February 4, 2021 

Luetkemeyer Named Top Republican On Consumer Protection and Financial Institutions Subcommittee

Rep. Blaine Luetkemeyer was named ranking member of the House Financial Services Subcommittee on Consumer Protection and Financial Institutions for the 117th Congress.

“I’m honored to once again lead one of the subcommittees that will be at the forefront of America’s economic recovery,” Luetkemeyer said. “It is our job to ensure financial institutions have the ability to continue working with their customers and get them through this difficult economic moment.”

House Financial Services Committee Ranking Member Patrick McHenry said that Luetkemeyer “will bring his deep experience as a community banker and small business owner to continue delivering common sense solutions to critical issues facing our financial system and American consumers. Last Congress, Blaine played a leading role in securing historic small business data protections and ensuring the dual health and economic crises caused by COVID-19 did not become a financial crisis.”

ABA, Trade Groups Push For COVID-19 Liability Protections

The American Bankers Association joined more than 580 trade associations representing a broad range of industries urging Congress to include targeted and temporary liability protections as part of the next COVID-19 relief package.

“For many who remain on the front lines and continue to serve our communities during this pandemic, the threat of unfair litigation continues to loom,” the groups wrote. “In 2020, over $23 million was spent by plaintiffs’ firms on COVID-19-related lawsuit advertisements, a clear indication that an influx of litigation is coming.”

The groups wrote that liability relief provisions similar to the last Congress’ Safe to Work Act (S. 4317) should be included in any further pandemic relief legislation, adding that new liability protections “should be limited in duration and scope in addition to preserving reasonable recourse for those harmed by truly bad actors.”

SBA Report: $72.7 Billion In PPP Loans Approved In 2021 

Since the start of the year to Jan. 31, the Small Business Administration has approved nearly 900,000 loans totaling $72.7 billion through its Paycheck Protection Program, according to a report released Monday. A total of 4,077 banks — 81% of all banks — were participating in the 2021 program at the time the report was issued, making 86.6% of loans and lending 93% of PPP dollars. Since the start of the program, $596 billion has been approved for 6.04 million loans from 5,460 lenders, according to the report. In Missouri, nearly 26,200 loans totaling more than $1.4 billion were approved. 

In 2021, 67.9% of all loans made so far were amounts under $50,000, and 78.9% of loans have gone to firms with 10 employees or less. Overall, the average loan size was $82,000. About half of the funds allocated so far have gone to four sectors: accommodation and food services; professional, scientific and technical services; the construction sector; and manufacturing.

SBA Issues Updated Guidance On COVID-19 Relief For 7(A), 504, Microloans

The Small Business Administration issued several notices providing updated guidance on various COVID-19 relief programs. An information notice issued by SBA provides an update on the tax treatment of payments made to borrowers to cover principal, interest and fees on certain 7(a), 504 loans and microloans under Section 112 of the CARES Act.

According to the guidance, these borrowers “are no longer required to file Form 1099-MISC, Miscellaneous Income, with the IRS or furnish this form to the small businesses on whose behalf the SBA made Section 1112 payments.”

The other procedural notices extend the use of electronic signatures for 7(a), 504 and microloan programs through April 30 and extend temporary procedures for microloan closings through April 30.

FinCEN Updates PPP FAQs 

The Financial Crimes Enforcement Network updated its frequently asked questions on the Small Business Administration’s Paycheck Protection Program, which address how lenders can meet Bank Secrecy Act requirements when issuing a PPP loan. FinCEN confirmed that these FAQs, which were originally published in April 2020, remain applicable to second-draw PPP loans and that lenders may rely on information obtained from a borrower during a first-draw loan application for a second-draw application, provided the borrower is an existing customer. 

FinCEN Issues Warning About Health Care Fraud During COVID-19

The Financial Crimes Enforcement Network issued an advisory alerting banks to health insurance and health care frauds related to the COVID-19 pandemic. FinCEN noted these frauds have targeted both government insurance programs and private health insurance companies. The advisory outlines red flags of these scams, which commonly involve offerings of unnecessary services, billing schemes, health care technology schemes or telehealth schemes, among other things. Banks should report any suspicious activity by filing a Suspicious Activity Report.

IRS Publishes Additional Guidance On Information Reporting For SBA Subsidies

The Internal Revenue Service instructed lenders that had, in accordance with previous Small Business Administration guidance, filed or furnished to borrowers form 1099-MISC for subsidies paid by the SBA to file and furnish corrected forms that exclude these subsidized loan payments. This guidance is consistent with an IRS notice issued late last month that implemented provisions from the latest COVID-19 relief law that made subsidies for SBA 7(a) loans and certain other relief programs tax-exempt. 

ABA, Trade Groups Call For Interagency CRA Rules

The American Bankers Association and a coalition of trade associations called for the Office of the Comptroller of the Currency to withdraw its 2020 Community Reinvestment Act rule and instead pursue a joint CRA rulemaking with the Federal Reserve and the FDIC. In a letter to the agency, the groups wrote that interagency rules that result in coordinated CRA policy will provide greater benefits to consumers and communities than a regulatory framework that is not aligned.

The groups also urged the OCC to withdraw its CRA information collection survey in the spirit of President Biden administration’s Jan. 20 regulatory freeze memo and “the unavailability of the data that OCC seeks to collect.” They pointed out that there are significant gaps between the data requested and the historical data that banks have, or in many cases will need to construct, adding that “banks lack data on how activities that will qualify for CRA consideration under the OCC’s new framework will factor into existing datasets.”

OCC Releases List of Areas Eligible For CRA Credit Under New Framework

The Office of the Comptroller of the Currency released additional information for banks to implement the agency’s June 2020 CRA rule. First, the agency published the 2021 list of distressed or underserved areas where banks participating in certain revitalization or stabilization activities may receive Community Reinvestment Act Credit under the agency’s 2020 final CRA rule.

The OCC also published a list delineating the CRA “bank type” of each bank subject to the OCC’s new CRA rules. A bank’s type generally determines the performance standards and related examination procedures used to evaluate the bank’s CRA performance. The OCC will consider a bank with assets of $600 million or less to be a small bank while banks with assets between $600 million and $2.5 billion are considered intermediate and banks with assets greater than $2.5 billion are subject to the general performance standards.

Finally, the OCC announced the median hourly compensation value that will be applied to qualifying community development service activities is $39.03. Under the OCC’s 2020 CRA rule, this figure will be used to quantify the value of a bank’s community development services performed from Oct. 1, 2020, through Dec. 31, 2021.

These two lists and the determined compensation value apply only to national banks, federal and state savings associations, and federal branches of foreign banks that are subject to the OCC’s June 2020 CRA Rule. The OCC will publish these two lists and the median hourly compensation value annually.

Former CU Regulator: NCUA Overstepping Congressional Mandate

In a recent American Banker op-ed, former National Credit Union Administration Chairman Mark McWatters expressed concern that the agency has become “inappropriately emboldened” and said that “the agency may have abandoned … its congressional mandate to stay clearly within the four corners of the Federal Credit Union Act.”

McWatters, who resigned from the NCUA board in November 2020 and served as chairman from 2017 to 2019, raised concerns about several recent actions by the credit union regulator that he said he “could not have supported.” These actions include recent rules on overdraft protections and mortgage servicing rights and shared facility requirements, as well as the 2021-2022 budget, which he said raised consumer protection issues and undermined the agency’s obligation to ensure safety and soundness.

He added that “failure to approve a simple and elegant credit union leverage ratio rule, based upon the community bank leverage ratio rule authorized in S. 2155, appears myopic while needlessly delaying the board’s statutory duty to enact a sensible, tailored and targeted risk-based net worth rule for complex credit unions.”

Acting CFPB Director Pledges Aggressive Approach To Supervision, Enforcement

The Consumer Financial Protection Bureau will increase its supervision and enforcement efforts to ensure that companies delivering COVID-19 relief are meeting their legal obligations and protecting consumers, Acting CFPB Director Dave Uejio said. In a message to CFPB staff, Uejio directed the bureau’s Supervision, Enforcement and Fair Lending Division to “to always determine the full scope of issues found in its exams, systemically remediate all of those who are harmed, and change policies, procedures, and practices to address the root causes of harms.” 

Additionally, in a reversal of current CFPB policy, Uejio announced that effective Jan. 28, the CFPB will conduct Military Lending Act supervision activities to ensure compliance. He also affirmed the CFPB’s commitment to take “bold and swift action on racial equity,” signaling that he would make fair lending enforcement a top priority. “[W]e will we will also look more broadly, beyond fair lending, to identify and root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”

ARRC Releases Conventions For SOFR-Based Intercompany Loans 

The Alternative Reference Rates Committee issued recommendations for intercompany loans based on the Secured Overnight Financing Rate, the ARRC’s preferred replacement for the London Interbank Offered Rate. Certain tenors of Libor are scheduled to be discontinued by the end of this year.

The ARRC recommended that new SOFR-based intercompany loans use the 30- or 90-day average SOFR set in advance, with a monthly, quarterly, semiannual, annual or other reset period as is determined appropriate by the firm.

FDIC Proposes Changes To Securities Rules 

The Federal Deposit Insurance Corporation recently proposed several changes to its rules regarding bank securities. Among other things, the FDIC proposed to rescind a transferred Office of Thrift Supervision securities offering regulation that applies only to state savings associations and a 1996 statement of policy on the use of offering circulars, which only applies to state nonmember banks.

The FDIC also proposed a new regulation that would address and clarify the requirements for securities offering disclosures by state nonmember banks and state savings associations. The proposed regulation would incorporate defined terms from the Securities Act and would specifically reference SEC and OCC requirements for, and exemptions from, preparing registration statements and prospectuses. It also would set forth rules for offers and sales of securities by issuers, underwriters and dealers and would impose no new filing or other requirements on FDIC-supervised institutions. These changes would be incorporated into subpart A of part 335 of the FDIC’s regulations.
In addition, the FDIC also proposed to make technical amendments to parts 303 and 333 of its regulations.

FedNow To Launch In 2023

Fed Survey Shows Further Stabilization In Fourth Quarter Credit Practices, Demand

Loan demand and standards for lending continued to stabilize in the fourth quarter 2020 after the economic freefall caused by the COVID-19 pandemic in the second quarter. Fewer banks reported tightening on commercial and industrial, commercial real estate and personal loans, although most banks kept standards unchanged, according to the Federal Reserve’s senior loan officer survey.

• C&I — Half as many banks on net reported tightening standards on C&I loans for firms of all sizes in the fourth quarter versus the third quarter while the share of banks that eased quadrupled for large and midsize businesses. Roughly seven in 10 banks kept their standards unchanged. The handful of banks who eased standards cited an improving economic outlook as the most important reason. C&I loan demand was mixed but was slightly weaker on net, although the share of banks reporting stronger demand from large and midsize firms rose by about 10 points from the third quarter. Banks seeing stronger C&I demand said the most important factors were growing client M&A financing needs.
  
  
• CRE — The CRE market also saw stabilization in the fourth quarter, with roughly seven in 10 banks keeping standards unchanged for construction and land development loans and loans secured by nonfarm nonresidential properties. The remainder of banks tightened standards as almost none reported easing standards for CRE loans. On net, banks reported slightly weaker demand for CRE loans, with the exception of multifamily.
  
  
• Mortgages — Most banks kept standards unchanged for mortgage loans in the fourth quarter. On net, 3.3% of banks reported easing standard for conforming mortgages. Demand for mortgages eased substantially, with just 6.4% of banks on net reporting stronger demand for conforming loans, down from 65% in the third quarter. The weaker demand came as the Federal Housing Finance Agency imposed a surcharge on GSE refinances.
  
  
• Personal Loans — Credit cards saw the 2020 trend in tightening reverse, with 12.8% of banks on net easing standards on credit card loans. The third quarter pattern of eased standards for auto loans also continued. Demand was mixed for credit cards and was moderately weaker for car loans.

2021 Projections — Over 2021, roughly three-quarters of banks projected their standards for C&I and CRE credit to remain unchanged, with modest net percentages of the remaining banks projecting tighter standards. However, for residential mortgages and auto loans, while more than eight in 10 expected standards to remain unchanged, the balance expected to ease standards. A little under half of banks expected C&I loan demand to improve, with most of the rest expecting it to remain the same.

Fed: 9 In 10 Small Businesses Seek Emergency Aid Amid COVID-19 Hardships 

The vast majority of small firms — 95% — said that the coronavirus pandemic affected their business, with 26% reporting temporary closures, 56% reporting reductions in operations and another 48% reporting modifications to their operations, according to the latest Small Business Credit Survey released by the Federal Reserve Banks. The survey was based on responses collected between September and October 2020, just after the closing the of the first round of Paycheck Protection Program funding.

For the first time in the survey’s five-year history, more businesses reported decreases in revenues and employment than increases; 78% of firms reported a decrease in revenue while 46% reported declines in employment. More than half of all firms surveyed reported their financial condition as “fair” or “poor.” Of those surveyed, 65% said they were facing challenges meeting operating expenses while 44% struggled to make payments on debt and 43% struggled to pay rent. 

Nine in 10 firms sought some type of emergency funding to help meet these financing challenges, including 82% who sought a PPP loan, 47% who sought an Economic Injury Disaster Loan and 35% who sought an EIDL grant. Among PPP applicants, 96% who applied said they received at least some funding, and 80% said they expect their PPP loan to be forgiven in full.

Survey: Bankers View Cybersecurity Threats As Top Priority For 2021

Bankers believe cybersecurity threats will present the greatest challenge to the financial industry in 2021, according to a recent survey of banking executives conducted by core technology provider CSI. More than 80% of bankers said they expect some form of social engineering, including phishing scams targeting customers or bank employees, to be the top cybersecurity threat this year. 

The second largest cybersecurity concern was ransomware, with 9% considering it to be a top threat. To improve cybersecurity, almost 85% of bankers said they plan to deploy employee, board and customer training and 47% said they would be preforming social engineering exercises.

The report also examined bankers’ technology priorities for the coming year. Bankers said they would prioritize technology in 2021 that expands their geographic footprint and customer relationships, such as digital account opening (59%), mobile banking apps (45%) and digital lending and customer relationship management tools (43%).

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