April 22, 2021  

ABA Urges Bankers: Oppose NCUA CUSO Proposal

With the comment period closing soon, the American Bankers Association is calling on bankers to contact the National Credit Union Administration to oppose a proposed rule that would expand the range of permissible lending activity for credit union service organizations. The proposed rule would allow CUSOs to originate any type of loan a federal credit union may originate, including auto and payday loans.

Comments on the proposal are due Friday, April 30. ABA has provided a sample comment letter for bankers to easily complete and send through its grassroots platform, Secure American Opportunity. 

Barr Introduces Bill To Encourage De Novo Bank Formation

To help expand access to banking services and promote financial inclusion, Rep. Andy Barr, R-Ky., has introduced the Promoting Access to Capital in Underbanked Communities Act of 2021. H.R. 2561 would establish a three-year phase-in period for new banks to comply with federal capital standards, among other provisions designed to promote de novo formation. Barr introduced a similar bill in the last Congress.

“By making it easier for new banks to launch in rural areas of the country, this legislation expands banking access for individuals and businesses, which translates into greater economic activity and growth,” the American Bankers Association said. “The temporary regulatory adjustments provided in this bill are a reasonable step to encourage de novo formation that will benefit local economies.”

ABA Calls Out The Risks Of Bank Charter Arbitrage

The American Bankers Association has called for more congressional oversight in light of recent efforts by federal and state agencies to create new bank charters or apply new interpretations to traditional charters that would allow entities to enjoy bank-like benefits while circumventing the rigorous regulatory framework that applies to traditional banks. Although ABA has long supported charter choice and de novo bank formation, the association emphasized that such an approach to chartering for nontraditional entities could have serious implications for safety and soundness and consumer protection.

In a statement for the record for a House Financial Services hearing, ABA flagged several recent actions by state of Wyoming and the Office of the Comptroller of the Currency that have enabled cryptocurrency businesses and other fintech providers to pursue bank charters. One example is Reno, Nevada-based Figure Bank, which applied for a national bank charter by the OCC despite not taking insured deposits — an attribute that would allow it to circumvent certain federal banking regulations. 

“Figure Bank would have a significantly different risk profile from a traditional bank and would also be subject to a very different set of regulations, given that many banking laws are triggered by insured deposit taking,” ABA said.

ABA emphasized that these nontraditional entities should not be granted access to master accounts at the Federal Reserve or Reserve Bank payments services until a uniform policy is adopted to address requests by non-traditional charter applicants. 

“The OCC should proceed with great care in its consideration of non-traditional applicants for national bank charters to ensure that it does not undermine the value of traditional charters by holding new applicants to less stringent standards,” ABA said. “Access to the Federal Reserve payment system is a privilege and not a right.”

Climate Risk Disclosure Act Reintroduced In Congress

Democrats have reintroduced the Climate Risk Disclosure Act, a bill that would require public companies to make disclosures about their exposure to climate-related risks. Backed in the House by Rep. Sean Casten, D-Ill., and in the Senate by Sen. Elizabeth Warren, D-Mass., the bill would direct the Securities and Exchange Commission to require firms issuing securities to make disclosures on an annual basis on their direct and indirect greenhouse gas emissions, fossil fuel-related assets, risk management strategies for addressing climate change and information on how their valuation would be affected under various climate change scenarios.

The bill is expected to be considered in the House Financial Services Committee as early as next week.

ABA Urges Broad Coordination On Climate Risk Regulation In Letter To FHFA

Neither the Federal Housing Finance Agency or the banking industry “currently have the expertise to recommend or make changes to enhance the supervisory and regulatory framework” of Fannie Mae, Freddie Mac and the Federal Home Loan Banks with regard to climate-related factors, the American Bankers Association said in a letter to FHFA.

Responding to a recent request for information on how climate change and natural disasters could pose risks to these entities and the housing finance system, the association reiterated the principles put forth by the U.S. Climate Finance Working Group, of which ABA is a member, and noted that these principles should guide FHFA as it weighs potential regulations to address climate and natural disaster risk. ABA also emphasized the need for regulators to coordinate on any new regulatory approaches to climate risk.

“All stakeholders, including financial regulators, should work together to create a framework to identify, evaluate and mitigate the risks of climate change on the housing system and financial system more broadly,” the association said. “FHFA must also recognize that any potential assessment or regulation imposed on or required by the regulated entities frequently becomes the ‘industry standard’ for mortgage lenders in the United States. This can be a positive development, providing the mortgage industry with a common set of standards or requirements, but only if those standards are not in conflict with, or duplicative of, other requirements.”

Treasury Unveils Climate Policy Strategy

The Treasury Department announced a new climate policy strategy intended to “bring to bear the full force of [Treasury] on domestic and international policymaking, leveraging finance and financial risk mitigation to confront the threat of climate change.” Treasury will focus its efforts on climate transition finance, climate-related economic and tax policy and climate-related financial risks, according to a press release.

In addition, Treasury will establish a new Climate Hub, which will coordinate existing climate-related activities under the direction of Climate Counselor John Morton. Morton is a 25-year financial industry veteran who was previously a partner at Pollination, a climate change advisory and investment firm. He also served in former President Obama’s administration. Morton will report directly to Treasury Secretary Janet Yellen.

ABA’s Nichols: OCC Should Deny Credit Union Acquisition Of Federal Mutual Banks

American Bankers Association President and CEO Rob Nichols raised concerns to the Office of the Comptroller of the Currency about recent attempts by credit unions to purchase federally chartered banks, including federal mutual savings associations. Nichols highlighted the “serious policy and legal issues that … could severely damage the mutual business model and deprive our mutual members' customers and communities of its benefits.” These acquisitions may not comply with applicable law and may conflict with policies governing mutual institutions, including those of the OCC, Nichols said.

The OCC is authorized by Congress to adopt regulations for mergers of federal savings associations with other "savings associations.” However, Nichols outlined that it’s unclear that OCC has the power to provide a mechanism for the assets or liabilities of a federal savings association to be purchased by a credit union. Although the OCC can approve a liquidation of a federal savings association, “the distinction between its powers to prescribe regulations for mergers and to prescribe those for liquidations is significant,” Nichols wrote, adding that such distinctions may be motivation for credit unions to structure liquidated asset purchases as mergers.

Nichols asked that the OCC deny any application for credit union acquisition of federal mutual savings association assets and that it publicly disclose its policy analysis in making decisions on any such application.

CFPB: Fair Lending Critical To Pandemic Response, Reducing Racial Inequities

The Consumer Financial Protection Bureau’s fair lending work “is and will continue to be a critical component of the bureau and the federal government’s response to the pandemic and the elimination of racial injustice,” the bureau noted in its annual Fair Lending Report to Congress. 

“The bureau will identify and act on opportunities to focus on consumers in underserved communities, while vigorously pursuing racial and economic justice,” Acting CFPB Director David Uejio wrote in a preface to the report. “This includes, but is in no way limited to, robust enforcement of fair lending laws under the bureau’s jurisdiction.” 

The report recapped the CFPB’s fair lending supervision efforts in 2020, which focused primarily on mortgage origination, small business lending and student loan origination, according to the report. Because of the pandemic, about half of the bureau’s planned examination work was rescheduled. Instead, it conducted prioritized assessments to evaluate fair lending risks in the small business lending and mortgage servicing, automobile loan servicing and credit card markets. The report also highlights the bureau’s activities related to Equal Credit Opportunity Act enforcement, Home Mortgage Disclosure Act reporting, guidance and rulemaking, interagency coordination and outreach.

ABA, Trade Groups Urge House To Pass Board Diversity Bill

The American Bankers Association joined several other financial trade groups in urging the House Committee on Financial Services to advance the Improving Corporate Governance through Diversity Act of 2021. H.R. 1277 would require public companies to disclose annually the self-reported racial, ethnic and gender composition and veteran status of their board members, board nominees and executive officers, as well as whether they have adopted policies or strategies to promote board and executive diversity.

The bill, introduced by Rep. Gregory Meeks, D-N.Y., would “establish a model to organically boost diversity on boards through disclosure,” the groups said. “This legislation would also establish an advisory group that would carry out a study and provide recommendations on private sector strategies to increase gender, racial and ethnic diversity among boards of directors.” The bill previously passed the House in a bipartisan vote in 2019.

ABA Calls For Removal Of Physical Presence Requirement For Spousal Consent

In a letter to the Internal Revenue Service, the American Bankers Association and several insurance trade groups reiterated their request that the IRS make permanent its temporary relief from the physical presence requirement for spousal consent. The groups previously requested this permanent relief in a comment letter last October.

Under IRS regulations, retirement plans must obtain spousal consent for certain distributions and beneficiary elections, which must be witnessed by a notary or plan representatives. However, the IRS has offered temporary relief from that requirement for any participant election witnessed by a notary public of a state that permits remote electronic notarization or witnessed by a plan representative that electronically meets certain requirements. This temporary relief is set to expire June 20.

“Remote witnessing has worked well during the pandemic and allowed retirement plan participants to access their benefits without unnecessarily jeopardizing their health by physically meeting with a notary public or plan representative,” the groups noted. “These personal and public health benefits, however, have not been the only benefits resulting from the use of remote witnessing. Specifically, remote witnessing has proven, under the [IRS’] temporary relief, to be more secure and more convenient than physical witnessing.” Given that, the trade groups urged the IRS to make the relief permanent.

Survey: Pandemic Spurs Interest In Opening Bank Accounts Online

The pandemic encouraged more people to consider opening a bank account online, according to a new FICO survey. The survey found 41% of consumers in the U.S. and Canada were more likely to use digital means to open a financial account than a year ago, and 32% responded they are less likely to visit a bank branch to open an account.

As account opening shifts increasingly to online channels, however, consumers raised concerns about identity fraud, with 22% of U.S. consumers saying they either know for certain or believe that their identity has been stolen and used by a fraudster to open an account. Of U.S. consumers surveyed, 72% acknowledged that banks’ identity proofing is vital to protecting them from fraud.

The majority of U.S. consumers, 76%, said they are happy for their bank to use biometrics, including facial scans, fingerprints and voiceprints, to protect them from fraud. Of those surveyed, 42% said they expect biometric account logins to be set as part of the account opening process and 35% said their bank already holds their biometric information.

Legacy URLA Loan Submissions Will Cease To Be Accepted After May 1

With the mortgage industry now using the redesigned Uniform Residential Loan Application, Fannie Mae and Freddie Mac reminded lenders that as of May 1, the GSEs will no longer accept new loans submitted that use legacy formats. Subsequent resubmissions of loan casefiles already in the legacy format may continue on an as-needed basis through Feb. 28, 2022.

FHFA To Extend Some Loan Origination Flexibilities

As part of its ongoing effort to provide relief to mortgage borrowers during the coronavirus pandemic, the Federal Housing Finance Agency announced it would extend until May 31 several previously announced loan origination flexibilities for customers of Fannie Mae and Freddie Mac. These flexibilities include alternative appraisals on purchase and rate term refinance loans. FHFA said that due to low usage, it expects to retire all temporary selling flexibilities May 31.

FHFA is allowing some little-used temporary flexibilities to expire as scheduled April 30, including alternative methods for verifying employment, condominium project reviews and expanded power of attorney.

CFPB Updates Small Entity Compliance Guide On Debt Collection

The Consumer Financial Protection Bureau has updated its small entity compliance guide on the debt collection final rules to reflect changes from a December 2020 final rule, which addressed passive debt collection, time-barred debt and required validation notices to consumers. The CFPB earlier this month proposed to extend the effective date of this both rule and an October 2020 final debt collection rule from Nov. 30 to Jan. 29, 2022.

ARRC Offers Principles For Future SOFR; CME States Term SOFR Reference Rates

The Alternative Reference Rates Committee issued a set of principles that will guide its efforts to recommend a forward-looking Secured Overnight Financing Rate term rate. The ARRC said that this potential forward-looking rate should meet the ARRC’s criteria for alternative reference rates, be rooted in a robust and sustainable base of derivatives transactions over time and have a limited scope of use.

In light of guidance from U.S. regulators encouraging banks to cease entering into new contracts referencing U.S. dollar Libor by Dec. 31, the ARRC told market participants “not to wait for a term rate and to make use of current SOFR conventions available now,” but added that it “has long recognized that a forward-looking SOFR term rate may be a supporting tool for certain uses in the transition, and has recommended a number of actions aimed at building liquidity in SOFR derivatives that would help to ensure the robustness of any recommended term rate.”

In related news, the financial derivatives exchange CME Group yesterday announced that it has begun publishing CME Term SOFR Reference Rates for one, three and six-month tenors, all of which it states align with the ARRC’s key principles. The rates, which are anchored in CME SOFR futures, are available for licensing at no charge with use limited to cash transactions initially until June 20, 2023.

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