedom is the availability of credit. Unfortunately, as credit unions endure the current compliance environment and the associated costs, those members at the lower end of the credit market will be made to suffer as their local credit union, which they have always relied upon for credit, may not have the resources necessary to be there to offer that credit in the future.
Filed under: online
By Jill A. Keck, Attorney
As the internet shopping craze spills over into the purchase of vehicles, leaders in the auto lending market need to get on board for the ride. Online shoppers agree that making purchases, both big and small, can save time and money. All it would take for a credit union to succeed in this arena would be a little marketing and education. Credit unions already offer their members the lowest interest rates on auto loans than any other financial institution and especially lower than dealerships. The problem is that many members are unsure how to purchase a vehicle online and still finance it through a credit union. This is where the credit union needs to market to current and potential members of not only their low interest rates but also their services to walk the member through the process of locating and selecting a vehicle to purchase online, obtaining the financing through the credit union.
How does a member purchase a vehicle online? Purchasing vehicles online is a fairly simple process when the person has been given some basic steps. First, the member should get an idea of how much car he can afford. It is important to know the prevailing annual percentage rate (APR) for an auto loan. Also, keep in mind insurance and fuel costs. If possible, the member can even prequalify for a loan.
Second, the member needs to research different vehicles and make a list of which ones fit within his budget and that he thinks he wants to buy. This can be done any day of the week and at any time. There are no car salesmen breathing down their neck while browsing. The member can scan numerous online dealers and auction companies within a matter of minutes, comparing makes, models, color and other options. The best part is that it can all be done in the comforts of the member’s own home. They should keep in mind that the location the vehicle is stored should not be too far from their home. It is recommended that the radius be no more than 20-30 miles from a member’s home to make the next steps in the process easier.
Next, they should go test-drive several of the vehicles on their list to possibly narrow their options. I know this sounds old-fashioned and seems to obliterate the advantages of shopping online, but getting behind the wheel and driving can tell the member a lot about whether a car is going to meet their needs and desires.
After test-driving, members should go back and research the specifics about the cars remaining on their preferred list to make sure he/she is making the right choice. There is a lot of information about vehicles online, right at the member’s fingertips, including Kelley Blue Book pricing, safety testing results, ratings, and so forth.
The next step in the online process is to compare prices at several different online dealers and auctions to find the best deal. Because the sales departments of online dealers and auctions are paid based upon the number of vehicles sold instead of commission, they understand that members are looking for a fair price and thus, sales move along fairly quickly. In addition to the actual sales price of the vehicle, members can work out the smaller details such as extended warranties. Now members can go back to the credit union to apply for a loan, or if already prequalified, sign for the loan.
The final step is the financing, which should be the easy part for the credit union since the financing of vehicles is already a service provided to its members. The process to finance an online car purchase is not really any different than the financing the credit union provides for vehicles purchased by a member from a car dealer. The member applies for a loan, the credit union processes the application and if approved, issues the loan.
If the credit union currently only processes auto financing at its branches, it should consider having an option to process the loan online. Not only will that appeal to many of the current members who are purchasing vehicles online, but it will also market to new members who are in the process of purchasing a vehicle online and are looking for the best financing options. Online financing keeps in line with many of the benefits offered by purchasing a vehicle online, including the fact the member can do so from the comforts of his own home at a time more convenient for him.
Filed under: credit unions | Tags: compliance, directors, relief, testing, volunteers
As part of my CFPB presentation, I talk about how credit unions can better leverage volunteers as a cost cutting tool. I figured that I could put some more meat on the concept and perhaps get a decent post out of it, so here goes.
At one time in the movement, there were examples among credit unions of volunteers filling every role at the cooperative. We had volunteer CEOs and member service reps in addition to volunteer directors and committee members. What has happened to that spirit? Is it a sign of the times as to how people want to spend their time? Is it a failure of marketing to people by credit unions to get more people to volunteer?
If Clay Shirkey is at all right, people still have volunteer time available or as he calls it: “cognitive surplus.” If that is true, perhaps it is just a matter of wanting more volunteers and then marketing to members to become volunteers.
What can volunteers do? I propose that volunteers can be rounded up into task force assignments in order to handle various regulatory requirements cheaply rather than by hiring a vendor. At a baseline, they need to be at least 18 years old, bondable and a member of the credit union.
Three areas I want to focus on include vendor due diligence, risk analysis and compliance testing. All three of these functions have been required by NCUA and all three are resource intensive. Here’s how it would work:
Vendor due diligence. The board chair would appoint a task force of volunteers to pick 3 vendors for the particular service (say core processing) and then review their financial statements, reputation, experience and other attributes required by NCUA. The task force would then report it’s findings back to the Board of Directors after an appropriate time and make a recommendation (which the board is free to follow or not). This would take a great deal of pressure off staff and the directors themselves in meeting NCUA due diligence requirements at a cost of zero.
Risk analysis. Most compliance requirements at the credit union are risk based. This means that NCUA would prefer that you assigned risk values to every vulnerability and then build your policy around that. Put another way, you could spend a billion dollars on a BSA policy and it would still not be perfect. We don’t have billions to spend on policies so it helps to document the risks we have and put what resources we have around them. Therefore, the task force could meet, take various credit union compliance policies, document the particular risks that the credit union has on a 1 to 10 scale along with the credit union’s experience with the particular risk and then make a recommendation to the Board and to Management as to any changes that need to be made. This report could then be placed in the file with the particular policy (BSA, Disaster Recovery, Social Media, etc.) to be shown to the examiner later.
Compliance testing. Most material credit union policies need to be reviewed and tested annually. Volunteers can be trained to do ECOA testing (see how members are treated, review past applications and look for discrimanatory effects of policies), Disaster recovery (table-top testing or even creating a mock disaster), BSA (review of cash data versus CTR filings, review of SAR quality, review of OFAC compliance) and a host of other things. What is either a time consuming task for staff or an expensive task to hire a vendor to complete can be done quite effectively at no cost by volunteers.
The new compliance burden is real. 700 credit unions no longer exist since the passing of the Dodd Frank act. Volunteers are a credit union’s secret weapon. It is time for credit unions to reach out to volunteers again to meet these increasing compliance demands.
Filed under: credit unions
For the third year in a row, Weltman, Weinberg & Reis sent out a call for nominations to all Ohio credit unions for our 2013 WWR Outstanding Community Partner Award. Our goal is to honor credit unions that actively partner with their local communities to provide educational, community outreach and/ or community service programs. For the third year in a row, the response was enthusiastic and impressive, making selecting a winner very difficult! The winning credit union was Taleris Credit Union of Cleveland, Ohio. Taleris Credit Union’s vision supports the initial principals of the credit union movement: “People Helping People.” 2012 was a difficult year financially for many of the credit union’s members and its surrounding community, and yet Taleris maintained its steadfast goal of helping individuals and families in need. Taleris offered free financial counseling to its members through web based programs as well as live, onsite financial seminars. Taleris supported their community through awarding two $1,000 scholarships to undergraduate students and sponsoring various community events, as well as youth based sporting teams. The staff helped raise money for several charities in 2012 including The United Way, The Children’s Miracle Network, Project Hope, Yuletide Hunger Program, City Mission of Cleveland, Hoo-ah Christmas Tree Project for US Troops and the Tommy D’Amico Fund.
On April 23, 2013, John Porter, a Partner in the Credit Union Practice Group and Lauren Halton, a credit union client representative for Weltman, Weinberg, & Reis Co., L.P.A. (WWR), presented Robin Thomas, CEO of Taleris Credit Union of Cleveland, Ohio with the 2013 WWR Outstanding Community Partner Award at the Ohio Credit Union League InVest48 annual convention held at the Columbus Convention Center. Along with a crystal trophy, Taleris Credit Union was awarded a $1,000.00 check to assist with their future charitable endeavors.
All nominees demonstrated a company-wide commitment to community service and were recognized for their participation. Other nominees included CME Federal Credit Union (Columbus), Emery Federal Credit Union (Cincinnati), First Service Federal Credit Union (Groveport), and Firelands Federal Credit Union (Bellevue).
This award is meant to celebrate credit unions in Ohio that are investing time and resources into their communities and inspiring others through their work. We congratulate all our nominees on the work and commitment they have demonstrated, are proud to present Taleris Credit Union as our winner and look forward to supporting credit unions for years to come.
Lauren Halton is the Credit Union Client Representative in the Columbus office of Weltman, Weinberg & Reis Co., LPA. She can be reached at 614.857.4382 and email@example.com.
*Pictured left to right: John Porter (WWR), Robin Thomas (CEO, Taleris Credit Union) and Lauren Halton (WWR).
The Northern Ohio Credit Association (NOCA) is hosting a luncheon on Tuesday, May 21, featuring presenter Sharon Asar, the Associate Ombudsman for the Consumer Financial Protection Bureau (CFPB). Sharon will present on “Alternatives for Resolving CFPB Issues”.
Sharon will speak about her role as an alternate, informal way to resolve issues. The CFPB Ombudsman’s Office was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Doff-Frank Act), which created the CFPB. The CFPB Ombudsman’s Office is an independent, impartial and confidential resource to help resolve process issues arising from CFPB activities.
DATE: Tuesday, May 21, 2013
TIME: 12:00 PM
PLACE: Crown Plaza, 5300 Rockside Rd, Independence, OH
COST: $20 for NOCA Members; $25 Non-Members/Guests
RSVP: Jennifer Dorton at firstname.lastname@example.org by Friday, May 17, 2013
NOCA is a non-profit organization in the State of Ohio, whose mission is to support, research and provide other services for those whose businesses or professional affiliation is to provide financial services or to extend credit for consumer, business or agricultural purposes, or to provide investigation, collection, computer or other ancillary services. For more information on NOCA, please visit www.NOCAonline.org.
Filed under: credit unions | Tags: "credit union", collections, legacy trusts
Ohio did it. A year or so ago, one of our compliance lawyers gave me an article describing how Ohio’s legislature was looking to make Ohio like the Cayman Islands. Effective March 27 of this year, Ohioans can create their own legacy trusts including spendthrift trusts. Oh, you say? So what does that mean? Before I read that article, a year ago I had no idea either.
Prior to Ohio’s Legacy Trust Act, a person or persons could put assets into a revocable trust and have complete control over the assets as the grantor. The trouble is that such a trust is easily reached by creditors. Under Ohio law, it offers little by way of protection from being attached by creditors to satisfy a debt. Certainly, a person or persons could create an irrevocable trust and transfer assets into that and assuming no fraudulent transfers, the assets would not be attachable by creditors. However, the grantors creating the trust would also divest themselves of ownership of the assets and be subject to the whims of the trustee.
Ohio’s Legacy Trust Act changes all that. Now, a person can set up a trust for his or her own benefit and while it needs to have a qualified trustee, the grantor can receive income from the trust and even take some of the principal out of the trust, as much as 5% per year.
Let’s look at an example. Benny Bumbles buys a house for $200,000 and gets a 12 year first mortgage from Anthrax Research Federal Credit Union in 2011. In February of 2013, Benny inherits $500,000 from his Uncle (Milty). In April of 2013, Benny establishes the Bumbles Family Trust and funds it with the money he inherited, naming ABC bank as Trustee. Things go swimmingly for a few years until Benny is let go from his job as virus containment specialist at the local research center. All is not lost however as Benny still makes about $25,000 a year from the investments held by his trust. However, Benny, last year, also financed a Corvette from the credit union as well as a Harley Davidson motorcycle six months later. After a few months of realizing that $25,000 a year doesn’t go as far as it used to, Benny stops paying ARFCU on all three loans. When the collector calls Benny, he tells her: you can’t do a darn thing to me because Ohio has my back! To emphasize this to her, Benny rides his motorcycle to the credit union and does wheelies in the parking lot until he is arrested by the Anthrax County Sheriff.
Assuming ARFCU gets the Harley from the Sheriff and picks up the Corvette, sends the proper notices and sells them at auction, it presumably will have a deficiency balance. Let’s say this comes to $25,000. The credit union also forecloses on the house and because Benny decides to move in with his mother, he does nothing to stop it and the credit union ends up with a deficiency balance on the house of $60,000. Can the credit union do anything to attach the $500,000 in the Bumbles Family Trust to collect Benny’s debt?
You might think that because the mortgage pre-dates the trust, that the credit union could do something, but that’s not the way the new statute works. An existing creditor has 18 months to bring an action to avoid a transfer into the trust from the time the asset is transferred to the trust or 6 months after the creditor could have discovered the transfer to the trust (and Ohio has a recording requirement that constitutes constructive notice) or the creditor may extend this by 3 years by sending a demand letter alleging a fraudulent transfer in funding the trust (and I am paraphrasing). See ORC 5816.07 for the exact language.
Thus the answer is no. The credit union can liquidate Benny’s property and proceed against Benny personally, but the statute of limitations has expired with respect to the trust.
Will credit unions start seeing these types of trusts? Possibly. There is some question as to whether this is worthwhile for smaller amounts of money given that you still need a qualified trustee. But it is hard to say. In any event, Ohio is now in the asset protection business. If nothing else, this means more trust work for the banks. I wonder if a trust CUSO in Ohio catering to this sort of thing would be viable?
Filed under: mortgages
by David W. Cliffe, Attorney
On January 30, 2013, House Bill No. 9 was introduced in the Ohio General Assembly. Sponsored by Representative Peter Stautberg of Cincinnati, the goal of the legislation is to clarify and add to the powers of a receiver as it relates to real property. If enacted, the legislation creates the most substantive changes to Ohio law concerning receivers since the 1950′s.
The proposed bill includes changes to who must consent to the appointment of a proposed receiver who happens to hold an interest in the property, an expansion and clarification of the duties of a receiver and the establishment of a procedure for the receiver to sell the real property, subject to court approval. With regard to the appointment of an “interested” receiver, the statute widens the pool of those who must consent to that appointment to include all parties in the action as well as those persons holding either a recorded ownership interest or a financial lien on the premises. Another modification is that, in addition to a corporation, the statute now specifically provides for the appointment of a receiver for a partnership, limited liability company or related entity created under Ohio law. Although the court is not bound to appoint the person nominated by the movant for the receivership, that individual will receive priority consideration for the role.
Along with the statutory changes concerning the receiver’s appointment, the legislation further broadens the situations in which a receiver may be appointed. In some ways, this legislation constitutes legislative recognition of powers that courts in some jurisdictions have already provided to a receiver. This legislation, however, allows for a more uniform process, county by county. One specific change includes the empowerment of a court to appoint a receiver for purposes of enforcing the contractual assignment of rents and leases.
In addition to an expansion of the situations in which a court elects to appoint a receiver, the proposed statute also clarifies the powers that the receiver enjoys upon appointment. Those powers include the prosecution and defense of actions as a specific party, the control of any real or personal property and the right to receive rents, collect payments and negotiate both receivables and payables. Moreover, the receiver may execute contracts of sale, lease or improvements to receivership property, including deeds, leases and other conveyances for real or personal property. Finally, the receiver, whose fees are charged as court costs as a priority administrative expense, may establish and maintain deposit accounts as receiver and otherwise act as specifically empowered by the court.
Under one of these specified rights of the receiver, namely court-sanctioned sales of the real property, the receiver could sell that receivership property by means of a private sale free and clear of liens through a private auction, public auction or in a manner deemed by the court to be fair and reasonable to all parties. The receiver shall seek to maximize the return on sale while considering the ongoing costs of property maintenance. The decision of the receiver to sell the premises is subject to judicial review and approval, with or without condition, and the court may then deem the premises sold free and clear of all liens. The statute’s proposed “free and clear” language will assist with insuring that good title passes to the buyer of the premises from the receivership. Finally, the court’s order approving the sale must set a date, at least three days hence, at which point the owner must exercise its right of redemption or be barred from asserting that right.
Upon the bill’s passage, Lenders will more likely utilize receiverships as they benefit from the increased uniformity as well as the greater efficiency and certainty that good title will pass to the buyer at the end of the process. Given that this proposed legislation would represent the most substantial changes to this area of receivership law in at least a half-century, interest groups will likely provide significant input in the coming months as the legislation works its way through the process. Hopefully, the resulting statutes will provide a clearer, broader and more uniform role for receivers appointed in the various common pleas courts in Ohio.
David is an attorney focused on foreclosure and eviction services within the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA located in the Cincinnati office. He can be reached at 513.333.4064 and email@example.com.