Public Affairs Update | By Stephen W. Rice
Here’s How It Impacted New York Community Banks
The 2016 New York State legislative session concluded in the early hours of Saturday morning, June 18, with IBANYS on hand to the end. Among the major activities of the session:
In the closing moments of session, the Legislature approved a three-way agreement addressing foreclosure, abandoned/vacant property and maintenance issues as part of a “budget cleanup” bill. IBANYS worked hard to protect the interests of community banks in the process, and succeeded in inserting “carve out” exemptions that exempt the vast majority of community banks based on a formula of their percentage of one-to-four family mortgage loans, compared to the total number of such loans in New York State. The three-way agreement is the end result of the original legislation advanced by New York State Attorney General Eric Schneiderman and sponsored by Sen. Jeffrey Klein and Assemblyman Robert Rodriguez, which would have mandated banks to maintain vacant and/or abandoned properties throughout the foreclosure process. (Several other bills were also introduced on these issues.) After weeks of negotiations, the governor entered the discussions.
The final agreement, approved in the closing moments of session early Saturday morning:
Requires federally chartered banks, savings banks, savings and loan associations, or credit unions that originate, own, service or maintain loans to secure and maintain one to four residential real properties deemed to be vacant and abandoned.
Mandates good faith negotiations during mandatory settlement conferences during foreclosure proceedings.
Expedites the foreclosure process for vacant and abandoned properties.
Imposes additional notice requirements.
Creates a statewide electronic registry of such properties. In addition, there is also a new program creating a Sonyma subsidiary to administer $100 million in funds to help homebuyers purchase and renovate “zombie” properties and assist existing low- and middle-income homeowners with major repairs and renovations.
IBANYS successfully advocated for exemptions for community banks, and the final agreement provides a carve out that will apparently benefit and exempt the vast majority of IBANYS members and New York community banks.
Banks that originate, hold and service less than three-tenths of a percent of all the one- to four-family mortgage loans made in New York State will be exempt from all provisions. The total number of such loans in New York State used to calculate the carve-out is 200,621. Thus, if a bank holds less than (approximately) 600 total one- to four-family mortgage loans in New York State, it is likely exempt from this legislation.
Banks whose number of one- to four-family mortgage loans is between three-tenths and five-tenths of a percent will only be responsible for maintenance on a prospective basis (not retroactive basis).
The list of banks and their total loans provided by the state Department of Financial Services for the purpose of these calculations was created in 2014, so it remains possible that an updated list could change the numbers slightly, though it does not appear likely the change would be dramatic.
The governor and legislative leaders were determined to produce legislation that addressed these issues. IBANYS worked hard to protect and exempt the greatest number of community banks possible from the reach of this legislation. There is some speculation that some financial institutions could possibly decide to challenge the new law through litigation.
In other significant actions during the 2016 legislative session:
Credit Union Changes
IBANYS successfully opposed and helped stop legislation that would have expanded powers and authorities for credit unions were stopped. S.3616, Funke/A.774, Rodriguez would have allowed credit unions to receive certain public deposits. This is the second consecutive year we were able to defeat this effort.
We also stopped A.3521B, Robinson/S.5521A, Montgomery, which would have permitted credit unions to receive taxpayer dollars by allowing them to participate in the State Banking Development Districts program.
These bills would have made an already uneven competitive playing field even more so in favor of tax-exempt federal and state credit unions, which pay no federal, state or local income taxes, no sales taxes and no MTA surcharge.
The so-called “Community Financial Services Access and Modernization Act” would have allowed over 500 licensed check cashing centers to obtain state licenses to issue business and commercial loans. Supporters claimed it would fill a credit void in many minority and low-income areas underserved by traditional lending institutions. Opponents caution it could lead to predatory lending, and potentially open the door to “payday loans” which are currently illegal in the state. This legislation, along with predatory auto loan legislation that was stopped, will likely resurface in future sessions. New DFS Superintendent Maria Vullo has signaled she wants to review both issues.
Proposals Pass Senate
Three IBANYS initiatives recommended by the Government Relations Committee were passed by the Senate, but not by the Assembly. They would:
Exempt community banks with assets under $1 billion from State DFS CRA exams if they have received a satisfactory or better rating in their most recent federal CRA exam.
Extend the community bank examination cycle from the current 12 to 18 months,
Establish community bank service corporations. The proposal would allow state chartered community banks to invest in and use the organizations to gain economies of scale, and reduce compliance costs. IBANYS will continue to pursue these initiatives in future sessions.
S.7183, Savino/A.9746, Richardson defines consummation of a mortgage loan, clarifying state law regarding the TILA-RESPA Integrated Disclosure Rule (TRID) which took effect last October. The legislation, developed with significant input from IBANYS, passed both the Senate and Assembly. It amends Section 2 of the New York State Banking Law as it related to defining consummation of a mortgage loan. It clarifies that consummation occurs when the mortgage applicant executes the promissory note and mortgage.
The state Senate confirmed Maria Vullo as superintendent of the state Department of Financial Services. At her Senate Banks Committee confirmation hearing, Vullo described herself as “pro-business and pro-consumer” and does not believe the two terms are mutually exclusive. Vullo said she wants the New York financial industry to grow, but also serve lower-income residents whose financial needs are not being met. “I think you might see creative, innovate initiatives to try to address those concerns,” she said.
Thanks to all the IBANYS members who supported and participated in our government relations efforts this year, both in Albany and at the federal level as well. As always, we will keep the membership and industry fully informed on all further activities and developments.■
Steve Rice coordinates government relations and communications for the Independent Bankers Association of New York State. He has worked in the New York banking industry and New York state government for more than three decades.