April 15, 2021  

MBA Op-Ed: Missouri Senate Must Act To Protect Homeowners

An op-ed from MBA President and CEO Max Cook shares why legislation currently under consideration in the Missouri Senate would protect homeowners from "a program that seems noble on the surface but can quickly drain their wallets." 

On Tuesday, the Missouri Senate Insurance and Banking Committee discussed House Bill 697, a bill to reform the state’s residential PACE program. Property assessed clean energy — known as PACE — offers alternative financing for energy efficiency and renewable energy improvements on private property. In his commentary, Cook said, "The program is promoted as affordable because the costs are spread throughout many years. In reality, R-PACE is the payday loan version of home improvement financing. Because interest and fees can more than double the cost of improvements, individuals could lose their homes."

Approved 103-48 by the House earlier this session, House Bill 697:

  • provides R-PACE program oversight by the Missouri Division of Finance
  • requires R-PACE lenders to explain to consumers the details and costs of the loan
  • ensures consumers retain some equity in their homes
  • places critical safeguards in the law to lower the risks for consumers
Sponsored by Rep. Bruce DeGroot (Chesterfield) and Sen. Sandy Crawford (Buffalo), the measure is supported by many groups, including the Missouri Division of Finance, the Missouri Independent Bankers Association, Mortgage Bankers Association, Missouri Realtors, credit unions and others. The Senate Insurance and Banking Committee is expected to vote on the bill in the next two weeks.

Appellate Court Finds Websites Not Covered Under ADA, Sets Up Circuit Split

Websites are not considered “places of public accommodation” under the Americans with Disabilities Act, according to a recent ruling from a three-judge panel of the 11th Circuit U.S. Court of Appeals. The decision in the case sets up a conflict with a 9th Circuit ruling that ADA does apply to websites and mobile apps. This “circuit split” may increase the chances that the U.S. Supreme Court would resolve the dueling interpretations.
In the 11th Circuit case, which applies to Alabama, Florida and Georgia, a customer sued supermarket chain Winn-Dixie Stores over the accessibility of its website. The appellate court found that “[t]he statutory language in Title III of the ADA defining ‘public accommodation’ is unambiguous and clear,” describing 12 types of public accommodations, all of them “tangible, physical places. No intangible places or spaces, such as websites, are listed. Thus, we conclude that, pursuant to the plain language of Title III of the ADA, public accommodations are limited to actual, physical places.”

The American Bankers Association has long supported banks’ efforts to provide accessible websites while expressing concern that unclear guidance from the Justice Department has left banks and other businesses exposed to litigation risk and demand letters despite their best efforts to comply. ABA and the state bankers associations also have called for greater clarity on whether and how the requirements of the ADA apply to websites and have supported legislation that would achieve this result. 

In addition, DOJ released an ADA Website Accessibility Toolkit and a checklist that can be used to verify ADA compliance. Although the tool kit is primarily geared toward state and local governments, which are governed by Title II of the ADA, it will be helpful to banks working on improving website accessibility. Recently, a Missouri bank notified the MBA that they received a letter from a law firm alleging the bank’s website doesn’t meet ADA standards. If your bank has received this letter, please email Gina Jolly with the MBA.

ABA Exec Committee Discusses Sanctions, Economy With Deputy Treasury Secretary

In a meeting with Deputy Treasury Secretary Wally Adeyemo on Wednesday, members of the American Bankers Association’s executive committee discussed the economic recovery and the administration’s proposal to create jobs and overhaul the nation’s infrastructure. During the meeting, members shared their perspective on the Paycheck Protection Program and identified ongoing PPP issues.

They also discussed industry efforts to reach minority and women-owned small businesses hit hard by the pandemic. Adeyemo commended the industry’s participation in PPP, which has delivered 3.6 million loans totaling more than $210 billion to small businesses during the pandemic, as well as banks’ efforts to process 150 million economic impact payments to individuals and families.
Adeyemo also told executive committee members that he is in the process of conducting a full review of the nation’s economic and financial sanctions programs and “noted the important role financial institutions play in implementing these policies,” according to a Treasury readout of the meeting.

ABA, Financial Groups Raise Concerns About Cyber Incident Notification Proposal

The American Bankers Association and three other financial groups cautioned that a new proposal by the federal banking agencies requiring that banks notify their primary regulator within 36 hours after developing a good-faith belief of a “computer-security incident” or “notification” incident could impose a significant reporting burden.

The proposal defines a computer-security incident as an occurrence that results in actual or potential harm to the confidentiality, integrity or availability of an information system or the information the system processes, stores or transmits; or constitutes a violation or imminent threat of violation of security policies, security procedures or acceptable use policies. It defines a notification incident as one that could materially disrupt, degrade or impair bank operations or the delivery of bank products and services, among other things.

While the groups supported efforts to ensure clarity and consistency around the reporting of cyber incidents, they noted that as written, the proposal would require banks to report incidents that fall “well below the intended threshold of critical cybersecurity incidents.” Among other things, the groups urged the agencies to more narrowly target its definition of “notification incident” to include “only those incidents that result in ‘actual’ harm and that a banking organization ‘determines’ in good faith are ‘reasonably likely’ to cause the significant harms set forth in the rule.”

In a separate comment letter, ABA also called on regulators to: 

  • continue to acknowledge the importance of voluntary notice of cyber incidents
  • clearly articulate definitions, expectations and implementation around the 36-hour notification time frame
  • develop flexible notice options
  • offer flexible adoption timelines that account for differing needs and compliance resources available to banks

ABA Urges SEC To Reform MMFs Without Focusing On Regulated Banks

In a comment letter, the American Bankers Association told the Securities and Exchange Commission that any reform of money market funds should not focus on regulated banks, which have been a source of strength during the pandemic. Throughout the COVID-19 pandemic, banks have been a reliable source of funding and liquidity for their customers, the markets and the U.S. economy, the letter said, adding that “given this source of financial strength, additional regulation for the banking sector to address concerns regarding MMFs would be inappropriate and unnecessary.”

ABA also urged the SEC to focus on making reforms within the existing regulatory structure rather than making novel reforms that would “likely impose significant costs on the administration of prime and tax-exempt municipal funds or make them so unattractive to investors that these funds may no longer be viable.” 

Banking Agencies Provide Guidance On Model Risk Management

The federal banking agencies and the Financial Crimes Enforcement Network issued a statement on the use of the “Supervisory Guidance on Model Risk Management” to comply with Bank Secrecy Act/anti-money laundering rules. The model risk management guidance, or MRMG, is “principles-based and articulates the agencies’ general views” regarding model risk management practices.

“While the MRMG provides a comprehensive discussion of all aspects of model risk management, the practical application of any principle discussed in the MRMG by a bank depends, in part, on the bank’s reliance on, and the nature of, its models,” the agencies said in a joint statement. “While models used for BSA/AML compliance may be different from other models, appropriate model testing and validation processes typically take these differences into account.”

The agencies emphasized that no specific model risk management framework is required and that the MRMG does not alter existing BSA/AML regulatory requirements or establish new supervisory expectations. The agencies said the MRMG does not have the force of law and is not meant to serve as a set of testing procedures regarding BSA/AML systems. The American Bankers Association has previously urged regulators for guidance about the application of model risk to AML compliance.

The agencies also issued a request for information about how the MRMG supports bank compliance with BSA/AML and Office of Foreign Assets Control requirements and whether additional guidance would be helpful.

SEC Issues Risk Alert To Firms Offering ESG Investment Vehicles

The Securities Exchange Commission warned firms of “deficiencies and internal control weaknesses” that examiners have observed in reviews of investment advisers and funds offering environmental, social and governance-related investment vehicles or accounts. While ESG investment has risen in popularity recently, the SEC noted in a risk alert that “this rapid growth in demand, increasing number of ESG products and services, lack of standardized and precise ESG definitions present certain risks.”

Going forward, the SEC noted that examiners “will continue to examine firms to evaluate whether they are accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures, and practices that accord with their ESG-related disclosures.” Specifically, the SEC will focus on portfolio management practices regarding ESG investments, performance advertising and marketing, and compliance programs. 

Firms offering ESG investment products should “evaluate whether their disclosures, marketing claims, and other public statements related to ESG investing are accurate and consistent with internal firm practices,” the SEC said. “Additionally, firms should ensure that their approaches to ESG investing are implemented consistently throughout the firm where relevant and are adequately addressed in the firm’s policies and procedures and subject to appropriate oversight by compliance personnel. Lastly, firms should also consider taking steps to document and maintain records relating to important stages of the ESG investing process.”

Basel Committee Publishes Papers To Guide Work On Climate Risk 

The Basel Committee published two papers on climate-related risk that will serve as a “conceptual foundation” as the committee works to incorporate climate risk into the Basel regulatory framework. The first report addressed climate-related risk drivers and their transmission channels, noting that the effects of climate risk may vary risk based on geography, sector and economic financial system development. The paper also noted that several traditional risk categories used by banks, such as credit risk, market risk, liquidity risk and others, can be used to capture climate risk.

“To explore this further, a comprehensive analysis could usefully be undertaken on how climate-related financial risks can be incorporated into the existing Basel Framework,” the paper noted. “Part of the Basel Committee’s near-term work would be to identify gaps in the current Basel Framework, where climate-related financial risks may not be sufficiently addressed.” 

The second paper provided an overview of conceptual issues related to climate-related financial risk measurement and methodologies, as well as practical implementation by banks and supervisors. The report noted that to date, most of the work to measure these risks has centered on “mapping near-term transition risk drivers into counterparty and portfolio and exposures” and that most banks have focused on credit risk when attempting to assess climate-related financial risk. 

Looking ahead, “key areas for future analytical exploration relate to measurement gaps in data and risk classification methods, as well as methodologies suitable for assessing long-term climate phenomena not always of a standard nature,” the report said.

Fannie, Freddie Announce Effective End Of ‘GSE Patch’

Fannie Mae and Freddie Mac recently announced that any loans purchased by the GSEs after July 1 must conform to the requirements outlined in the Consumer Financial Protection Bureau’s recently finalized QM final rule — effectively signaling the end of the so-called “GSE-patch.”

This change was required by recent amendments to the GSEs’ preferred stock purchase agreements with the Treasury Department, which stated that Fannie and Freddie may no longer acquire loans that do not meet these new standards. The GSEs said they would provide details about these changes and their implementation in future lender letters.

Fannie and Freddie clarified, however, that they will continue to buy loans that fall under the patch that have application dates on or before June 30 and are purchased as whole loans on or before Aug. 31 or in mortgage-backed securities pools with an issue date on or before Aug. 1.

This action by the GSEs comes shortly after the CFPB proposed to delay the mandatory compliance date of the general QM rule until Oct. 1, 2022. If finalized, this delay, coupled with the PSPA provisions, would mean the GSE safe harbor can continue, but under the new general QM requirements, until the new compliance date or until the GSEs exit conservatorship, whichever comes first.

Department Of Labor Issues Adviser, Investor FAQs On Fiduciary Investment Advice

The Department of Labor released frequently asked questions for advisers and investors on fiduciary investment advice. The guidance addresses the recently finalized Prohibited Transaction Exemption 2020-02 and the regulation’s five-part test that determines whether a person renders investment advice under the Employee Retirement Income Security Act.

The adviser-focused FAQs focus on questions arising from the definition of “fiduciary investment advice” and compliance with the new exemption. The investor-focused release anticipates questions that retirement investors may ask concerning the best interest standard, adviser services and fees, conflicts of interest and disclosures provided to the investor. Both releases emphasize the “fundamental investor protections” provided by the “core components of PTE 2020-02, including the Impartial Conduct Standards and the requirement for strong policies and procedures.”

The DOL also stated in the adviser-focused FAQs that it anticipates taking further regulatory and subregulatory actions, including amending the fiduciary investment advice regulation, amending PTE 2020-02 and amending or revoking certain other class exemptions available to investment advice fiduciaries.

Department Of Labor Issues Cybersecurity Guidance

The Department of Labor’s Employee Benefits Security Administration issued long-anticipated guidance on cybersecurity and best practices for protecting retirement benefits. EBSA released three guidance documents: “Tips for Hiring a Service Provider,” “Cybersecurity Program Best Practices” and “Online Security Tips.” The first two releases are aimed at plan sponsors, fiduciaries and record keepers, and the last release is intended for retirement investors.

The documents include information on selecting a service provider with strong cybersecurity practices, information for record-keepers to manage cybersecurity risks and basic rules to reduce the risk of fraud online. The DOL issuances provide agency direction and clarity for banks acting as retirement plan sponsors, plan fiduciaries and service providers seeking to align their cybersecurity policies with DOL and Employee Retirement Income Security Act requirements.

FDIC Re-opens RFI On Signage, Advertising Requirements

As part of its effort to foster greater transparency, efficiency and innovation, the Federal Deposit Insurance Corporation is renewing its effort to seek input on how it can modernize and revise its official sign and advertising rules. The FDIC first issued the request for information last year, but the initiative was sidelined because of the pandemic.

The RFI also asks for feedback on how technological or other solutions could be used to help consumers better distinguish FDIC-insured banks and savings associations from entities that are not insured by the FDIC, particularly across web and digital channels.

With the RFI, the agency is seeking to ensure that its rules, which were last updated in 2006, are keeping pace with changes in how financial products and services are delivered and how consumers interact with financial services providers. Comments on the RFI are due May 24.

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