July 22, 2021
FHFA Eliminates Controversial ‘Adverse Market Refinance Fee’
The Federal Housing Finance Agency announced that it will eliminate a widely panned “adverse market refinance fee” of 50 basis points for no-cash-out and cash-out refinance mortgages for loan deliveries, effective Aug. 1. The fee was originally put in place to help cover losses at Fannie Mae and Freddie Mac because of the coronavirus pandemic.
The American Bankers Association and several advocacy groups strongly criticized the fee when it was announced last year and urged that it be withdrawn. Several lawmakers also raised concerns about the fee and the added cost it would impose on homeowners.
“The elimination of this fee will improve the affordability and availability of credit for borrowers, and ultimately help those seeking to refinance into lower rate loans and improve their financial condition as the country continues to recover from the COVID-19 pandemic,” said ABA President and CEO Rob Nichols. “ABA and its members appreciate FHFA’s willingness to hear the concerns raised by ABA and others and to take action which will greatly benefit our nation’s struggling homeowners.”
In a statement announcing the withdrawal of the fee, FHFA noted that “the success of FHFA and the Enterprises' COVID-19 policies reduced the impact of the pandemic and were effective enough to warrant an early conclusion of the Adverse Market Refinance Fee,” and added that “FHFA's expectation is that those lenders who were charging borrowers the fee will pass cost savings back to borrowers.”
Agencies Signal Joint CRA Regulatory Overhaul To Come
Acting Comptroller of the Currency Michael Hsu announced his agency will propose rescinding the changes to the Community Reinvestment Act regulations that were finalized in May 2020, and he also signaled the Office of the Comptroller of the Currency’s intent to work together with the Federal Reserve and the Federal Deposit Insurance Corporation on a separate joint rulemaking to overhaul the CRA framework.
“While the OCC deserves credit for taking action to modernize the CRA through adoption of the 2020 rule, upon review I believe it was a false start,” Hsu said. “This is why we will propose rescinding it and facilitating an orderly transition to a new rule. I look forward to working with the other agencies to develop a joint notice of proposed rulemaking and building on the ANPR proposed by the [Fed] board in September 2020.”
In a joint statement, the agencies noted that they have “broad authority and responsibility for implementing the CRA,” and that “joint agency action will best achieve a consistent, modernized framework across all banks.”
The American Bankers Association has long advocated for a consistent approach to CRA modernization and welcomed the news. “We firmly believe that there is a need to update and modernize the CRA rules to reflect today’s modern banking system and the needs of communities, but those rules must be consistent across all of the banking agencies,” said ABA President and CEO Rob Nichols. “By proposing to rescind the OCC’s 2020 rule and announcing a commitment to develop a joint rulemaking involving all of the banking regulators, there is a new opportunity to craft a single set of rules for banks to follow.”
Trade Groups: Costs Of Potential New IRS Reporting Requirements Outweigh Benefit
MBA was among 51 state bankers associations and the American Bankers Association urging members of Congress to oppose an effort to impose new tax reporting requirements on banks that would require them to report information on account flows on every account above a de minimis threshold of $600, including earnings from investment and business activity. President Biden’s American Families Plan floated such a measure as a way to shrink the so-called “tax gap.”
The association cautioned that “this proposal would create a dragnet, collecting the financial information of most Americans and requiring significant resources to build, police, and maintain,” and that “policymakers must consider how account-holder data would be protected and whether a program of this scale and scope infringes on the American people’s reasonable expectation of privacy.”
They also emphasized that financial institutions already have robust reporting responsibilities, and that creating a new reporting structure would be costly and burdensome. “The existing reporting regime captures the majority of taxable events of the high-income taxpayers that the administration believes it is targeting,” the groups said. “We urge policymakers to ensure that the existing framework of information collection and oversight is fully utilized before adopting new requirements.”
ABA Urges Bankers To Encourage Lawmakers To Co-sponsor ECORA Act
The American Bankers Association is calling on bankers to encourage their lawmakers to co-sponsor the Enhancing Credit Opportunities in Rural America Act — a bill that would promote greater access to credit and reduce borrowing costs for ag producers.
As net farm income declines, the availability of low-cost credit is extremely important to the agricultural sector, and bankers are urged to ask Congress to co-sponsor this important bill to help the nation’s farmers and ranchers and revive rural ag economies.
State Finance Division Shares Information On Phone Scam
The Missouri Division of Finance has informed MBA about a phone scam in which impersonators request that a debit card limit be increased for various reasons, primarily for travel purposes. These criminals are in possession of personally identifiable information, including customer names, Social Security numbers, debit card numbers, birth dates and phone numbers. By providing this information, the debit card limit is increased, and the impersonators are able to withdraw significant portions or sometimes the balance of a customer’s account.
To mitigate risk in your institution, ensure strong internal controls, customer verification procedures, and call back procedures are being used and regularly reviewed. Please reach out to the Division of Finance at 573-751-3242 with any questions or concerns.
Powell: ‘Patience’ To Guide Fed’s Monetary Policy Approach
Testifying before House lawmakers July 14, Federal Reserve Chairman Jerome Powell maintained that the Fed’s overall monetary policy stance remains “appropriate” even amid rising inflation concerns, and that “patience” will characterize the agency’s approach moving forward. He noted that the Fed is prepared to respond quickly if prices begin to rise faster than anticipated or if inflation persists for a longer period of time.
Powell observed that “very high inflation readings are coming from a small group of goods and services that are directly tied to the re-opening of the economy,” such as new and used cars, airfare and hotel rooms. He added that “if we were to see that inflation were remaining high and remaining materially higher above our target for a period of time and it was threatening to uproot inflation expectations and create a risk of a longer period of inflation, we would absolutely change our policy as appropriate.”
“If we do see inflation expectations are moving up or inflation is on a path to remain well above our goals … then we’ll use our tools to guide inflation back down to 2%,” Powell assured lawmakers. However, “it would be a mistake to do it at a time when we really do believe … that these things will come down of their own accord as the economy reopens. It would be a mistake to act prematurely,” he said. Powell added that labor market conditions have improved over the first half of 2021 but still have “a long way to go.” However, he said “there’s every reason to think that we can get back to 3.5% unemployment.”
Biden Order Calls For Movement On Data Access Rule, Review Of M&A Rules
President Biden issued a wide-ranging executive order on competition issues across the U.S. economy. Among provisions related to the financial services industry, the order calls on the Consumer Financial Protection Bureau to complete its implementation of Section 1033 of the Dodd-Frank Act and to enforce the prohibition on unfair, deceptive or abusive acts and practices consistently with Section 1031 of Dodd-Frank. The order also calls for the Justice Department and federal banking regulators to review current policies on bank mergers and for the Treasury Department to report on the effects of large tech companies’ and other nonbanks’ entry into financial services.
The CFPB last fall issued an advance notice of proposed rulemaking on Section 1033, which addresses consumers’ rights to access and control information about their accounts. “ABA and our members fully support customers’ ability to access and share their financial data in a secure, transparent manner that gives them control,” said American Bankers Association President and CEO Rob Nichols. “We have been working with the CFPB since 2017 on how to ensure consumers remain protected when they share their financial data outside of the secure banking ecosystem. The bureau’s early decision to establish guiding principles has allowed banks and technology companies to collaborate on tools that are already facilitating access to financial data in a way that protects and empowers consumers.”
As regulators and the Justice Department “revitalize” M&A oversight pursuant to the order, Nichols added that ABA “will continue to call for updating merger review guidelines to finally consider nonbank competitors, such as fintechs and credit unions, that account for a growing share of the financial services marketplace, yet don’t have to meet bank requirements for compliance and community investment, and in some cases don’t even have to pay federal taxes.”
Nichols added that “if the administration wants to see competition in action, the nation’s banking sector is a good place to start. The U.S. has the deepest and most diverse banking system in the world, with nearly 5,000 banks of all sizes, charters and business models who compete for business every day. The depth and resilience of today's banking industry was on full display during the pandemic, as banks of all sizes provided unprecedented support to their customers, communities, and the broader economy, while also meeting their rigorous regulatory obligations.”
ABA Highlights Need For Clarity, Consistency Regarding Digital Assets
As consumers increasingly buy, hold and sell digital assets, the American Bankers Association told the Federal Deposit Insurance Corporation that these individuals “are best served when they can do so through banks that are subject to rigorous oversight and supervision.” However, the association noted that significant questions remain over the regulation of digital asset markets.
In a comment letter responding to a recent request for information, ABA highlighted the need for a consistent taxonomy for digital assets across all relevant regulators, regulatory clarification regarding the types of digital asset activity that are permissible for banks, and consistent regulation of bank and nonbank entities that are engaged in digital asset activities. The letter also addressed several specific issues, including custodial services for digital assets, partnerships with financial technology firms, the capital treatment of digital assets and stablecoins.
As policy conversations continue around digital assets, ABA released a free report on cryptocurrency for bankers that discusses its origins, uses, technological underpinnings and the industry surrounding it. The report also includes information on existing and emerging regulatory issues around cryptocurrency and what to expect in the next year, as well as some considerations for banks as they approach the crypto sector.
Fed Chairman ‘Undecided’ About Merits Of Central Bank Digital Currency
Testifying before the Senate Banking Committee on July 15, Federal Reserve Chairman Jerome Powell said he is “legitimately undecided about whether the benefits outweigh the costs” of creating a central bank digital currency. He emphasized that should the central bank decide to move forward with a CBDC, “we would want very broad support in society and in Congress.”
“Ideally, that would take the form of authorizing legislation, as opposed to a very careful reading of ambiguous law to support this,” Powell said. “It’s a very important initiative and I do think we should ideally get authorization.” He added that the Fed is currently working to “explore both the technology and the policy issues over the next couple of years … so that we’re in the position to make an informed recommendation.”
During testimony before the House Financial Services Committee on July 14, Powell said the Fed is at a “critical point” in its deliberations over whether and how to offer a CBDC, and signaled that the agency would publish a report “around early September” on CBDs and other digital payments.
He also discussed the potential for regulating stablecoins under a framework similar to those that apply to bank deposits or money market funds. “We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset,” Powell told House lawmakers. “We have a strong regulatory framework around bank deposits or money market funds … that doesn’t exist for stablecoins. If they are going to be a significant part of the payments universe … then we need an appropriate regulatory framework, which, frankly, we don’t have.”
ABA: New Regulations Not Needed To Address Banks’ Use Of AI
As banks move to responsibly integrate artificial intelligence and machine learning capabilities into their business processes, the American Bankers Association is urging regulators to focus on providing greater clarity around the use of AI and ensuring that there is a consistent regulatory standard for its use across all financial services providers. In a letter responding to a recent request for information, ABA emphasized that given the stringent supervision and regulation banks are already subject to, “new banking regulations are not necessary or warranted to address AI.”
Rather, regulators should focus their efforts on clarifying existing regulations and guidance to address AI-related risks and ensure that banks can continue to innovate in a safe, responsible manner, ABA said. Among other things, ABA specifically called for additional guidance around fair lending risk in the use of AI and how banks should be managing disparate impact risks. The association also emphasized the need for coordination across the regulatory agencies on the issuance of any AI-related guidance and encouraged the agencies to support voluntary pilot or innovation programs that banks may choose to participate in.
“AI makes banking services better, cheaper, and more widely available, and will continue to do so. While these benefits do not come without risks, we believe that the robust bank regulatory structure already captures these risks today,” the association said. “Accordingly, the agencies should avoid additional regulation of AI use by banks and provide a flexible framework that can encourage innovation while mitigating risks.”
ABA To Fed: Adopt Uniform Policy To Evaluate Account, Services Applicants
The American Bankers Association, the Consumer Bankers of America and the National Association of Federally Insured Credit Unions submitted a comment letter to the Federal Reserve regarding its proposal to create a uniform policy for the regional Federal Reserve banks to use in evaluating applications for accounts and payment services.
This is particularly important, the groups claim, because some state-chartered institutions that hold uninsured deposits are seeking access to the payment system. Fed banks are not subject to the same level of oversight as other payment system participants, and ABA supports standardizing the applicant review process for Federal Reserve banks to ensure uniformity across the entire system. The letter emphasizes the need for clear and consistent guidelines to evaluate requests for a master account or access to reserve bank services. It also states the payment system would benefit if the proposed guidelines were strengthened to address the risks certain entities, including those that are not federally insured and those that operate a business model not traditionally found in its charter type, pose to the payment system, the U.S. financial system and the economy.
The associations urged the Fed to outline specific capital, liquidity and risk management requirements for master account access, as well as additional parameters for eligible entities with business models that may present enhanced risks to the payment system or to the U.S. financial system and are not subject to the same level of federal regulatory oversight.
FHFA Issues Fair Lending Policy Statement
The Federal Housing Finance Agency issued a policy statement stating its position on fair lending laws with respect to the entities it regulates: Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
The statement describes FHFA’
s position on monitoring and information gathering, supervisory examinations and administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act and the Federal Housing Enterprises Financial Safety and Soundness Act. FHFA said it also is issuing the policy statement to provide a foundation for possible future interpretations and rulemakings by the agency for its regulated entities.
FHFA said the policy statement does not create or confer any substantive or procedural rights that could be enforceable in any administrative or civil proceeding. Comments on the statement are due 60 days after publication in the Federal Register.
Agencies Seek Comment On Proposed Third-Party Risk Management Guidance
The Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency are seeking comments on a joint proposal designed to manage risks associated with third-party relationships, including relationships with nonbank fintech firms.
The agencies said the proposal would assist banks in identifying and addressing the risks associated with third-party relationships and responds to industry feedback requesting alignment among the agencies about third-party risk management guidance.
The proposed guidance takes into account the level of risk, complexity and size of the banking organization, as well as the nature of the third-party relationship, the agencies said, adding that it would replace each agency’s existing guidance on the topic and would be directed to all banking organizations supervised by the agencies. Comments on the proposal are due Sept. 17.
FDIC Proposes To Simplify Deposit Rules For Trusts, MSAs
The Federal Deposit Insurance Corporation board approved a proposal to simplify the deposit insurance rules for deposits of trusts and mortgage servicing accounts. Comments on the proposal are due 60 days after publication in the Federal Register.
Currently, the FDIC recognizes three different insurance categories for deposits held in connection with trusts: revocable trusts, irrevocable trusts and irrevocable trusts with an insured depository institution as trustee. The proposed rule would merge the revocable and irrevocable trusts categories into a new “trust accounts” category. A depositor’s trust accounts would be insured in an amount up to $250,000 multiplied by the number of trust beneficiaries, not to exceed five — effectively limiting FDIC coverage for each grantor’s trust deposits to a total of $1,250,000.
The deposit insurance coverage provided in the “trust accounts” category would continue to remain separate from and in addition to the coverage provided for deposits held in a different right and capacity at the same bank, the FDIC said.
With regard to mortgage servicing accounts, the FDIC proposed that MSAs maintained by a mortgage servicer in an agency, custodial, or fiduciary capacity that are comprised of payments of principal and interest, would be insured for the cumulative balance paid into the account to satisfy principal and interest obligations to the lender, whether paid directly by the borrower or by another party, up to $250,000 per mortgagor.
ABA: Banks’ Committed To Reducing Number Of Unbanked Americans
In a statement for the record shared ahead of a House Financial Services subcommittee hearing on expanding access to the financial system held July 21, the American Bankers Association emphasized the banking industry’s commitment to reducing the number of unbanked individuals in the country. The statement details ABA's support for the Bank On movement, a national effort led by the Cities for Financial Empowerment Fund, designed to extend access to banking services to U.S. households that remain unbanked. Bank On-certified accounts include features like low costs, no overdraft fees, robust transaction capabilities via a debit or prepaid card and free online bill pay.
“More than 7 million households remain outside the banking system without a deposit account. America’s banks believe everyone should have access to the banking system and the safety, convenience and other benefits that come with a bank account — and we are committed to continuing our efforts to build trust with unbanked consumers,” ABA said, adding that since it began encouraging banks to offer Bank On accounts in October 2020, the number of Bank On-certified accounts has more than doubled.
Since then, ABA has expanded its efforts to bring more banks into the program, promoting Bank On via virtual events, podcasts, webinars, paid social and digital media campaigns and other member communication initiatives. At the hearing, which also examined the role public banks and the Postal Service could play in addressing the unbanked problem, a top CFE Fund executive highlighted the increasing number of banks offering Bank On accounts and the measurable progress the program has made in reaching the unbanked.
ARRC Announces SOFR Term Rate Conventions, Cross-Currency Swaps Date
The Alternative Reference Rates Committee made two significant announcements. In the first, the ARRC recommended conventions and use cases for employing the forward-looking Secured Overnight Financing Rate term rates that are expected to be formally recommended by the ARRC in the coming days. The conventions address both new and legacy syndicated and bilateral business loans. The ARRC previously published recommended conventions for the use of SOFR in arrears in these transactions.
ARRC noted that “these convention recommendations are voluntary and may not be applicable to all segments of the business loan markets. Each market participant should decide for itself whether and to what extent to use these recommended conventions in its transactions.”
In its second announcement, the ARRC endorsed the Commodity Futures Trading Commission’s Market Risk Advisory Committee recommendation that intradealer trading conventions for cross-currency basis swaps
between U.S. dollar, Japanese yen, sterling and Swiss franc LIBOR move to each currency’s risk-free rate as of Sept. 21. This move in cross-currency basis swap trading conventions is the second phase in the MRAC’s recommended SOFR First initiative, which was announced by the CFTC earlier this month.