Bank Lawyer's Blog

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!"

Putting Your Lawyer's Number On Speed Dial

NAFCU's Steve Van Beek had a chilling blog post last week about the CFPB's Civil Investigative Demand (CID) power. While it's a common theme in some quarters to pooh-pooh the authority of the CFPB to directly supervise community banks and other institutions under $10 billion, Steve correctly points out that CIDs aren't just for the big boys.

Even if your credit union is less than $10 billion in assets - the CFPB could issue you a CID.  Here is from a September CFPB blog post:

"The mission of the CFPB is to ensure compliance with federal consumer financial laws through effective enforcement of those laws. When the Office of Enforcement needs to gather information, it may issue a Civil Investigative Demand (CID) to people and institutions that may have materials relevant to an investigation. The law that created the CFPB gives us the authority to gather information this way, and several other federal agencies have similar processes.

We carefully consider what to request in each Civil Investigative Demand. A recipient of a CID may challenge a CID by petitioning the CFPB’s Director. The Director can respond in three ways: he can reaffirm our decision to obtain the information, modify the demand, or set it aside altogether."

As Steve also notes, the "appeal" right is of cold comfort to recipients of a CID, because the "appellate court" is the Director of the CFPB. Thus far, only two appeals have been made and Recess Richie Cordray has denied both appeals. Like Captain Renault, I'm shocked, SHOCKED!

The time frames for appeal are short (10 days). I suppose if you're going to be hosed in any event, getting the hosing accomplished quickly saves wear and tear on the nether regions. Moreover, since the CFPB also thinks it has the right to compel institutions to turn over attorney-client privileged information, you know that you're not going to be dealing with bureaucrats who give a flying fig in a rolling donut about actual due process or fundamental fairness. They're the good guys, you're the bad guys, they're on a mission from God, and in a battle of good-against-evil, the ends justify the means. The denial of the appeal is a foregone conclusion, so why waste a lot of time (and rack up even more billable hours in attorneys' time in a futile endeavor)?

I know I recently expectorated the notion that the CFPB was (like the common cold) here to stay, but on general principles, I simply must reinstate my closing motto to every CFPB-realted post, if only for the purposes of sustaining the morale of those of us who toil in the trenches. After all, 2016 is right around the corner, historically speaking.

CFPB delenda est!

Moving Right Along

This is the last post I intend to make (for the time being) on the subject of the NCUA's use of the "low income" credit union designation to permit credit unions who qualify for the designation to make business loans in excess of the 12.25% of assets cap. In my last post, I offered any representative of a credit union trade association the opportunity to respond to the comments of Dr. Keith Leggett of the ABA that were featured in that post. While a trade association official did not respond, a couple of credit union attorneys did, and I've arbitrarily chosen the comments of Hal Scoggins of Farleigh Wada & Witt in Portland, Oregon, to post. Here they are:

It's a bit odd that while Dr. Leggett is fierce in his desire to see credit unions strictly adhere to the 12.25% MBL limit prescribed by the Federal Credit Union Act, he is less keen on following the plain language of the Act when it says that the determination of "serves predominantly low-income members" is "as defined by the Board."  I don't disagree that the NCUA seems to want to give credit unions every opportunity to obtain the low-income designation.  But if a credit union is predominantly serving members with median household incomes of about $40k or less (the national median family household income as of December 2011 was about $51k), it would seem that the ABA should be happy that the credit union is serving the niche that the ABA always says credit unions should stick to. 

 And it's not like low income designated credit unions are free to make MBLs without limit.  A review of the NCUA's concentration risk policy requirements should make that evident.  Further, no matter what the regulations may officially permit, credit union examiners are prone to throw up roadblocks to huge member business loan concentrations in any credit union, because anything that actually earns income for the credit union is obviously much too risky and should be avoided (or severely restricted) at all cost. 

Finally, no matter how many credit unions (including some "big" ones) get low income designations, the fact is that credit unions are still just a small cupfull of water in the financial institution bucket.  As of 12/31/11, total CU assets in the US were just over $1 trillion.  Wells Fargo by itself has more assets than that.  Is the magnitude of the credit union "threat" really that great for banks?

I don't intend to make this blog a continuing forum for the debate about this particular issue, but I wanted to honor my commitment to post a response from someone connected to the credit union industry. Having done so, I'll feel free to move on to other areas on which to focus my snark. After all, I've wasted almost four days without commenting on everyone's Crazy Uncle Joe's maniacal performance in last Thursday's vice presidential debate, and such snark fodder usually surfaces only when Maxine Waters or Barney Frank opens a pie hole to emit gaseous effluvia. I need to pick such low hanging fruit before it over-ripens, which usually means before Saturday Night Live gets a chance to lampoon it, which it did in fine fashion last night.

If credit union and commercial bank representatives want to carry on the war, they'll have to change battlefields. This one is played out.

Speaking of Saturday Night Live...

Another Prespective On Low Income Credit Unions

Last night's post concerning the circumvention of the 12.25% business lending cap by some credit unions who qualify for a "low income" designation, generated some interesting responses. I opined that I wasn't really concerned about this "loophole," given the fact that there were only 12 credit unions of $1 billion or more in the group and that having a bunch of small credit unions making business loans in low income areas might be beneficial to those areas.

Although I thought my treatment of the NCUA, and credit unions generally, was fairly gentle, given my customary slash-and-burn-in-a-bonfire-of-snark approach to blogging, some credit union subscribers cancelled their subscriptions to the blog. I assume that they were with the same tribe of credit union natives who become enraged with my constant occasional bashing of the CFPB. I'm not sure where the love for the CFPB may originate in the minds of the regulated, but perhaps its akin to suffering from the Stockholm syndrome.

On the other hand, Dr. Keith Leggett, Vice President and Senior Economist at the American Bankers Association, who was quoted in my post, sent a thoughtful comment my way via email. Since it's not long, I'll post it in its entirety.

While NCUA just approved 12, there are already other credit unions that are near or above $1 billion in assets that already have the low-income designation --  Black Hills FCU (SD), Whitefish Credit Union (MT), GECU (TX), Navy Army (TX), Selco Community (OR).

Also, Security Service In San Antonio is eligible for this designation.  They had not opted in at the time I did the FOIA.

The other issue is that NCUA tends to grade on a curve with regard to low-income.  Low-income designation includes people of moderate income.  In addition, the agency rigs the process in favor of getting a low-income designation.

Here is the agency’s regulation.

“Low-income members are those members whose family income is 80% or less than the median family income for the metropolitan area where they live or national metropolitan area, whichever is greater, or those members who earn 80% or less than the total median earnings for individuals for the metropolitan area where they live or national metropolitan area, whichever is greater. NCUA will use the statewide or national, non-metropolitan area median family income instead of the metropolitan area or national metropolitan area median family income for members living outside a metropolitan area. Member earnings will be estimated based on data reported by the U.S. Census Bureau for the geographic area where the member lives. The term “low-income members” also includes those members enrolled as students in a college, university, high school, or vocational school.”

So if you are above 80 percent for the local metro area, NCUA substitutes the national average to see if the census tract falls beneath the threshold.

OK, I get it. Dr. Leggett is concerned that the NCUA is actively assisting every credit union it possibly can to do an end run around the cap on business lending because Congress won't raise the cap by legislative action. I still think it's too early to tell whether this is a real threat or not; however, at the risk of offending even more credit union employees, I understand why the ABA is concerned. After all, I, too, make my living serving the dark side of the Force (i.e., commercial banks) as a running dog lackey of capitalist imperialism, a bourgeois traitor to the proletariat, a lickspittle idler, a kulak parasite, a Bonapartist pig, a Trotskyite fascist hyena, a revanchist, a class traitor, a Hyena soiling revoluntionary raiments, an exploiter of the working class, and, overall, simply an enemy of the people. Therefore, I, too, must be ever alert when voluntary associations that seek to serve a nonprofit purpose and, thereby, avoid tax-paying, also seek to encroach upon Lord Sauron's hegemony in financial services. Such mission creep must be nipped in the bud.

If a credit union trade association flak apologist spokesperson would care to send me a response that does not threaten physical harm to my pets or my person, I would be pleased to post it in the same manner as I've posted Dr. Leggett's. That manner includes a severe risk of encountering sarcasm, irony, self-parody, and, perhaps, actual humor, so consider yourself warned.

Low Income "Threat" Overblown?

One of the things that "disturbs" commercial banks about credit unions is their consistent push for greater commercial lending authority. One push came this past summer with a bill that Harry Ried and others tried (not very successfully) to move through Congress that would have raised the cap on business loans from 12.25% of assets to 27.5%. Another push came in August from the NCUA, which notified more than 1,000 credit unions that they were eligible to be classified as "low income credit unions," and, thereby, to be exempt from the cap. Predictably, many bank trade groups howled about that action, although it seemed to me that the number of institutions was relatively small, and that the impact on commercial banks was unlikely to be substantial.

In today's edition of the American Banker (paid subscription required), reporter Kevin Wack asserts "that banks' fears of increased competition for business loans were overblown."

In August, the National Credit Union Administration notified more than 1,000 credit unions that they were eligible to become low-income credit unions. That designation exempts the institutions from a statutory 12.25% cap on business lending, along with other benefits. Banking trade groups decried the regulators' move as an end run around Congress, which has been considering legislation, fiercely opposed by the banking industry, to raise the cap.

But new data show that out of 615 credit unions that initially accepted the NCUA's offer, only a tiny percentage are anywhere near the existing cap.

Just six of the credit unions were within 20% of it and only 14 of them were halfway there. Roughly 70% of the credit unions were doing no business lending at all.

The American Bankers Association is not as sanguine about this turn of events, due to the fact that the "low income" designation gives the credit unions the ability to raise supplemental capital. As most observers of the industry understand, the inability to raise capital by tapping capital markets is one of the major impediments to growth by credit unions.

Banking industry officials said that the newfound ability to raise capital could accelerate the growth of the credit unions at the expense of banks. Currently, credit unions are barred from raising capital other than through retained earnings.

Keith Leggett, vice president and senior economist at the Association, likened the supplemental capital to subordinated debt issued by bank holding companies.

"And so having the ability to go out there and raise secondary capital will facilitate rapid growth," he said, referring to the credit union industry. "That'll allow them to even more aggressively price their products, because they won't need to retain their earnings going forward."

Only twelve of the institutions have assets over $1 billion and two-thirds have assets under $50 million. I don't know if twelve credit unions ought to scare the bejesus out of commercial banks. Moreover, to retain their low income designation, the credit unions must have more than half their members located in low income areas. Are banks concerned that these low income CUs will sop up all the good business loan credits in low income areas? Are banks rushing to serve the same areas and worried that CUs are being given an unfair advantage in being the first pigs to the trough? Seriously?

What if, instead of hurting commercial banks, the increased business lending authority of low income credit unions actually increases the availability of small dollar amount business loans to small businesses in low income areas? I don't know if that will be the result, but if two thirds of the low income CUs have assets under $50 million, I'm not sure that they're going to be pilfering credits that commercial banks crave.

I understand why commercial banks oppose legislation to increase the 12.25% business lending cap for all credit un ions. I also understand why folks like Keith Leggett are concerned that the "low income" designation might be abused. On the other hand, I think it's just as likely that this action by the NCUA will not have much of an impact on most commercial banks.

I guess we'll just have to wait and see, because, while the commercial banking lobbyist should be able to thwart any general raising of the cap through federal legislation, I don't see the banks being able to launch a successful legislative effort to roll back the NCUA's efforts to encourage eligible banks to take advantage of the low income designation. We'll all simply have to stand by and watch this potential "danger" play out.

Breaking News: Credit Unions Don't Pay Taxes!

A reader who has noted my previous calls for credit unions and community banks to call a cease fire and aim their guns at their common enemies for a change, at least while the survival of both segments of the financial services industry is under attack, sent me a link to a recent blog post by Chicago Sun Times columnist Rich Miller. Miller's post concerns a billboard and radio campaign by the Illinois Bankers Association that attacks credit unions.

Here's what the billboard asserts:

I didn’t know that credit unions don’t pay income taxes!

Did you?

Ask your legislator why.

With all that the average citizen has on his or her mind these days, does the IBA honestly think he or she gives a flying filibuster in a rolling donut about that issue? Seriously?

Miller's post also contains an embedded file of the radio advertisement. Among the gems of that ad is that eliminating the tax-exempt status of credit unions would "go a long way to solving the state’s budget problems." Not as much as dealing with the crushing burden of the state's medicaid and retired state employee state health insurance liabilities, or finding a way to break the power of public employee unions and the fiscal steamroller of their unfunded future pension liabilities, but addressing those causes of the deficit (described by the state controller as "a colossal mess") would require political courage. Better to bash credit unions than to tackle the tough issues.

Miller's comments are fairly neutral and fairly uninformative, other than to note that we'll likely see more of this when the Illinois legislature convenes next spring. Credit unions don't pay taxes, admit as members "pretty much anybody," and banks are cheesed off about it. That's Miller's succinct statement of the root of the IBA's complaints.

The post did generate 46 comments, the vast majority of which appear to me to be the talking points of anonymous shills for both sides. The only person with the integrity and courage to use her real name is Linda Koch, CEO of the IBA. As to the rest, I consider them a pack of trolls too cowardly to identify themselves. I'm sure they made a lot of self-satisfying noise in their echo chamber, and I'm sure their pals back at the office gave them high fives for scoring points in a game about which the public cares not a bit, but I seriously doubt they influenced the opinion of any member of the public who wasn't already associated with one camp or another.

Keep up the great work, trade association officials for credit unions and community banks! While, like a herd of wild asses, you nip and kick one another, the wolves circle patiently, waiting to cull the herd, one ass at a time.

Diversity and Disparate Impact

Former credit union executive and current credit union consultant Marvin Umholtz's most recent issue of his email newsletter "CU Strategic Hot Topics" had an interesting take on the NCUA's Office of Minority and Women Inclusion (OMWI) and the implications for credit unions of the NCUA's upcoming assessments of credit unions' diversity policies and practices. With Marvin's permission, I've excerpted the entire discussion.

Credit Union Diversity Policies and Practices Destined for NCUA OMWI Scrutiny

In the NCUA’s September edition of its newsletter www.ncuareport.org/ncuareport/201209#pg1 starting on page 6 there was an article featuring the NCUA Office of Minority and Women Inclusion (OMWI) www.ncua.gov/about/Leadership/CO/Pages/OMWI.aspx that should serve as a reminder that the NCUA will soon begin assessing federally insured credit union diversity policies and practices.  As the article explained, the NCUA OMWI (along with those OMWI offices at the CFPB http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-hires-stuart-ishimaru-to-head-the-office-of-minority-and-women-inclusion the Federal Reserve System www.federalreserve.gov/publications/other-reports/files/omwi-report-20120402.pdf and the individual regional Federal Reserve Banks, the Office of the Comptroller of the Currency www.occ.gov/about/who-we-are/careers/omwi.html, the Federal Deposit Insurance Corporation www.fdic.gov/about/diversity/FDIC_OMWI_Annual_Report_2011.pdf, and the U.S. Treasury www.treasury.gov/about/organizational-structure/offices/Pages/omwi.aspx) has three missions under the Dodd-Frank Act Section 342 addressing the diversity of the agency’s workforce, contractors, and regulated entities.  The NCUA article pointed out that among those missions, “By law, each OMWI must develop standards to assess diversity in the agency’s regulated entities.  NCUA’s regulated entities consist of all federally insured credit unions.  NCUA’s OMWI Director and NCUA staff are now participating on a regulated entities subcommittee consisting of representatives from each covered agency.  The purpose of the subcommittee is to ensure a common framework and consistent approach among the agencies in implementing Section 342 with respect to regulated entities…NCUA’s ultimate goal for assessing credit union diversity standards is to develop an approach that satisfies congressional intent, but that also minimizes any potential regulatory reporting burdens by using pre-existing data sources wherever possible.  Once NCUA drafts proposed diversity assessment standards, the agency will make it available for public comment.”  Based upon past statements from the NCUA OMWI Director to this correspondent, the NCUA Board is expected to adopt a policy implementing Section 342 prior to the end of 2012. 

Section 342 was added in the 11^th hour at the insistence of Congresswoman Maxine Waters (D-CA) http://waters.house.gov during the House-Senate conference committee on the highly partisan Dodd-Frank Act.  Even to this day Congresswoman Waters continues to be among the Dodd-Frank Act’s staunchest defenders.  Having recently been cleared of longstanding House Ethics Committee charges, Congresswoman Waters now is again considered to be the first in line for either Ranking Minority Member or Chairperson of the House Financial Services Committee in 2013, depending on which political party holds majority control www.politico.com/news/stories/0912/81725.html following the 2012 elections.  Since this correspondent disagrees with Congresswoman Waters’ policy positions on financial services issues 99.99% of the time, neither one of those alternatives is good news.

During a September 21^st speech to the Congressional Black Caucus, CFPB Director Richard Cordray www.consumerfinance.gov/speeches/prepared-remarks-by-director-richard-cordray-at-the-congressional-black-caucus-foundation reported about the CFPB’s OMWI.  He said, “In January, at the same time that President Obama appointed me to serve as the first Director of the Consumer Bureau, we began standing up the OMWI.  In April, we were fortunate to bring on Stuart Ishimaru to lead our OMWI.  Stuart’s extensive work promoting diversity in the Civil Rights Division of the Department of Justice and the Equal Employment Opportunity Commission – and frankly throughout his life – makes him the perfect person for the job.  He has worked on behalf of underserved communities, and he brings with him decades of experience in overseeing federal policies geared toward fostering difference in the workplace and creating opportunities for women and minorities.”  Director Cordray then explained what the agency was doing in terms of workplace diversity and contractor outreach, but it was his comments about regulated entities that caught this correspondent’s attention and foreshadowed the CFPB’s likely activism.

Cordray said, “Third, and very importantly, Congress has directed that the OMWI will work to create standards to assess diversity at the financial institutions that the Consumer Bureau regulates.  Take a moment to grasp how this aspect of our task greatly broadens our opportunity.  The financial realm encompasses trillions of dollars of assets and employs more than five million people in the United States.  To the extent that we can encourage and influence a broadening of equal opportunity in this powerful and dynamic sector of the American economy, we will quite possibly make breakthroughs for the principles of diversity and inclusion that will be profound and lasting.  Just as we are convinced that having a mix of employee backgrounds and experiences is good for our work at the Consumer Bureau, we likewise are convinced that the same is true for financial institutions themselves.  Like us, they serve the broad consumer public of this country.  And like us, they will better understand the changing demographics and needs of their customer base if their own workforce is reflective of our changing society.”

Director Cordray continued talking about his ideological premise and politically-loaded interpretations, “As a new agency, we have the rare advantage of not being wedded to the old ways, and thus of being able to forge our own path.  I happen to believe that we are at a moment of time in this country where business leaders, both in the financial industry and elsewhere, are able to grasp the importance of the outlook that I have just described.  For a long time, the financial services industry did not traditionally reflect all its potential customers.  But it feels to me like this sector is ripe for change and is beginning to embrace this change.  If we are willing to step forward right now and make a persuasive case for diversity and inclusion, then I believe we will find that we are casting our bread upon the waters at a propitious time and this important effort will be crowned with success.  Put bluntly, there is a great business opportunity here for a sizable industry, and I am confident that good business leaders will be prepared to seize that opportunity.”  Since the CFPB has near dictator-like authorities over the financial services industry, one doesn’t know whether to consider Director Cordray’s remarks to be harmless political pandering to a targeted constituency or a tangible threat to implement ideologically activist policies that push the boundaries of the law.

Perhaps the biggest significance of the industry diversity assessments to be undertaken by the NCUA and the CFPB, as well as all of the other various OMWIs, is that the findings could serve as fodder for fair lending violation cases based upon the disparate impact doctrine that has been publicly declared as policy by the CFPB, the U.S. Department of Justice (DOJ) www.doj.gov, the Department of Housing and Urban Development (HUD) www.hud.gov, the Equal Employment Opportunity Commission (EEOC) www.eeoc.gov, and the Department of Labor www.dol.gov/ofccp/regs/compliance/fccm/ofcpch1.htm, among others.  The NCUA OMWI will be on a data-fishing expedition that once shared with other federal agencies will surely lead to lawsuits and coerced settlements.  Where does the NCUA Board stand concerning the application of the disparate impact doctrine on credit unions?  Does the NCUA Board plan to use the OMWI assessments to build law enforcement cases against federal credit unions? 

There's enough there to concern banks, as well as credit unions, of course. The use of diversity examinations as "fishing expeditions" to uncover evidence to support disparate impact enforcement actions is a troublesome prospect. Moreover, I listened to a CFPB attorney tell a crowd of Texas bank lawyers six months ago that every CFPB examination team would include an enforcement lawyer. Thus, collecting evidence for enforcement actions appears to be part of the CFPB's normal examination agenda, so Marvin's concerns are well-founded. After all, none of the regulators who have primary examination authority for the under-$10 billion bank and credit union industry segment will want to appear to be less "diligent" than the CFPB.

Crushed By The Same Bootheel

Steve Van beek at the NAFCU Compliance Blog put together a short slide deck and accompanying fact sheet that contains an eye-opening list of burdens placed upon credit unions by the CFPB. While the list was developed for credit unions, its equally applicable to community banks. Here's an excerpt from the Fact Sheet:

10 – Number of current proposed rulemakings to amend mortgage regulations

7 – Number of times Regulation Z and Regulation X were changed in the prior 36 months (prior to Dodd-Frank)

2780 – Number of pages of proposed rules issued since July 9, 2012

20 – Number of new notices required solely by the CFPB’s two mortgage servicing proposed rules

100 – Finalized exemption for remittance transfers under Regulation E

1000 – Proposed exemption for periodic statement requirement under Regulation Z (credit union would need to service less than 1000 mortgages)

The slide deck digs a little deeper into those numbers, but the summary is sufficiently depressing.

Recently, the trade and popular presses have been featuring articles recently about how the regulatory burden is beating down the community banking business. Add credit unions to your prayer list.

All of this ignited  yet another eruption from Camden Fine of the ICBA, who appears to be letting his inner child out of its crib and giving it free rein to bay at the moon. Of course, I love that stuff. I found the following portion of his latest rant especially enjoyable.

And the saddest thing of all is that I get calls from heads of regulatory agencies, the Treasury and the administration asking, “Why aren’t community banks lending more?” and “What can we do to help?” Really? How sad is that? There are times when I just want to say, “Are you kidding me? This is a joke, right?” But the sad reality is that it is not a joke, it is real. And that reality is crushing Main Street community banks, small businesses and the customers they serve across America.

Once again, I say: The enemy of my enemy is my friend. Save the cross-border warfare for another day and focus on a common enemy. They'll be plenty of time later to screw with the other side of the competitive fence. If we don't focus and marshall our forces quickly, there won't be enough of the little guys left to make screwing with one another worthwhile.

UPDATE 09.20.12: I've corrected a misspelling pointed out to me by one of my readers, a self-confessed "grammar Nazi."

In Georgia, The Business Judgment Rule Is Alive And Kicking

This past Tuesday, a federal district court judge in Georgia found that in The Peach State, at least, officers and directors aren't liable for ordinary negligence. As discussed in a recent blog post by Kevin LaCroix, the business judgment rule is apparently alive and well in Georgia and it protects both officers and directors.

In an August 14, 2012 opinion in the FDIC’s lawsuit against former directors and officers of the failed Haven Trust bank, Northern District of Georgia Judge Steve C. Jones affirmed that Georgia’s business judgment rule is applicable to the actions of bank directors and officers. Based on that determination, Judge Jones dismissed the FDIC’s claims against the directors and officers for ordinary negligence and breach of fiduciary duty. Judge Jones also ruled that the FDIC must replead its gross negligence claims against the former directors and officers to provide specific allegations as to each defendant’s alleged involvement in or responsibility for the alleged wrongdoing.

[...]

In his August 14, 2012 opinion, Judge Jones granted the defendants’ motions to dismiss the FDIC”s claims for negligence of for breach of fiduciary duty. He determined first that, contrary to the arguments of the FDIC, t was appropriate to consider the business judgment rule at the motion to dismiss stage. Judge Jones then went on to conclude that “when Georgia’s business judgment rule is applied to claims for ordinary negligence, Georgia courts hold that such claims are not viable.” He also specifically confirmed that the business judgment rule is applicable in the banking context. Based on these determinations, Judge Jones dismissed the FDIC’s claims for ordinary negligence and breach of fiduciary duty (based on ordinary negligence).

Judge Jones denied the defendants’ motion to dismiss the gross negligence count, finding that “the complaint has alleged in a collective/group manner sufficient facts for which a jury might reasonably conclude that Defendants were ‘grossly negligent’ as defined by Georgia law.” However, noting that the “factual allegations must give each defendant ‘fair notice’ of the nature of the claim” against them, Judge Jones ordered the FDIC to replead its gross negligence claim “to provide specific allegations as to each Defendant’s involvement or responsibility for the alleged wrongs, decisions, approvals, transactions and loans referenced in the original Complaint.”

As Kevin also points out, this ruling is consistent with earlier rulings by the same judge in connection with claims by the FDIC against former officers and directors of another failed Georgia bank. Those rulings are significant for a number of reasons, among them the fact that, since the state of Georgia is apparently the elephant graveyard of community banks that concentrated in commercial real estate lending, these rulings could affect claims made against the officers and directors of failed banks where the FDIC has not yet decided to file suit, and might influence the decision of the FDIC as whether it's advisable to even file some lawsuits.

Kevin discusses briefly a recent decision by a federal district court in Florida that Florida law precludes the FDIC from pursuing claims of ordinary negligence against former bank directors, although the decision does not address the liability of former bank officers for ordinary negligence. As we've discussed previously, federal district courts in California have come to opposite conclusions on the applicability of the business judgment rule to former bank officers in that state. Thus, in some states, the state of the law appears to be "unsettled." We await federal appellate court decisions on these issues with interest.

For those interested in this topic, I'll be on a panel at the Harland Financial Services Connections Annual Conference with good friend Joe Lynyak of Pillsbury on August 28th in San Diego, discussing the lessons that failed banks can teach the officers and directors of "good" banks. I'll be giving a variation of the same presentation, this time with my law firm colleague Christian Otteson, at the Missouri Independent Bankers Association annual convention's "Hot Topics" session on September 11th. The MIBA insisted that only bald guys address them on this topic and Christian and I were pleased to oblige. Finally, I'll be the keynote speaker (flying solo this time) at the National Association of Federal Credit Union's Regulatory Compliance Seminar in Seattle on October 23rd with a version that's geared toward giving tools to credit union compliance officers that they can use to protect their officers and directors (including themselves) from the NCUA's gentle second-guessing, which can be disturbingly similar to the FDIC's. Following that speech, I'll likely retire the topic for awhile in order to prevent myself (and my audience) from the onset of sudden narcolepsy. Unless, of course, someone in Honolulu would like another dose, in which case, I'll make the sacrifice.

And The Cashola Will Continue To Flow

Last night's post about Dirty Harry threatening to make his day (and the day of credit unions) by bringing to the floor of the Senate a bill that would increase commercial lending authority for credit unions prompted some correspondence, including the following from a credit union trade association official who (for his or her own protection) shall remain anonymous.

CUs put on a maximum lobbying effort.  I believe it peaked about June.  The word, the conventional wisdom, around here at least, was if it didn’t get to the Senate floor before August recess, it was over.  Well, here we are.

Reid “promised” to bring it to the floor.  However, sometime around April 23, Charles Schumer stated that consideration of the bill would be delayed, perhaps into the second half of the year, which statement of course must be closely analyzed to extract real meaning.  Analysis: 1) He is correct, as it is now the second half of the year and S. 2231 still hasn’t made it to the floor. 2) He is misleading, by saying “second half of the year” he really meant “second half of this, or perhaps a subsequent, millennium.”

I think CUNA oversold their lobbying abilities.  True, this was probably their best chance to get the legislation passed—but it had to be done before now, and it wasn’t.  The CU biz is intensely political, especially at the national level.  Keep yer eyes peeled for fallout (at CUNA) from this.

Maybe Reid even truly believed in and wanted the increase in the MBL cap.  Things like that do happen.  However, everyone else in the Senate DID NOT want a vote whereby they were seen to be “giving” something to CUs that was considered to be “taking” from banks.  Most legislators are friendly to both sides, and certainly appreciate the donations.  This outcome is perfect for them—S. 2231 didn’t come to the floor, “but we tried” they can say to the CUs, and the fact it never came to the floor is a win for the banks.

And the cashola will continue to flow.

That last line alone marks my correspondent as a snark meister worthy of not only frequent quotation but, perhaps, occasional outright plagiarism.