Bank Lawyer's Blog

A New Approach To Compliance

Steve Van Beek, NAFCU's Director of Regulatory Compliance, has a dynamite article in the latest issue of The Federal Credit Union, that community banks, as well as credit unions, would do well to heed. In addition to noting the obvious fact that Dodd-Frank's increase of regulations means increased compliance burdens for credit unions, he discusses a very important "paradigm shift" in the way credit unions (and community banks) need to view compliance. In the years "BFD" (Before Franken-Dodd), the compliance officer was often brought into the discussion of a product or service at a late date, and then gave it a thumbs up or thumbs down verdict. Steve rightly notes that the old school approach is a good way to be schooled by the CFPB.

Steve observes that the "CFPB's focus is principle-based as wellas requirement-based."

Not only will credit unions need to determine if their product or service is compliant with laws, regulations and guidance, but they will also need to expend resources to document that the product or service provides a benefit to members.

Why? Steve's glad you asked. Th answer is UDAAP: unfair, deceptive or abusive acts or practices. You have a new sheriff in town, the CFPB. It's focused on how consumers use products and services and how consumer service and product providers might "take advantage" of consumers. In other words, the CFPB seems to be running down the path of determining what products and services are "suitable" for consumers and which are not. It's a brave new world, one in which the old focus on checking off items on a compliance checklist is not going to get the job done. Instead, financial institutions will "need to build a UDAAP review into their product structure and development and monitor their products and services over time, as the UDAAP standard is not static."

There's a lot more meat on the bones, and I highly recommend that you read the whole article. It's a good warning shot across the bow of the critically dysfunctional and soon-to-be-beaten-down dinosaurs who squawk an outdated mantra: "Show me where it says I can't do that." Believe me, if you don't understand that it's a whole knew compliance ballgame and learn the new rules, pronto, the CFPB tire tracks will make a nice pair of bookends on the back of your bowling shirt as you lie face down and flattened in the middle of the consumer compliance highway.

The CU-Bank War Is Getting Ugly

Crying "The Time Is Right To Tax," commercial bankers are upping the thermostat on state and federal regulators to "level the playing field" by eliminating the tax exempt status of credit unions. According to the ABA Banking Journal, in a recent panel discussion at the American Bankers Association's 2013 Government Relations Summit, bankers of all stripes, including a CEO of a bank that was once a credit union, took the position that in this time when Congress and just about every state legislature is looking for ways to raise revenues without raising tax rates, the opportunity exists to convince legislators that tax exempt status for the credit union industry is an idea whose time has passed.

Panel member Ken Kies, managing director of the Federal Policy Group lobbying consultancy, spent years in Washington tax-writing roles, and believes banks could pursue a change.

"Frankly," said Kies, who's working with ABA, "I'm not sure that the environment has ever been better than it is today."

Kies indicated that no one should think that "not taxed" means "never to be taxed." History has not only seen many attempts to subject tax-exempt organizations to federal tax, but success in those attempts. Today's congressional urge towards tax reform, even on a revenue-neutral basis, could be the factor that pushes credit union taxation into reality.

In 1986, tax legislation pulled Blue Cross and Blue Shield organizations under the tax umbrella, reflected Kies. And a year later, the TIAA/CREF benefits organization likewise got shifted. And savings institutions lost their tax-favored status decades ago, and remain a viable part of the financial services business.

Mr. Kies also mentions the fact that there's a trillion dollar federal deficit that makes this the best time to press the case. However, he does not mention by how much that deficit would be reduced by taxing credit unions, which ought to show up somewhere in the argument if it's to survive counter attacks. 

Meanwhile, In Illinois, the hate-fest between banks and credit unions rages on.

Linda Koch, CEO of the Illinois Bankers Association, wrote an op-ed piece for The State-Journal Register in that state's capitol city, in which she sang the same tune as the ABA panelists.

She took the additional step of citing the CBO to the effect that CU tax exemption costs the federal government $2 billion a year in "lost revenue" and the state of Illinois $25 million. I don 't know what the state of Illinois's budget deficit is, but I do know that $2 billion in additional tax revenue is a drop from an eye dropper in a Pacific ocean of federal spending that, according to the Heritage Foundation, reached $3.6 trillion in 2012 and is expected to reach $5.5 trillion by 2022. To me, contributing such relatively small amounts to the black hole of government spending is an argument that lacks weight. I'd prefer that banks stick to the fact that if credit unions want to be "more like banks" (in other words, make commercial loans), they can pay the same freight that goes with that business model, including income taxes. You want to waddle, quack, and fly like a duck, but be pampered like a golden goose. Sorry, leveling the playing field on the powers side ought to come with a leveling of the playing field on the taxation side. Otherwise, you really are gaining an unfair competitive advantage.

The CEO of the Illinois Credit Union League, Dan Plauda, responded to Ms. Koch with the argument that tax revenues from credit unions in Illinois won't solve Illinois' revenue shortfalls. That's most likely very true. However, he also alleges that taxing credit unions will hurt their members, who rely on deposit rates that are much higher than banks pay and consumer loan rates that are much lower than those charged by banks. To me, that makes the banks' case, that tax exemption gives credit unions an unfair competitive advantage on the same deposits and loans that banks fight for. It seems to weaken the case for credit unions to intrude further into the commercial banks' sacred ground of commercial lending.

Mr. Plauda talks about how credit unions are member owned, "democratically controlled," and manned by volunteers. He also alleges that all "excess revenues" are plowed back into the credit union. By "excess revenues, he means what would otherwise be deemed "profits." I started out my career as a bank lawyer in-house for a large mutual savings bank. The only practical difference between a stock-owned commercial bank and a member-owned mutual is that, by soliciting proxies from members who don't give a rip about anything other than services and rates, management of a mutual is, in many cases, able to "rest easy" from all those pesky shareholders who demand the distribution of "profits" either in the form of higher stock prices, dividends, or both. At the same time, there's not exactly a lot of oversight on salaries and cash bonuses that are deducted from gross revenues before the "excess revenues" are calculated.

Mr. Plauda finished his piece with a flourish.

This “people helping people” approach to financial services helps explain why credit unions have become so popular in recent years. As new bank fees have proliferated, for instance, Americans have moved to credit unions in droves. Last year alone, credit unions nationwide added more than 2 million net new members — the biggest annual net member growth in 15 years.

Today, more than 96 million people belong to credit unions.

If anyone seriously thinks that folks flocked to credit unions because credit union members feel like they are part of a movement of "people helping people," as opposed to the financial incentives of lower loan rates and higher deposit rates, both possible because of CU's tax exempt status, that person needs a reality transplant. It just seems to me that responding to banks' call for the end of credit union tax exempt status by taunting banks with the line "we're stealing your customers by the boxcar-load" is going to make even the densest legislator wake up and smell the coffee, eventually.

Both sides of this debate need to sharpen their arguments. If they're able to do so, that is.

Thanks to a loyal reader from Illinois for links to the Illinois op-ed pieces

A Change of Policy, But Only in Two States

While the epic "Yo Mamma" wars between banks and credit unions have been well-documented (and often lamented) on this blog, I have no explanation for the recent activities of Chase Bank and Huntington Bank, as outlined in a recent article in Credit Union Times.

As many as 30 credit unions in West Virginia and Ohio have been scrambling to establish new correspondent vendors after a regional and national bank terminated their accounts over the past few weeks.

The $1.4 billion Volunteer Corporate CU and the $3.7 billion Corporate One FCU both reported the closed accounts, and in both cases said members reported the banks cited Bank Security Act and money laundering risk.

Charlie Thomas, VolCorp’s senior vice president of West Virginia operations, said the Nashville, Tenn.-based corporate first became aware of the terminated correspondent relationships in late March when a member called, asking for assistance. He said the two banks were the Columbus, Ohio-based Huntington Bank and New York-based Chase Bank.

[...]

Thomas said a letter he’d seen from Huntington to a credit union said the decision to terminate the business relationship was the result of regulatory requirements, “some of which may be new or been amended since the credit union opened its account.” The decision reflected a change in bank wide strategy, and was not a reflection on the credit union, the letter added.

The two banks aren't providing a more detailed explanation and the Fed refuses to comment to reporters on the matter, including indicating whether the banks were directed to close the accounts by their primary regulators because of BSA concerns. Speculation includes the theory that the banks are trying to reduce volatility of deposits, but other observers note that those banks are so large that the 30 banks would be but a blip on the radar screen. Also, why only banks in those two states? Is there some massive money laundering risk suddenly emerging from coal country? Are moonshiners now allied with Mexican drug cartels and laundering massive amounts of illicit cash through these credit unions?

This may be worth following. Or, it may not be. If anything interesting pops, I'll post.

FDIC's Take On FFIEC's Social Media Guidance

I ran across an interview recently that the FDIC's Elizabeth Khalil gave to InfoSecurity's Tracy Kitten about the FFIEC's proposed guidance on social media. Among my take-aways are the following:

• The push for the guidance came from smaller banks that wanted the regulators to give them some free advice. We all understand the fact that because small banks have less money available to pay for expensive lawyers, they look to leverage off of every free resource they can glom onto. Trade associations aren't free, but if you're paying your dues, you look to them to give you your money's worth. Since banks pay the federal bank regulators assessments, they want some bang for those bucks, as well. I get it.
• While Ms. Khalil mentioned "reputational risk" as the second major risk of the three she discussed ("compliance issues" was number one and "third party risk" was the third), I think reputational risk layers through much of the regulators' concerns. For example, misuse of consumers' personal information may be a compliance risk issue, and a Facebook vulnerability to hackers is a third-party risk. However, they both can impact the bank's reputation. Bad things that happen in a bank's social media endeavors often pose a reputational risk as an additional risk, and that's a safety and soundness concern which, in turn, is a regulatory compliance concern.
• None of what's in the guidance is new, and banks that are already engaged in social media activities should already be familiar with the elements of the guidance. If they're not, they better become familiar in a hurry and hope that no one notices.
• Due diligence on third party service providers that you intend to use is critical. The due diligence needs to be ongoing. A third party's faux pas can bite the bank in the backside as well as the third party. Monitoring is essential.
• As is the case with online banking security, the regulators encourage banks to educate consumers on social media risks. For example, the regulators will look favorably on a bank educating its social media users on the risk of fraudulent bank sites, how to recognize the real deal from the fraudster, and that they should never give up personal information over social media. 
• Whether or not a bank is actively using social media to interface with current or potential customers, it needs to have a social media use policy. The bank's employees are using social media, and other people may be saying bad things about you in cyberspace. The bank should have a policy that deals with these issues.

The final guidance is expected to be out in the near future (the comment period closed March 25th), depending on the nature of the comments received.Interested bankers should keep their eyes peeled (although, don't hold your breath).

I'll be giving a breakout session on social media compliance on July 3, 2013 at CUNA’s America’s Credit Union Conference in New York City. If you're a reader and are attending that conference, say hello.

The Real Deal? Not...

From time to time on this blog, I express the wish that banks and credit unions would stop sticking forks in each other's faces long enough to cooperate on issues of common concern. Credit unions in Missouri have obviously been reading my blog posts, taken them to heart, and decided to tell me to stick my feel-good bloviations where the moon don't shine.

The gist of their advertising campaign appears to be that all commercial banks are tied directly to Wall Street and all credit unions are tethered tightly to The Cosmic Muffin. I guess all residential mortgage loans that are made by credit unions remain in portfolio and none ever end up in a mortgage backed security that's prepared, packaged, rated, bought, or sold by a Wall Street firm. That's certainly believable.

I also love the "real" customer quote on the "How To Switch" page about how banks have "all these different policies." I guess credit unions have only one policy that deals with everything, is that correct? Credit union compliance officers, let me hear from ya' on that aspect. As for being quick-on-the-draw regarding decisions and actions, my wife's recent attempt to set up a simple traditional IRA jumbo CD account at a credit union down the street ran aground on the shoals of the credit union's complete befuddlement with the concept of a trustee-to-trustee transfer. It took them a long time to screw that up and an even longer time to unscrew it up.

In fairness to credit unions generally, the community bank across the street from that credit union understood the quick-decision concept quite well, but then fatally enraged your trusty correspondent, who was also trying to set up a checking account, by insisting that Texas law required a legal professional who practiced under his or her own name to file an assumed named affidavit (Texas law does not require this). It was bad enough that the legally-challenged bank officer repeatedly argued with your favorite bloviator on this point of law, but then pulled out the account application of a woman who had set up a sole proprietorship under an assumed name and showed me reams of personal information about this woman. I told him that I could never do business with a bank whose deposit account officers routinely violated not only bank privacy policies, but state and federal privacy laws. His shocked expression was quickly succeeded by a look that conveyed his dawning realization that he had stepped in something squishy and foul-smelling, which, in turn, was succeeded by the vision of the swiftly moving bodies of my spousal unit and myself exiting the bank's premises.

The Bozo Factor: it's an equal opportunity affliction. It strikes credit unions and community banks with a distinct lack of partiality. I know as many banks that can make quick decisions for customers as credit unions that couldn't make a correct decision quickly if their pants were on fire and a quick, correct decision would enable them to jump into a barrel of pleasantly cool river water. And vice versa.

Thus, if you want to harp on legitimate distinctions between banks and credit unions, be my guest. For example, the advertisements do state that credit unions generally offer better rates, which is true, but fail to note that this is due to the fact that they don't pay income taxes. Yet, they yearn to be not only just like banks, but better banks than banks, only better banks that shirk their patriotic duty to fund state and federal government raping and pillaging of taxpayers like their for-profit commercial banking brethren and...oh yeah...credit union members must do. That might make for a fascinating fact-focused ad campaign, don't you think?

At least these ad campaigns give us all something to do in between wondering whether the washed up actor, the washed up comedian, or the washed up athlete will be the next bad dancer booted off "Dancing With The Stars." For that, we can be grateful.

Disparate Impact On Ex-Cons A No-No

Credit Union consultant and pundit Marvin Umholz has been hammering on the Obama administration's use of "disparate impact" theory in not only the fair lending context, but in the equal opportunity employment context, as well (previously discussed here). In his latest email newsletter "CU Strategic Hot Topics" (you can email Marvin at marvin.umholtz@comcast.net to be added to the circulation list), Marvin discusses the use of disparate impact to undermine the use of by financial institutions of background checks on prospective employees. The following is the section of the newsletter that focuses on this problem.

The new U.S. Department of Housing and Urban Development (HUD) rule entitled, “Implementation of the Fair Housing Act – Disparate Impact Rule (FR 5508) was posted in the Federal Register February 15^th www.federalregister.gov/articles/2013/02/15/2013-03375/implementation-of-the-fair-housing-acts-discriminatory-effects-standard?utm_medium=section_news&utm_source=homepage.  However, HUD’s use of the disparate impact doctrine to statistically prove discrimination regardless of intent represents just the latest in the executive branch’s efforts to utilize the controversial effects test to enforce the Fair Housing Act, the Equal Credit Opportunity Act (ECOA), and other laws.  In addition to HUD, the CFPB, the U.S. Department of Justice www.justice.gov, and the Equal Employment Opportunity Commission (EEOC) http://www1.eeoc.gov//eeoc/newsroom/wysk/arrest_conviction_records.cfm are using the statistical disparate impact discrimination effects test in their regulatory enforcement actions.

A February 15^th opinion essay in The Wall Street Journal reminded this correspondent that the EEOC

http://online.wsj.com/article/SB10001424127887323701904578276491630786614.html?KEYWORDS=perform+criminal+background+checks+at+your+peril is also a disparate impact activist in the extreme.  The op-ed began, “Should it be a federal crime for businesses to refuse to hire ex-convicts?  Yes, according to the Equal Credit Opportunity Commission, which recently released 20,000 convoluted words of regulatory ‘guidance’ to direct businesses to hire more felons and other ex-offenders…Last April, the agency unveiled its ‘Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions,’ declaring that ‘criminal record exclusions have a disparate impact based on race and national origin’…These statistical disparities inspired the EEOC to rewrite the corporate hiring handbook to level the playing field between ‘protected groups’ and the rest of the workforce…Most businesses perform criminal background checks on job applicants, but the EEOC guidance frowns on such checks and creates new legal tripwires that could spark federal lawsuits…If a background check discloses a criminal offense, the EEOC expects a company to do an intricate ‘individualized assessment’ that will somehow prove that it has a ‘business necessity’ not to hire the ex-offender (or that his offense disqualifies him for a specific job).”  Ex-offenders were disproportionately represented in the “protected groups” setting the stage for the EEOC’s statistical disparate impact effects test to the hiring process.

The op-ed continued, “Former EEOC General Counsel Donald Livingston, in testimony in December to the U.S. Commission on Civil Rights, warned that employers could be considered guilty of ‘race discrimination if they choose law abiding applicants over applicants with criminal convictions’ unless they conduct a comprehensive analysis of the ex-offender’s recent life history.  It is difficult to overstate the EEOC’s zealotry on this issue.  The agency is demanding that one of Mr. Livingston’s clients – the Freeman Companies, a convention and corporate events planner – pay compensation to rejected job applicants who lied about their criminal records…The EEOC is confident that its guidance will boost minority hiring, but studies published in the University of Chicago Legal Forum and the Journal of Law and Economics have found that businesses are much less likely to hire minority applicants when background checks are banned.  As the majority of black and Hispanic job applicants have clean legal records, the new EEOC mandate may harm the very groups it purports to help…The EEOC’s new regulatory regime is likely to chill hiring across the board and decrease opportunities for minority applicants.”  Did the EEOC run a cost-benefit analysis on this dangerous legal contortionism before it dove into these ideologically-questionable waters?  Does the EEOC consider its mission as being to inhibit job creation by exacerbating workplace uncertainty?

As recently as February 20^th CFPB Director Richard Cordray reminded everyone that the CFPB is committed to the disparate impact doctrine in executing its rulemaking and enforcement mission www.consumerfinance.gov/speeches/prepared-remarks-by-richard-cordray-at-a-consumer-advisory-board-meeting.  In his prepared remarks for delivery to the CFPB’s Consumer Advisory Board, Director Cordray said, “A final and consistent problem that can hijack consumers on the pathway to opportunity is the evil of discrimination.  For some people, the greatest challenges they face do not come from deceptive materials, debt traps, or market structures, but rather are rooted in something much more basic – unequal, invidious treatment based on characteristics such as race or gender or other bases prohibited by law.  The statistics show very clearly that communities of color were hit especially hard during the financial crisis.  All Americans saw drops in their household wealth, but African-Americans and Hispanics experienced the steepest drops.  This inequity is compounded by unequal access to responsible credit, which makes it difficult or even impossible to achieve their financial goals…We made it clear last year that – like other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as on intentional violations.  From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate.  Every consumer, regardless of race, gender, or other characteristics protected by federal law, should have equal access to credit and an equal chance to pursue the pathway to opportunity.”  The disparate impact doctrine is unconstitutional at best and a collection of counter-productive left-wing class warfare victimization claptrap at worst.

It was quite obvious from his remarks that CFPB Director Cordray believed that the United States was a nation statistically overflowing with victims and some were more victimized than others.  That is a distorted concept of what a level playing field should be.  The zealous application of the disparate impact effects test is unlikely to assure anyone access to increased prosperity and instead could bring the financial services marketplace to a screeching halt – and subsequently trigger widespread non-discriminatory austerity as a result.  Would that be consistent with the disparate impact doctrine?  Talk of social responsibility needs to be realistic.  It is more dangerous to promise too much than too little.  Despite the real social and economic advancement that has been made by ethnic minorities and other “protected groups” in this country, the federal government is still stuck in the 1960s.  Hopefully contemporary Americans believe in equal opportunity, not statistically-driven equality-mongering.  When it comes to the disparate impact doctrine, one can certainly hope that the U.S. Supreme Court Justices are true believers in equal opportunity rather than statistical quotas.

This is scary stuff. A number of my financial institution clients deem it a matter of safety and soundness to include within their contracts with vendors a provision that requires the vendor to perform background checks on employees who will perform services for the institution, especially if the employees will be involved in the handling of funds or sensitive information. Does that contractual requirement provide the vendor a legitimate business reason for performing the checks notwithstanding the potential disparate impact upon members of a protected class that contains a high number of ex-cons? On the other hand, is the financial institution subjecting itself to potential liability by imposing such a requirement and, if so, is it inserting itself between the rock of disparate impact and the hard place of unsafe and unsound practices?

The ideologues that are running the funny farm are forcing all of us to jump through the looking glass, head first.

Vendor Management Is Still A Regulatory Hot Button

According to the FDIC, a common theme in IT examination downgrades is poor vendor management by banks.

Last year, in 46% of the FDIC IT examinations in which bank ratings were downgraded, inadequate vendor management was cited as a causal factor, says Donald Saxinger, senior examination specialist in FDIC's Technology Supervision Branch.

"I'm not saying it was the primal causal factor, but, in 46% of the downgrades, vendor management was cited," Saxinger says. He spoke during the recent ABA Telephone Briefing "Vendor management: Unlocking the value beyond regulatory compliance."

Although the most common “error” that FDIC examiners discovered was the failure by banks to ask their vendors for copies of regulatory examinations, that wasn’t the only nugget contained in the linked article from the ABA Banking Journal. Among the others:

• Vendor management needs to consider all service providers that hold sensitive customer information, not just IT vendors. These include loan workout consulting, appraisal review companies, outside attorneys, and others.

• Make sure to get the proper exam reports about individual vendors. Some banks just obtain reports for the host data center, but not for the specific application that the banks were using.

• Even the proper reports don't cover everything that a bank must consider in its security risk management efforts. For example, one service provider with an otherwise clean report did not have an internal audit program and its business continuity planning was poorly documented.

This is all sound advice, of course, but knowing what you need to ask for is only half the battle. You also need to make certain that the agreement with your vendor gives the bank the right to ask for, and the vendor the obligation to deliver to the bank, copies of the necessary reports. Relying on the goodwill of the vendor in coughing up examination and audit reports, especially when they may contain results that are less than flattering to the vendor, is "unwise."

Here's one more tip: if the report reveals problems, the agreement with the vendor should require the vendor to notify the bank of what action the vendor intends to take to remedy the defects, and should also require the vendor to give the bank periodic progress reports on its progress in correcting those problems.

I'll be doing a webinar on March 6, 2013 on the topic "Technology Service Agreements: Meeting Regulator’s Expectations." It covers regulatory guidance applicable to credit unions, banks, and thrifts, although the same essential principles apply to each. The goal is to discuss the provisions of a technology service agreement that regulators expect (and that sound business judgment requires) be included, and to give financial institutions guidance on how to approach the issues covered by each of those provisions so that the institution meets its regulator's expectations while also meeting the institution's business needs.

Rant Me A River

Steve VanBeek at the NAFCU Compliance Blog yesterday posted a nice list of links to the CFPB web site for each of the CFPB regulations on mortgage loans. He also took a shot at the CFPB's "creativity" in avoiding the Administrative Procedures Act.

The CFPB likes to make up its own rules.  Including their recent announcement that their rules are considered "issued" when they are posted on the CFPB's website rather than the normal Administrative Procedure Act timeframe of when the rules are published in the Federal Register.  

Well, as chance would have it, the CFPB's mortgage rules are slated for publication in the Federal Register for the following dates:

• January 22nd for Escrow Final Rule (link goes to actual Federal Register document)

• January 30th for Qualified Mortgage/Ability-to-Repay Final Rule (link goes to Public Inspection Desk)

• January 30th for High-Cost/HOEPA and Homeownership Counseling Disclosures (link goes to Public Inspection Desk)

The other regulations will be in the Federal Register at an even later date.  

Why does this matter?  The CFPB gave 12 months (and sometimes less) from the "issue date" to implement the majority of the new requirements.  Because the CFPB considers the "issue date" as the date of publication on the CFPB's website - rather than publication in the Federal Register - your credit union will have less time to comply with the final rules.  

Summary.  If the CFPB would have followed the normal Administrative Procedures Act process, your credit union would have 12 months - from the date of publication in the Federal Register - to comply.  

Unfortunately, Dodd-Frank gave the CFPB very strict deadlines for issuing their final regulations and the CFPB chose to alter long-standing rulemaking practices instead of using its exemption authority (like it did for other Dodd-Frank requirements) to ease the impact of these regulations.

Today, Steve was irked about the way the CFPB rushed through the enactment of the international remittances regulation. Instead of a thoughtful process, in which the CFPB listened to criticism of the proposed regulation and enacted changes before it went into effect, the bureau shot first and took names later. Naturally, this resulted in unnecessary time and money wasted by financial institutions, as well as inducing angst in financial institution personnel.

The process this regulation has taken has left everyone's head spinning.  The CFPB had opportunities to listen to industry feedback and make changes upfront.  Instead, they finalized the rules and only then did they realize they were not workable.  Unfortunately, the lack of operational experience and background at the CFPB was on full display.  They had a rule and were going to finalize it no matter what the consequences.

Steve's getting so ornery these days, especially about one of my favorite black holes of regulatory ennui, that I might have to start asking him to guest post here.

I wonder when the first lawsuit will allege that "issuing" rules by posting them on a web site is not valid rulemaking? What do you suppose the over/under is on that date?

CFPB Delenda Est!

Gigging Sharks For Christmas

As a client alert issued by the law firm bearing my favorite acronym (MoFo) put it so well, last week "Congress gave banks and other ATM operators an early holiday present."

On December 11, the Senate unanimously passed S. 3204, which eliminates the external fee notice requirement in the Electronic Fund Transfer Act, 15 U.S.C. § 1693, et seq. (“EFTA”). The House passed an identical bill, H. 4367, last July. The President is expected to sign the measure into law.

I'm not sure which holiday they were discussing, but I assume it was either Christmas, Hanukkah, or Kwanzaa. I doubt MoFo celebrates Festivus.

Once the law goes into effect, ATM operators will be required to give only the on-screen notice of transaction fees. The additional external notice that's currently required will go the way of the TAG.

As MoFo notes, this law will do away with the plethora of "frivolous lawsuits" that bottom-feeders and their shark enablers have been using to squeeze settlements out of banks and credit unions whose only offense was, in many cases, not having the external signs booby-trapped with claymore mines to discourage "unknown perpetrators" from stealing them shortly before plaintiffs' lawyers photographed the absence of signage and used that absence as the basis of a lawsuit on behalf of plaintiffs who used the ATM shortly after the external signs disappeared. Sure, some of those plaintiffs gave us an occasional cause to grin, but, for the most part, they were as welcome as would be Charlie Sheen as the keynote speaker at the Sisters of Charity Federation annual convention.

Unfortunately, there remains plenty of ATM-related chum to attack the predators. The ADA, for example. Where there's a financial remedy tied to a solvent defendant, the plaintiffs' bar will always find the basis for a claim, no matter how far into the ionosphere they have to travel to find it.

The Wages of Sin and Stupidity

I promise you that this is the last of the bank robbery stories for awhile; however, my readers have been firing them at me so quickly, and so many of them are so astounding, that I can't pass them by. Since this is a post for a mostly Friday readership, I'll indulge myself one more time. I'll save any more I receive for later posting, after I strain to find some topic of actual use to my readers.

The first story comes from a Washington, D.C. senior trade association official, who noted to me the following truism: "If you are going to rob a bank, don’t post a YouTube video."

Authorities say a woman accused of robbing a bank in eastern Nebraska posted a video on YouTube bragging about the robbery.

York County Sheriff Dale Radcliff said a copy of the video will be turned in as evidence against Hannah Sabata of Stromsburg. The 19-year-old was arrested on Wednesday in connection with a robbery the day before at the Cornerstone Bank branch in Waco. She faces robbery and theft charges.         

The video was posted the same day Sabata was arrested. It shows a woman holding handwritten signs that say she robbed a bank and stole a car. The woman then holds a large bundle of cash, what she says is $6,256, in front of the camera. She also holds up what appears to be a bag of marijuana. 

The video caption says, "I just stole a car and robbed a bank. Now I'm rich, I can pay off my college financial aid, and tomorrow I'm going for a shopping spree."

The woman in the video explains herself as a victim of the government -- how authorities took her baby before she could take the baby home, charging the woman with neglect.

The bank robbery charge is a step up from her record as a juvenile, when she was arrested for "making terroristic threats."

The linked article contains more details and videos of a TV news report and of the actual Youtube video posted by the alleged humanoid bandit. As I told my correspondent, "This is stupidity of such cosmic proportions that it makes you question the theory of evolution."

The second story concerns a bank CEO with whom a partner in my law firm and I had dinner a few months ago at the Missouri Independent Bankers Association. If I'd known the guy was packing, I'd have shown him even more respect, as opposed to the servile groveling I usually employ when in the presence of bank executives.

Maybe the bank robber couldn’t see very well through the holes in his mask — the face of Chucky from the “Child’s Play” horror movies — as he walked into Peoples Bank & Trust Tuesday afternoon.

After all, it says right on the door that concealed weapons are allowed in the bank. They’re practically encouraged by the sign: “Management recognizes the Second Amendment to the U.S. Constitution as an unalienable right of all citizens.”

So when the robber walked out of the bank a short time later with a red bank bag full of cash, maybe he shouldn’t have been surprised that bank president David W. Thompson followed him out to the parking lot. Thompson watched the masked robber get in a Ford pickup parked in a handicapped spot up front, then pulled his Colt .380 handgun and pointed it at the man.

“Sir, get out of the truck,” Thompson, 58, recalled demanding. “You’re not going anywhere.”

And when the man put his hand in his jacket pocket, as if he had a weapon, Thompson scolded him again.

“You don’t want to go there,” Thompson said. “This will end badly.”

Fortunately the robber listened. It turned out the man had no weapon of his own. Thompson and another bank official who also carries his own weapon pulled the man from the truck and held him at gunpoint until police arrived.

“I didn’t have time to get scared,” said Thompson, a life member of the National Rifle Association who supports concealed-carry laws. “I was excited. Your adrenaline pumps. He robbed a bank, he menaced my employees, and I don’t allow that.”

Hey, it's not just me that thinks Dave's a stud. The local police chief, a state bank trade association chief, even the local chief of souls, a priest, expressed the opinion that, from now on, if anyone asks where Dave is, we'll tell them that he's out walking on water.

And it's not just a gun in the hand that bucked up Dave's courage (although that's generally sufficient for me).

Thompson said he never worried he’d be hurt in a confrontation with the robber. Not only was Thompson armed, but he’s a black belt. The robber “was frail enough and slow-moving enough that I’d already ascertained I could physically handle him,” he said.

The robber's luck that Dave didn't launch a Chuck Norris roundhouse kick to the face. Especially when Dave realized who the miscreant was.

Police arrived quickly, forced the man to the ground and pulled the mask off his face, Thompson said. The officers opened the man’s wallet, and Thompson saw a debit card for Peoples Bank.

“That’s when I realized he was one of our customers,” Thompson said.

Thompson didn’t recognize the man, but one of his tellers later said she did. Turns out Lee had opened an account with the bank in April, Thompson said.

I guess Lee didn't like the terms of the "overdraft" protection offered by the bank and decided to make an unconventional "out-of-channel" overdraft himself.

You'll note that in none of these, or other recently reported, incidents involving bank robbers was the robber shot. In the case of credit unions, the robbers have not been so lucky. As one reader suggested to me, bankers will now have a new rallying cry: "Guns don't kill people, credit unions kill people. Ban credit unions!"