July 2, 2020

Parson Signs Tort Reform, Rural Broadband Measures

This week, MBA-supported legislation was signed into law, and the state’s low-income housing tax credit program was revived by the House Budget Committee.

Gov. Mike Parson signed Senate Bill 591 (tort reform) and House Bill 1768 (rural broadband). Both bills were supported by the MBA and take effect Aug. 28.

Senate Bill 591 modifies provisions relating to civil actions, including punitive damages and unlawful merchandising practices. Reforming MMPA has been a priority for MBA, along with a number of business groups, for several years.

“Senate Bill 591 is one of the most important tort reform bills ever passed by the General Assembly,” said Craig Overfelt, MBA senior vice president. “This bill will help protect businesses, including banks, from frivolous lawsuits that were becoming far too common in this state. We want to thank the legislature for passing the bill and the governor for signing it into law.”

Senate Bill 591 was sponsored by Sen. Bill White, R-Joplin, and was carried in the House by Rep. Bruce DeGroot, R-Chesterfield.

House Bill 1768 extends the sunset on the rural broadband internet grant program from 2021 to 2027. Access to broadband, especially in rural communities, has become critical in the wake of the coronavirus pandemic. The bill was sponsored by Rep. Louis Riggs, R-Hannibal, and carried in the Senate by Sen. Dan Hegeman, R-Cosby.

Also this week, the House Budget Committee gave initial approval for the Missouri Housing Development Commission to begin issuing state credits for the low-income housing tax credit program. By a 26-2 vote, the committee gave MHDC the authority to issue the state credits at 72.5% of the federal tax credit allowance beginning July 1. The state’s low-income housing tax credit program has been dormant since 2017. It’s uncertain when, or even if, MHDC will begin issuing the tax credits again.

Parson has until July 14 to sign or veto legislation passed by the legislature. MBA will provide additional updates on the governor’s actions as they become available.

Banking Trade Groups Call For Inclusion Of AML/CFT Bill In NDAA

In a letter to Senate Armed Services Committee leaders, several financial trade organizations called for the inclusion of the Anti-Money Laundering Act of 2020 as part of the 2021 National Defense Authorization Act. The bill includes critical provisions for law enforcement investigations into organized transnational criminal operations, human trafficking, terrorism financing and other unlawful activity.
Among other things, the bill would direct the Financial Crimes Enforcement Network to create and maintain a secure beneficial ownership registry of legal entities. 

“The bill strikes the right balance between imposing minimal requirements on small businesses and providing critical information to law enforcement and financial institutions,” the groups wrote. “In addition, if enacted prior to the COVID outbreak, the bill could have assisted financial institution efforts to serve new customers under the Small Business Administration’s Paycheck Protection Program.” 

The bill also modernizes anti-money laundering control and processes, enabling financial institutions to better assist law enforcement efforts to detect and deter financial crime and terrorism, the groups noted.

ABA Flags Issues Around Fed’s Reg D Changes

The American Bankers Association expressed support for the Federal Reserve’s removal of the six-per-month limit on transfers or withdrawals from savings deposit accounts under Regulation D while also raising concerns about the blurring of distinctions between such accounts and transaction accounts. The Fed announced the change in an interim final rule in April, noting that a recent action reducing all reserve requirement ratios to zero has eliminated the need to distinguish between reservable “transaction accounts” and nonreservable “savings deposits.”
“Changing Regulation D by consolidating definitions, without prior modification of the rules that rely on the granularity of the definitions, has caused confusion and likely creates unintended policy changes,” ABA wrote in a comment letter. “[W]e would support consideration of whether or not Regulation D is itself necessary or in need of modernization. Until the Federal Reserve has finalized any changes to relevant regulations, we urge it to maintain a distinction between savings deposits and transaction accounts.”
Specifically, the association urged the Fed to establish a definition of “savings deposit” for regulatory and reporting purposes; work with the Federal Financial Institutions Examination Council to modify the Call Report as needed; review the necessity of the FR 2900, a report used for the calculation of required reserves; and allow for a sufficient transition period if the Federal Reserve decides that a return to required reserves is needed.

Financial Trades Call For Equal Treatment Of Banks, CUs On Military Bases

In a letter to House and Senate Armed Services Committee leaders, the American Bankers Association, the Association of Military Banks of America and the Independent Community Bankers of America called for the equal treatment of banks and credit unions operating on military bases. Specifically, the groups urged lawmakers to support Section 2885 of the 2021 National Defense Authorization Act, which would direct the Department of Defense to use its discretion to ensure parity between banks and credit unions, which are currently permitted to operate rent-free on military installations. 
“Under these circumstances, banks can’t compete,” the groups noted, adding that the majority of on-base banks are community institutions that often cannot afford to operate at a loss. “If this disparate treatment persists and additional military banks are forced to close their doors, military communities will continue to be disadvantaged as they will lose access to trusted, anti-predatory financial services and the government will lose the free financial services and community support banks have long provided.”

House Passes ABA-Opposed Credit Score Bill

By a 234-179 vote, the House passed H.R. 5332, the Protecting Your Credit Score Act of 2019. The American Bankers Association opposed the bill, cautioning that as written, it would make credit reports less predictive and useful by promoting the elimination of negative but accurate information, which could weaken the underwriting process. In addition, the rule would allow courts to award injunctive relief, which ABA noted could lead to questionable lawsuits and inconsistent interpretations.

State AGs Express Support For Bill To Create Beneficial Owner Registry

Forty-two state attorneys general wrote to Senate Banking Committee leaders in support of S. 2563, the Illicit Cash Act, a bipartisan bill that would create a secure beneficial ownership registry of legal entities, to be overseen by the Financial Crimes Enforcement Network and the Treasury Department. The bill also requires FinCEN to share beneficial ownership information with local, tribal, state or federal law enforcement, national security and intelligence agencies.
“Storing beneficial ownership information in a centralized location is good,” the state AGs wrote. “Sharing it with law enforcement is even better. With access to comprehensive beneficial ownership information, law enforcement can put an end to unlawful use of our financial institutions by criminals and terrorists.”
The American Bankers Association has long advocated for the creation of a beneficial ownership registry and noted that the bill would help keep bad actors out of the financial system.

Agencies Propose New, Revised Q&As On Flood Insurance

The banking agencies released several new interagency questions and answers on flood insurance compliance, as well as a major reorganization of and certain revisions to pre-existing Q&As. The proposed changes are intended to address statutory changes, regulatory modernization and industry requests for clarity, the agencies said.
The proposed new Q&As would cover the following.
  • escrow of flood insurance premiums (and the small lender exemption)
  • lender placement of flood insurance
  • the detached structures exemption
  • private flood insurance
  • borrower disputes
  • flood insurance for units in cooperative buildings
  • lender participation in a multi-tranche credit facility
Comments on the proposed additions to the interagency Q&As are due 60 days after they are published in the Federal Register.

Labor Department Re-Proposes Fiduciary Rule, Proposes Class Exemption

The U.S. Department of Labor issued its long-awaited re-proposal to regulate investment advice fiduciaries under the Employee Retirement Income Security Act. The re-proposal includes two major regulatory actions: a reinstatement of the so-called “five-part test,” which determines whether a person renders investment advice under ERISA, and a proposed class exemption. This exemption would be available to banks, among other investment advice fiduciaries, and would permit those entities to receive compensation as a result of providing fiduciary investment advice, including advice to roll over a participant’s account in an employee benefit plan to an IRA and other similar types of rollover recommendations.
The new proposed class exemption would require fiduciary investment advice to be provided in accordance with the following “impartial conduct standards” to advance retirement customer protections.
  • a best interest standard
  • a reasonable compensation standard
  • a requirement to make no materially misleading statements about recommended investment transactions
The exemption would include other protections that would require disclosures to retirement investors, conflict mitigation and a retrospective compliance review. The DOL noted this approach further will preserve wide availability of investment advice arrangements and products for retirement investors.
Comments are due 30 days after publication in the Federal Register.

FinCEN Issues BSA/AML Guidance On Hemp-Related Businesses

The Financial Crimes Enforcement Network issued guidance for institutions on how they can conduct due diligence on hemp-related businesses and on what types of information and documentation they may be required to collect from these businesses to comply with Bank Secrecy Act requirements.
Institutions should obtain basic identifying information about hemp-related businesses according to their customer identification programs and risk-based due diligence processes, FinCEN said. In addition, “for customers who are hemp growers, financial institutions may confirm the hemp grower’s compliance with state, tribal government, or the USDA licensing requirements, as applicable,” by obtaining a written attestation from the grower that they carry a valid license, or a copy of the license.
The guidance also noted that institutions are not required to file a Suspicious Activity Report on customers solely because they are engaged in the growing or cultivation of hemp. In cases where transactions of a hemp-related business are comingled with marijuana-related activities, financial institutions should apply FinCEN’s 2014 guidance on marijuana when determining whether and how to file a SAR.

GSEs Extend Forbearance Agreements For Multifamily Property Owners

The Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will extend forbearance agreements for multifamily property owners with enterprise-backed mortgages for up to three months, for a total forbearance of up to six months. While properties are in forbearance, landlords must suspend all evictions for tenants unable to pay rent.
  At the conclusion of the extended forbearance period, borrowers may qualify for up to 24 months to repay the missed payments. During the repayment period, borrowers are also required to provide tenants with at least a 30-day notice to vacate, not charge late fees or penalties for nonpayment of rent and allow the tenant flexibility to repay back rent over time and not in a lump sum.

ARRC Announces Spread Adjustment Methodologies, Issues New Fallback Language

The Alternative Reference Rates Committee outlined how it will implement its methodologies for calculating spread adjustments on financial products that reference the London Interbank Offered Rate. These adjustment methodologies are designed for financial institutions to use in contracts that incorporate the ARRC’s recommended fallback language or for other contracts where a spread-adjusted Secured Overnight Financing Rate, the ARRC’s preferred Libor replacement, can be selected as a fallback for Libor.
Based on public feedback and in order to maintain consistency, the ARRC noted it would largely align its practices with those used by the International Swaps and Derivatives Association. For cash products other than consumer products, the ARRC said it would match its recommended spread adjustment methodology to that of ISDA’s spread adjustments to U.S. dollar Libor. Given the special considerations because of consumer products and the fact that the ARRC will include a one-year transition period as part of its recommended spread adjustments for consumer products, the ARRC said it also would consider the most appropriate approach to the issue of methodology versus value for these specific products.
Separately, the ARRC also released updated recommended contractual fallback language for syndicated business loans, contractual fallback language for new variable rate private student loans and conventions for how market participants can voluntarily use SOFR in new student loan products.

FFIEC: Examiners To Increase Focus On Libor Transition Preparedness

Federal financial regulators said they will ramp up their supervisory focus on banks’ transitions away from the London Interbank Offered Rate in 2020 and 2021.
In a statement issued by the Federal Financial Institutions Examination Council, the agencies noted that as part of examination activities, “supervisory staff will ask institutions about their planning for the Libor transition including the identification of exposures, efforts to include fallback language or use alternative reference rates in new contracts, operational preparedness, and consumer protection considerations.” The agencies noted that supervisory focus “will be tailored to the size and complexity of each institution’s Libor exposures.”   While the statement does not establish new guidance or regulation, the agencies noted that “institutions should consider existing safety and soundness standards and consumer protection laws as they plan for and address risks that will arise with the transition from Libor,” which is not guaranteed to be sustained beyond 2021. To prepare for the transition, they recommended that institutions take steps including the following.
  • Identifying and quantifying Libor exposure across product categories and lines of business.
  • Conducting a risk assessment of Libor exposures, which may include scenario testing, legal review and other analysis.
  • Creating transition plans with milestones and key completion dates.
  • Conducting an assessment by bank management of revisions that may be necessary to update the institution’s policies, processes and internal control systems.
  • Assigning responsibility for Libor transition oversight to a committee, team or officer.
  • Reporting progress on the Libor transition to the institution’s board of directors and senior management team.

OCC Updates UDAAP Section Of Comptroller’s Handbook 

The Office of the Comptroller of the Currency released an update to its Comptroller’s Handbook regarding “Unfair or Deceptive Acts and Practices” and “Unfair, Deceptive, or Abusive Acts or Practices.” The update reflects the OCC’s risk-based supervision approach and includes procedures for examiners to assess the effectiveness of bank compliance management systems in managing UDAP and UDAAP risks.
The update also provides an appendix of “red flags” that warn of potential UDAP/UDAAP concerns, such as customer complaints, whistleblower referrals, high levels of fee income and high volumes of charge-backs or refunds. 

DOL Proposes Rule On ESG Investing In Pension Plans

With interest around sustainable investing — sometimes referred to as environmental, social and governance investing — on the rise, the U.S. Department of Labor issued a proposed rule that would confirm Employee Retirement Income Security Act requirements for plan fiduciaries to select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.

The proposal would significantly expand on an existing rule on investment duties that has been in place for more than 40 years. Specifically, it clarifies that “fiduciaries may never subordinate the interests of plan participants and beneficiaries in their retirement income to non-pecuniary goals.”
The American Bankers Association is considering a comment letter to address the issues raised in the proposal that affect financial institutions providing services to plans. Comments are due by July 30.

Freddie Mac Publishes Spanish Translation Aid For New URLA

Freddie Mac has published updated interactive Spanish translation aids for the Uniform Residential Loan Application. The aids reflect changes made in August 2019 to the redesigned URLA, which take effect Jan. 21, 2021. These are nonexecutable forms translated into Spanish to assist borrowers in completing the English version of the redesigned URLA.

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