April 1, 2022
Treasury Announces Sanctions Against Russian Defense Companies, Sberbank CEO
The Treasury Department’s Office of Foreign Assets Control issued a new round of sanctions in response to the ongoing invasion of Ukraine. The new sanctions target dozens of Russian defense companies; the CEO of Sberbank, Russia’s largest financial institution; and 328 members of the Russian State Duma.
Treasury said that the new sanctions will cut off 48 defense companies from western technological and financial resources and “will have a deep and long-lasting effect on Russia’s defense-industrial base and its supply chain.” OFAC also announced sanctions against Herman Gref, the head of Sberbank and a close Putin associate. In addition to leading Russia’s largest multibillion dollar, multinational financial institution, Gref also oversees a large number of companies owned by Sberbank in other industries.
The sanctions against the Russian State Duma expand on earlier actions taken against 12 members of the Russian Duma and fall under an executive order that authorizes sanctions against Russia for its harmful foreign activities, including violating core principles of international law. Treasury also expanded sanctions against the State Duma itself as an entity.
To crack down on sanctions evasion networks and technology companies associated with the Kremlin, OFAC also announced it is designating an additional 21 entities and 13 individuals. It also expanded sanctions authorities to include the Russian aerospace, marine and electronics sector.
Treasury also released new guidance on transactions with the Central Bank of the Russian Federation involving gold.
ABA To Host Webinar On What Russia’s Invasion Of Ukraine Means For U.S. Banks
The American Bankers Association will host a free webinar at 1 p.m. Monday, April 4, for ABA bank members and state association staff on how Russia’s invasion of Ukraine affects banks and the financial sector. The webinar will feature ABA President and CEO Rob Nichols and K2 Integrity’s Juan Zarate and Danny Glaser. Attendees will hear the latest updates on Ukraine, the financial costs being imposed on Russia beyond sanctions, and the challenges U.S. banks should prepare for next.
GOP Lawmakers Slam CFPB’s ‘Junk Fee’ Scrutiny At Overdraft Hearing
Congressman Blaine Luetkemeyer rebuked the Consumer Financial Protection Bureau for its campaign against so-called “junk fees” — the bureau’s term for legitimate fees charged by banks and other financial institutions for the provision of financial products and services.
“There is no legal authority for the CFPB to define the term ‘junk fee’ ... and even less authority for the CFPB to act as a price setter in the consumer financial market,” Luetkemeyer said Thursday during a House Financial Services Subcommittee hearing on overdraft.
Pointing to the extensive number of disclosures banks are required to provide for various products and services — many of which were imposed by the bureau itself — Luetkemeyer added that “the CFPB is manufacturing a crisis about hidden fees for financial products and services when they are the very people that made up the disclosure regime” and called the effort “another attempt by the CFPB to denigrate legally operating businesses by any means possible.”
Rep. William Timmons, R-S.C., also criticized legislative efforts to curb banks’ ability to provide overdraft services, such as those outlined in the Overdraft Protection Act of 2021 introduced by Rep. Carolyn Maloney, D-N.Y. Timmons noted that the bill, which would cap the number of overdraft fees that could be charged, would be “another onerous mandate for smaller financial institutions like community banks and credit unions, especially given that consumers already have to opt-in for overdraft protection and can opt out at any time.” He also cited recent American Bankers Association/Morning Consult data finding that nine in 10 American consumers value the overdraft protection offered by their bank.
Todd Zywicki, a law professor at George Mason University who testified at the hearing, also warned of potential negative consequences if policymakers do away with overdraft programs. He noted that new restrictions on overdraft could have wide-ranging negative implications for consumers, including “higher bank fees, higher minimum monthly deposits ... and a loss of access to free checking.”
Luetkemeyer and Congresswoman Ann Wagner, along with Financial Services Committee Republicans, sent a letter to CFPB Director Rohit Chopra on Wednesday detailing the agency's "attempt to stigmatize all consumer financial fees despite studies and data that indicate the American consumer would rather pay the associated fees that allow their payment or purchase to take place."
ABA To Congress: Don’t Restrict Overdraft Services Consumers Value
In a statement for the record of a House Financial Services Committee hearing today, the American Bankers Association urged lawmakers to preserve consumer choice regarding financial products and services, including overdraft protection. ABA noted that overdraft protection is an important source of liquidity for many Americans and that nine in 10 American consumers find the overdraft protection offered by their bank to be valuable while more than half would oppose a government proposal to prevent banks from offering the service.
The association also warned that taking action to restrict overdraft could lead financial institutions to stop offering the services altogether, “which would result in significantly more returned checks and declined transactions. This, in turn, will mean that consumers will pay returned item fees charged by the payee or merchant and late fees, have lower credit ratings, or be required to pay using cash, a cashier’s check, or a money order.”
ABA called for a reduction of the barriers that discourage banks from offering affordable small-dollar credit and encouraged lawmakers to direct the Consumer Financial Protection Bureau to study why consumers use and value access to overdraft protection so that the benefits, costs and alternatives can be fully understood.
“Congress’ inquiry into overdraft services should not be based on selective anecdotes, unsupported assumptions about consumer behavior, or Congress substituting its own view of what is ‘best’ for consumers, but rather on an evidence-based understanding of regular users of overdraft protection — why they use the product, what they understand about their ability to opt in and out, and what their preferences are relative to available alternatives,” ABA said.
CFPB Signals Potential Action On Overdraft
The Consumer Financial Protection Bureau in a new blog post said it will “continue to explore the range of our tools” to address the issue of overdraft fees and “other financial practices that penalize products and erode trust.” The blog post, which follows other recent criticism from regulators of banks’ fully legal and compliant overdraft programs in recent weeks, primarily cited complaints received by consumers regarding overdraft fees and flagged several themes, including the high costs and frequency of overdraft fees and excessive overdraft fees leading to account closures.
Hsu Repeats Overdraft Warning In American Banker Op-Ed
Acting Comptroller of the Currency Michael Hsu reiterated the controversial warning he first issued to banks earlier this month at the American Bankers Association’s Washington Summit: “you don’t want to be the last bank with a traditional overdraft program.” In an American Banker op-ed, Hsu pointed to changes that several large and midsize banks have announced to their programs in recent days, noting that “banks that hesitate to adopt pro-consumer overdraft programs will soon be negative outliers.”
Specifically, Hsu called for banks to pursue what he called “pro-consumer” changes to their overdraft programs, noting that they should “resist limiting the extent of their reforms by taking a profit-oriented approach and reverse engineering costs to meet predetermined revenue targets.” Banks should “use data to identify the reforms that help customers the most,” Hsu said, including “grace periods that give customers time to cover overdrafts and avoid fees, grace amounts that allow customers to overdraft by certain amounts without a fee, and changes in posting order, i.e., the sequence in which payments are made, to limit repeat fees.” He added that banks should take a similar approach when developing small dollar lending capabilities and considering new products.
The American Bankers Association earlier this month released new survey data highlighting that consumers want the option of overdraft protection, with 89% saying they find it valuable, and three in four saying that in cases when they had to overdraw an account, they were glad their bank covered the payment rather than returning or declining it. Consumers also agreed that it’s reasonable for banks to charge a fee for the service, and over half said they would oppose a government proposal to prevent banks from offering overdraft protection.
ABA Highlights Need For Consumer Protections In BNPL Marketplace
The American Bankers Association called on the Consumer Financial Protection Bureau to monitor the rapidly expanding “buy now, pay later” marketplace and ensure that BNPL providers that do not choose to partner with regulated financial institutions are subject to appropriate consumer protection standards. In a letter to the bureau, ABA said such safeguards should include the following.
- clear disclosures regarding repayment obligations, the cost of credit and consumer rights
- the responsible reporting of BNPL payment behavior to support credit building and prudent underwriting
- clear disclosure by BNPL providers of their data collection and data use practices
ABA also emphasized that BNPL products offered by banks or by providers partnered with banks can provide value and benefit to both consumers and merchants and that banks continue to responsibly innovate in this area.
“ABA members providing BNPL products go to great lengths to comply with applicable consumer credit laws and provide fair and responsible access to credit. To ensure consistent protections, it is imperative that that these basic protections and sound practices are afforded to all consumers by all BNPL providers,” the association said. “Promoting sound practices as they relate to these basic consumer protections would improve the efficiency and competitiveness of the BNPL market and the consumer credit market as a whole.”
The letter was filed in response to a request for public comment from CFPB, which has also opened an inquiry directly seeking information from major BNPL firms Affirm, Afterpay, Klarna, PayPal and Zip on their business practices. In opening the inquiry and seeking public comment, CFPB noted that bank-issued credit cards provide familiar protections at the point of sale. ABA’s comments reflect feedback from ABA’s Card Policy Council and other ABA member banks.
FASB To End Troubled Debt Restructuring Accounting For CECL Adopters
The Financial Accounting Standards Board announced it would end troubled debt restructuring accounting for companies that have already adopted the current expected credit loss accounting standard. Instead, institutions will be required to evaluate whether a loan modification represents a new loan or a continuation of an existing loan.
In addition, the changes enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The changes will be effective for CECL adopters for fiscal years beginning after Dec. 15, 2022.
Biden Administration’s ‘Green Book’ Details Tax Proposals
President Biden’s administration on Monday released its “Green Book,” a document that includes proposed tax changes that the administration will likely pursue during the coming year. The administration views the Green Book proposals as supplements to the changes put forth as part of the Build Back Better legislative effort last year.
Among other things, the administration is seeking an increase in the corporate tax to 28%, an effective increase in the global intangible low-taxed income, or GILTI, rate to 20% with country-by-country application and the replacement of the base erosion and anti-abuse tax, or BEAT, with an undertaxed profits rule.
The proposed changes would also make the New Markets Tax Credit permanent, repeal the “like kind” exchange for various transactions, increase the top individual rate to 39.6%, make capital gains taxed at ordinary rates, eliminate carryover basis for estates and other transfers, institute a 20% minimum tax for very wealthy individuals and address carried interest taxed as ordinary income, among other things. Many of the provisions become effective depending on taxpayers’ income levels.
Significantly, certain previously floated proposals were left out of the Green Book, including a proposal requiring financial institutions to report information about customer accounts and proposed reductions to the Section 199A deduction. However, it remains possible that these and other provisions could be reintroduced through future legislation.
FDIC Seeks Input On Bank Mergers
The Federal Deposit Insurance Corporation issued a request for information
seeking public input on bank merger transactions, including mergers between an insured depository institution and a noninsured institution. The RFI seeks comments regarding the effectiveness of the existing framework in meeting the requirements of section 18(c) of the Federal Deposit Insurance Act, known as the Bank Merger Act.
The FDIC said the significant changes over the past several decades in the banking industry “warrant a review of the regulatory framework.” The regulator added that the RFI is intended to help its understanding and any potential policymaking in this area. Comments are due 60 days after publication in the Federal Register
FDIC Issues Draft Principles On Climate Risk Management
The Federal Deposit Insurance Corporation released for comment a set of draft principles to guide a framework for climate risk management for banks with more than $100 billion in total consolidated assets. The FDIC noted that the principles are an initial step and are, among other things, intended to support the use of scenario analysis. The principles address:
- policies, procedures and limits
- strategic planning
- risk management
- data, risk measurement and reporting
- scenario analysis
They are similar to proposed principles issued by the Office of the Comptroller of the Currency in December.
Like the OCC proposal, the FDIC noted that with respect to climate scenario analysis, “management should develop and implement climate-related scenario analysis frameworks in a manner commensurate to the institution’s size, complexity, business activity, and risk profile. These frameworks should include clearly defined objectives that reflect the institution’s overall climate risk management strategies.” The principles also address how firms should consider climate-related financial risks when identifying and mitigating all types of risk.
In a statement, Acting FDIC Chairman Martin Gruenberg called the principles “an initial step toward the promotion of a consistent understanding of the effective management of climate-related financial risks,” and said the agency would subsequently issue guidance on each one. “Future guidance will continue to be appropriately tailored to reflect differences in financial institutions’ circumstances, including size, complexity of operations, and business model,” Gruenberg said. “Through this and any subsequent climate-related financial risk guidance, the FDIC will continue to encourage financial institutions to prudently meet the financial services needs of their communities.”
Comments on the draft principles will be due 60 days after publication in the Federal Register. ABA has formed a Climate Task Force to bring expertise on climate issues to the many areas that will be affected, and a specific subgroup focused on the FDIC principles.
New FDIC Reports Chart Continued Effect Of Pandemic On Banks
Two reports released by the Federal Deposit Insurance Corporation provide data on consumer lending, deposit rates and branch closures in the wake of the COVID-19 pandemic.
The combined effects of the pandemic, changing spending patterns and government stimulus programs bolstered deposits and accelerated branch closures of insured depository institutions for the fiscal year that ended June 30, 2021, according to a report in the FDIC Quarterly. Deposit growth rates moderated compared with the record highs reported in 2020, and the number of branch closures increased. As branches declined, customers reported increased use of mobile banking for routine transactions.
Community banks reported higher deposit growth compared with noncommunity banks, and branches of noncommunity banks closed at a higher rate, underscoring the continued importance of community banks, the same report noted. Minority depository institutions reported a merger-adjusted net gain in branches.
Results from another FDIC report showed that while credit card loan balances remained below the pre-recession level through the fourth quarter 2021, auto loans and other consumer loans grew throughout 2020 and 2021. Performance of all types of bank consumer loans improved because of government support, forbearance programs and tighter underwriting standards for new loans, the report noted.
ABA Urges FinCEN To Revise Pilot SAR Sharing Program
The American Bankers Association told the Financial Crimes Enforcement Network that the proposed pilot program for domestic financial institutions to share suspicious activity reports with their foreign branches, subsidiaries and affiliates “needs to be significantly revised” in order to be efficient and effective.
ABA has long supported the sharing of SARs with affiliates but acknowledged that the current approach of stripping out the SAR indicators before sharing only underlying information with affiliates creates many inefficiencies, “that unnecessarily consume resources that should be deployed to combat money laundering and terrorist financing … [P]ermitting SARs sharing with affiliates would facilitate the reallocation of resources currently devoted to a compliance exercise to efforts to combat illicit finance,” the association said.
To encourage participation in the proposed pilot program, ABA said that it should be streamlined and simplified and that FinCEN should define how it will evaluate the success or failure of the program. The association also recommended that the pilot program be extended beyond the proposed January 2024 deadline in order to collect enough data to determine whether any changes would be needed to make the program permanent.
The association also recommended that FinCEN consider data that reflects whether participants have been able to share SAR data without inappropriate disclosures or violations of data security or confidentiality of those who are the subjects of the SARs being shared.
FinCEN Publishes SAR Filing Trend Data
The Financial Crimes Enforcement Network announced
that it has updated its interactive suspicious activity reports stats webpage, which enables users to visualize aggregated SARs filed by financial institutions in the U.S. The site now includes filing trend data by industry through the 2021 calendar year.
OCC Designates Points Of Contact For Computer Security Incident Notifications
With a joint agency final rule requiring banks to notify their primary regulatory within 36 hours of becoming aware of computer security incidents that are considered “notification incidents” taking effect on May 1, the Office of the Comptroller of the Currency issued a bulletin reminding banks of their notification responsibilities and specifying points of contact.
For the purposes of the rule, a “notification incident” generally includes “a significant computer-security incident that disrupts or degrades, or is reasonably likely to disrupt or degrade, the viability of the bank’s operations; results in customers being unable to access their deposit and other accounts; or impacts the stability of the financial sector,” the OCC said. “Incidents may include a major computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of significant operational interruption.”
Under the rule, a bank must notify the OCC as soon as possible after determining that a notification incident has occurred, and no later than 36 hours after the bank’s determination. To satisfy the notification requirement, the bank may email or call its supervisory office, submit a notification via the BankNet website, BankNet.gov, or contact the BankNet Help Desk.
OCC Updates Commercial Real Estate Lending Booklet Of Comptroller’s Handbook
The Office of the Comptroller of the Currency issued an update to its commercial real estate lending booklet in the Comptroller's Handbook. The updated booklet reflects changes to laws and regulations since it was last updated and includes clarifying edits regarding supervisory guidance, sound risk management practices and legal language.
SBA Releases Strategic Plan For FY 2022-2026
The Small Business Administration’s strategic goals for fiscal years 2022-2026 include providing an equitable and customer-centric delivery of programs to small businesses, building resilient businesses and a sustainable economy and implementing strong stewardship of resources. SBA also noted it will continue to “implement technologies that expediently provide funds to small businesses in need,” including through continued forgiveness of Paycheck Protection Program loans.
Fintech, Climate Change Rank High on FSB’s 2022 To-Do List
The Financial Stability Board outlined its work priority areas for 2022, including a timeline for the publication of a series of research reports on a range of financial stability topics.
FASB says it will support international coordination on financial stability issues, particularly because of the economic effects of the Russia-Ukraine conflict, by reinforcing monitoring using a new surveillance framework to review financial sector vulnerabilities and address emerging risks. FSB also plans a follow-up report on financial stability lessons learned from COVID-19 and a report on exit strategies and effective practices for addressing the pandemic’s financial sector effects.
The regulatory and supervisory implications of technological innovation, particularly crypto assets, also are on FSB’s 2022 to-do list, including strengthening operational and cyber resilience. In addition, FSB will continue addressing climate-related financial risks, boosting analytics for monitoring climate-related financial stability risks, identifying regulatory and supervisory approaches to address climate risk and progressing with its climate-related risk roadmap.
Other issues FSB identified include improving the resilience of nonbank financial intermediation and ongoing work on plans to enhance cross-border payments.
Fed’s Waller: Current Surge In Housing Costs, Previous Bubble Not Comparable
Today’s increase in housing prices doesn’t pose the same sort of risk to financial stability as the real estate bubble and crash of 2008, said Federal Reserve Governor Christopher Waller. During a recent real estate event, Waller addressed the implications of monetary and fiscal policy on housing affordability.During the pandemic, growing demand and supply limits drove costs up.
“Unlike the housing bubble and crash of the mid-2000s, the recent increase seems to be sustained by the substantive supply and demand issues ... not by excessive leverage, looser underwriting standards or financial speculation,” Waller said, adding that mortgage borrowers entered the pandemic with stronger balance sheets and are better prepared to handle a drop in home prices than during the last housing downturn.
He also noted that large banks, like borrowers, are in a better position as well.
“Large banks are substantially more resilient today than two decades ago,” he said. “In last year’s stress test, which featured a severe global recession that included a decline in home prices of over 20%, we projected the largest banks could collectively maintain capital ratios at more than double their minimum requirements — even after withstanding more than $470 billion in losses.”
Waller said that while he’s hopeful some of the pandemic-specific factors pushing up prices could begin to ease in the next year, “many issues will put upward pressure on home prices and rents,” in the longer term.
OCC’s Hsu Warns Of Increased Recession Risk
Acting Comptroller of the Currency Michael Hsu told attendees at American Bankers Association Risk 2022 that Russia’s invasion of Ukraine could trigger a recession. Hsu warned that multiple possible events stemming from the conflict, including cyberattacks from Russia, broader conflict in Europe and increased inflation could materialize simultaneously increasing the chances of a broad market sell-off.
Americans are already feeling higher gas prices, Hsu said, adding that the expansion of sanctions to oil and gas would put additional upward pressure on fuel prices, and that Ukraine’s role as a producer of wheat, neon, platinum and palladium is also beginning to effect global prices in certain markets.
Despite the increased risks, large banks should be well positioned to withstand a range of shocks, Hsu said, though he cautioned that “nonetheless, greater caution and risk management vigilance is warranted today, perhaps more than any time in recent memory.”
Hsu also warned about the risks of crypto assets to banks and said the Office of the Comptroller of the Currency is working with U.S. interagency colleagues on “how to maintain a consistent, careful and cautious” approach to bank involvement in crypto.
CFPB Releases Report On Credit Card Fees
Credit card late fees account for over half of the credit card market’s total consumer fees, according to a report issued by the Consumer Financial Protection Bureau. The dollar value of late fees paid by consumers has fluctuated slightly year-over-year between 2018 and 2020 but consistently represented about one-tenth of the total paid by consumers in interest and fees, the CFPB noted. Late fee volumes fell during 2020 and 2021, which was likely attributable to COVID-19 stimulus payments. The report also noted that a majority of the nation’s top card issuers have set late fees at or near the maximum level set by the Federal Reserve pursuant to the CARD Act.
The report acknowledged that “the degree to which companies rely on revenue from late fees varies.” However, in a press release accompanying the report, CFPB Director Rohit Chopra made a blanket statement that “many credit card issuers have made late fee penalties a core part of their profit model.”
In a comment to media outlets, the American Bankers Association noted that the report “is yet another example of the CFPB criticizing the financial services industry for following the very rules the bureau sets.” The association added that the CARD Act and the CFPB's own regulations already require banks to disclose credit card terms and fees in a clear and conspicuous manner, and late payment and over-limit fees are specifically capped by the CFPB. “Left out of this report is any mention of the millions of consumers who value and appreciate the safety and convenience provided by the credit cards they use every day, as well as the wide array of options they have to choose from when they pick a credit card,” the association said.
ABA recently released its own data addressing consumers’ attitudes on the fees charged by their banks for products including credit cards, and well over half — 62% — agreed that bank fees were reasonable while an even higher percentage — 83% — said their bank was transparent about disclosing fees.