March 17, 2022

Treasury Announces Additional Sanctions Against Russia

The Treasury Department issued a new round of sanctions against individuals who have supported Russian President Vladimir Putin’s invasion of Ukraine, including the management board of VTB Bank, which also was previously sanctioned. The sanctions followed an executive order signed by President Biden that established several additional steps to limit imports, exports and new investment with Russia in light of the ongoing conflict.

In addition, the Office of Foreign Assets Control issued new guidance aimed at preventing sanctions evasion, including through the use of cryptocurrencies. “This guidance continues to make clear that Treasury’s expansive sanctions actions against Russia require all U.S. persons to comply with OFAC regulations, regardless of whether a transaction is denominated in traditional fiat currency or virtual currency,” Treasury said.

OFAC also issued Ukraine-related General License 23, which authorizes “certain transactions that are ordinarily incident and necessary to nongovernmental organizations’ activities in the so-called Donetsk People’s Republic or Luhansk People’s Republic regions of Ukraine, including activities related to humanitarian projects to meet basic human needs, democracy building, education, non-commercial developments projects, and environmental and natural resource protection.

”In related news, the Treasury Department also announced sanctions against two individuals and three entities for supporting North Korea’s ongoing development of weapons of mass destruction and ballistic missile programs. This action targets a group of foreign individuals and companies that aid a North Korean defense industry-related procurement agent in Russia.

FinCEN Takes Additional Steps To Hinder Sanctioned Russian Elites

The Financial Crimes Enforcement Network issued an alert reminding financial institutions of the importance of identifying and quickly reporting suspicious transactions in connection with sanctioned Russian elites and their families. The alert highlights red flags to help banks and others identify suspicious transactions.

The FinCEN alert comes as the Treasury Department and Justice Department announced a new multilateral task force focused on denying and disrupting sanctioned Russian individuals from accessing the international financial system. FinCEN is also working jointly with the financial intelligence units of ally nations as part of a working group on Russian sanctions.

FOMC: Federal Reserve Announces First Interest Rate Hike Since 2018

The Federal Reserve will raise the interest rates by a quarter of a percentage point to a target range of 0.25% to 0.5%, according to the latest Federal Open Market Committee statement issued Wednesday. The committee also said that it will begin reducing its holdings of Treasury securities, debt and agency mortgage-backed securities at a coming meeting.

‌“With appropriate firming in the stance of monetary policy, the committee expects inflation to return to its 2% objective and the labor market to remain strong,” the committee said in its statement. It added that indicators of economic activity and employment have continued to strengthen and that job gains have been strong in recent months, with the unemployment rate declining substantially.

‌In a press conference after the release of the FOMC statement, Fed Chairman Jerome Powell said that the committee feels that the economy is “very strong and well-positioned to withstand tighter monetary policy.”

The committee said that implications of the invasion of Ukraine by Russia for the U.S. economy are highly uncertain, “but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.” Powell said that the country is already seeing some short-term upward pressure on inflation because of higher oil prices and noted that supply chain issues could emerge.

Raskin Withdraws Fed Nomination

Sarah Bloom Raskin, President Biden’s nominee to serve as the next vice chairwoman for supervision at the Federal Reserve, withdrew her nomination Tuesday after failing to secure support from several key lawmakers, including Sen. Joe Manchin, D-W.Va. According to news reports, Raskin was not expected to receive support from any GOP senators, which meant that in the evenly divided Senate, Manchin’s opposition would have prevented her confirmation.

‌During her confirmation hearing in the Senate Banking Committee, Raskin faced tough questions about her previous writings and speeches in which she seemed to support using the regulatory apparatus to redirect investment away from industries that, in her view, are contributing to climate change.

Banking Committee Clears Nominees For Fed Board, FHFA

The Senate Banking Committee on Wednesday evening approved President Biden’s Federal Reserve nominees.

• sitting governor Jerome Powell, nominated to serve a second term as Fed chairman
• sitting governor Lael Brainard, nominated to serve as vice chairwoman
• Lisa Cook and Philip Jefferson, nominated to serve as governors

The Banking Committee also approved the nomination of Federal Housing Finance Agency Acting Director Sandra Thompson to lead the agency.

ABA Urges House To Drop Credit Union Charter Enhancement Legislation

The American Bankers Association wrote to lawmakers in opposition of the credit union industry’s latest attempt at charter enhancement. The Expanding Financial Access for Underserved Communities Act “is simply a backdoor effort by the credit union industry to expand its membership rolls under the guise of financial inclusion,” ABA wrote in a letter to committee leaders.

Although National Credit Union Administration rules require communities added to a credit union’s field of membership to be geographically contiguous to a credit union’s existing footprint, that is not a requirement in the legislation, ABA said.

“This could suggest that the real motivation for this legislation is to enable credit unions to establish out-of-market footprints, rather than to serve low-income people close to home,” the association wrote.

ABA also pointed to the lack of requirements in the legislation comparable to the Community Reinvestment Act that would require credit unions to prove their service to low-income communities.

Congress Passes ABA-Backed Bill Addressing Tough Legacy Libor Contracts

Both houses of Congress last week passed an omnibus spending package that included a bipartisan bill to address “tough legacy” Libor contracts. With two tenors of U.S. dollar Libor no longer being published and the remainder set to cease by June 30, 2023, the legislative language would direct the Federal Reserve to determine replacement rates for Libor-referencing contracts that lack fallback language and to provide a safe harbor from litigation over a change in rates after the cessation of Libor.

‌In addition to the Libor “tough legacy” contract fix, the omnibus appropriations package includes several banking-related provisions, including an $11 billion increase to the authorization cap for the Small Business Administration’s 504 loan program and $5 billion for debt refinancing.

In addition, lawmakers authorized $295 million for community development financial institutions, including $35 million for the Treasury Department’s Bank Enterprise Award Program. The American Bankers Association and a coalition of trade groups previously urged House and Senate appropriations leaders to continue bipartisan support of at least $360 million in funding for the CDFI Fund in fiscal year 2022, with $42 million allocated for the BEA program. The final bill reflects a total increase of $25 million for CDFIs, with about $10 million for the BEA program specifically. President Biden signed the bill Friday evening.

CFPB To Increase Fair Lending, UDAAP Supervision

The Consumer Financial Protection Bureau signaled its intention to ramp up supervision activity around fair lending laws and unfair, deceptive and abusive acts and practices. Specifically, the CFPB said it “will scrutinize discriminatory conduct that violates the federal prohibition against unfair practices. The CFPB will closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination.”

‌In addition, “CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups,” the bureau said. “The CFPB will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under [the Equal Credit Opportunity Act].”

The CFPB also published an updated exam manual outlining how it will examine for UDAAPs. The guide outlines the legal standards by which regulators evaluate UDAAPs and provides examples of unfair, deceptive and abusive acts and practices.

OCC’s Hsu Says Crypto Education Urgently Needed

Acting Comptroller of the Currency Michael Hsu told the Financial Literacy and Education Commission that there is “an urgent need for improved crypto literacy and education.” Hsu urged the commission to add neutral, trusted educational materials to MyMoney.gov, a resource for consumers and consumer groups, to educate the public about crypto in an unbiased way. He added there is difficulty in finding neutral sources of information on crypto and that marketing materials and misinformation dominate.

“It’s nearly impossible to find neutral information about something as simple as fees,” said Hsu, adding that “consumers are left with an information landscape dominated by a lot of hype, jargon, attractive yields, and only boilerplate disclaimers about the risks they could face.”

OCC Finalizes Rule Allowing Exemptions From SAR Requirements

To help banks develop more efficient and effective Bank Secrecy Act compliance programs, the Office of the Comptroller of the Currency finalized a rule that would allow the agency to issue exemptions from Suspicious Activity Report requirements in certain circumstances.

‌Under the proposal, national banks seeking an exemption must submit a request in writing to the OCC. In reviewing these requests, “the OCC will consider whether the exemption is consistent with the purposes of the [Bank Secrecy Act] and with safe and sound banking, and may consider any other appropriate factors,” including outstanding supervisory concerns regarding BSA/AML compliance. Institutions also would need to seek an exemption separately from the Financial Crimes Enforcement Network.

‌The final rule will enable the OCC to facilitate changes required by the Anti-Money Laundering Act of 2020 and also will make it possible for the OCC to grant relief to national banks or federal savings associations that develop innovative solutions intended to meet Bank Secrecy Act requirements more efficiently and effectively. The rule takes effect May 1.

The Federal Deposit Insurance Corporation and Federal Reserve also have issued separate proposals regarding SAR exemptions. In its comment letter to all three agencies on the matter, the American Bankers Association advocated for an interagency rulemaking. The association remains concerned that if the other agencies do not adopt identical rules, banks could face added regulatory burden and conflicting rules.

SBA To Offer Additional Deferment For COVID EIDL Program Loans

The Small Business Administration will extend the deferment time frame for COVID-related Emergency Disaster Injury Loans to a total of 30 months. The extension applies to loans approved in calendar years 2020, 2021 and 2022. Interest will continue to accrue on the loans during the deferment period.

Borrowers may make payments during the deferment period but are not required to, SBA said. Existing borrowers can find their account balances and payment due dates using the SBA’s Capital Access Financial System. SBA added that it not send monthly SBA Form 1201 payment notices but will send regular payment reminders to borrowers via email.

FDIC Rescinds Part 363 Extension

As part of a wind-down of regulatory flexibilities enacted during the COVID-19 pandemic, the Federal Deposit Insurance Corporation formally rescinded its financial institution letter that gave insured depository institutions an additional 45 days to file their Part 363 annual reports. The rescission is effective for fiscal years beginning after Dec. 31, 2021.

Part 363 generally requires specific independent auditor reports to be issued for banks that exceed $500 million and $1 billion in assets and also requires specific audit committee member qualifications for banks with over $3 billion in assets.  

GAO: Regulators Banking Access Efforts Lack ‘Outcome-Oriented Measures’

A recent report issued by the Government Accountability Office found some banking regulators lack “outcome-oriented measures” in assessments of their efforts to increase banking access to unbanked and underbanked consumers. The report found that if the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and National Credit Union Administration used outcome-oriented measures, they could “better identify opportunities for improvement across all key initiatives and set priorities accordingly.”

According to the report, when the FDIC piloted a public awareness campaign on the benefits of bank accounts, its measures of the program did not incorporate information on the outcomes, “which could be used to assess the activities.” The report also found that when the OCC launched an initiative to increase access to credit, including small-dollar loans, it did not incorporate performance measures for this key initiative to enhance banking access.

The GAO also highlighted studies that found that debit card interchange fee limits imposed by the Durbin Amendment and Regulation II increased the cost of checking accounts.

The GAO recommended that the FDIC, NCUA and OCC establish outcome-based performance measures reflecting the full scope of their efforts to achieve strategic objectives related to access to banking services and said the agencies generally agreed with the recommendation.

Report: Consumers Want Banks’ Help To Improve Financial Health

According to a recent J.D. Power report that polled U.S. banking customers, 83% of respondents say that it is at least somewhat important that banks offer ways to improve their financial health. When asked to evaluate how their bank supported their financial well-being, 74% responded favorably, with roughly a third characterizing their bank’s support as “good” while a total of 42% saying their experience has been “great,” “excellent” or “perfect.”

The report also noted that inflation stress is leading financially vulnerable Americans to want to get paid more frequently. The report found that 62% of bank customers say the prices of goods are increasing faster than their income, and that sentiment is more common among customers who are financially vulnerable or stressed.

The most common pay frequency for all workers is every two weeks (59%), but 35% say they prefer to get paid once a week. Despite that, however, only 19% said they currently receive weekly paychecks. The desire to get paid weekly is higher among hourly workers at 50% (26% of hourly workers are paid weekly) versus 22% for salaried employees (12% of which are paid weekly). Overall, 51% of workers would consider switching jobs for more frequent pay, including 76% of hotel/food service workers.

New Article Explores The Importance Of Digital Channels

A new article for ABA Bank Marketing discusses how the pandemic has represented something of a stress test for the ability of banks to support their customers through digital channels. The quality of these digital experiences became a critical element of customer satisfaction, the article states, adding that 33% of consumers reported using their financial institution’s website or mobile site more often during the pandemic.

The shift to digital also will likely have longer-term implications, with 87% of consumers who have used digital products more since the pandemic began say they are planning to continue this increased usage beyond its end. The article goes on to provide information about optimizing the use of automated digital assistance and live human assistance while striking the right balance between the two.