May 5, 2022

Senate Hearing Rekindles Debate Over Durbin Amendment

‌At a Senate Judiciary Committee hearing Wednesday, banking, credit card industry representatives and some lawmakers pushed back against proposals to expand interchange regulation to credit cards, arguing that the existing interchange fee limits imposed by the Durbin amendment more than a decade ago are hurting consumers.

‌Sen. Chris Coons, D-Del., emphasized the importance of interchange revenue to supporting broad access to credit and debit cards.

“Community banks, in particular, are concerned that a substantial decrease in interchange would mean they could no longer sustain card programs that extend credit to individuals who may not otherwise be able to access credit cards,” Coons said. “The issue here … is [consumers] losing access to credit and the ability of smaller issuers to participate and compete.”

‌Charles Kim, executive vice president and chief financial officer of Commerce Bancshares in Kansas City, Missouri, agreed. He noted that smaller banks may be “pushed out” of being able to issue credits cards, with larger banks filling the gap.

“You’d see that element of competition just go away,” Kim warned.

‌Sen. Thom Tillis, R-N.C., said that the issue of fees and their impact on competition may require additional investigation.

“A lot of the things we can do to address these issues, I look forward to taking up in the Banking Committee,” he said.

In a letter to the Judiciary Committee’s leadership ahead of the hearing, the American Bankers Association and 51 state bankers associations wrote, “More than a decade later, it is clear that the Durbin amendment has hurt consumers, small businesses, and financial institutions by reducing choice, increasing costs, and reducing access to credit. Congress should not expand its scope.”

ABA also joined with a broad coalition of industry groups calling for a full repeal of the Durbin amendment, which they said has only led to higher costs for consumers and small businesses.

“Study after study has found that the Durbin Amendment has failed to lower retail prices as merchants promised and as time goes on, an increasing number of smaller banks and credit unions will be subject to its rules because its thresholds weren’t indexed for inflation,” the groups said in a statement submitted for the record. “Repealing this law will prevent these harms from continuing to mount and will restore a fully functioning market for checking accounts.”

The trade groups also emphasized that the Durbin amendment should not be extended to apply to credit transactions — and warned that doing so would have “a dramatic effect on consumer protections and services associated with the credit card products that are overwhelmingly popular with the American public.” They also urged the Federal Reserve to not move ahead with its proposal to extend Regulation II — Durbin’s implementing regulation — to expand its provisions to virtually any type of debit transaction.

In addition to the statement for the record, ABA also joined with seven other financial industry groups in a letter to Judiciary Committee Chairman Dick Durbin, D-Ill., and Ranking Member Chuck Grassley, R-Iowa, pushing back vigorously against expanding the law.

Bankers Associations Urge Lawmakers To Advance Cannabis Banking Bill

As the House and Senate work to reconcile differences between their respective versions of the America Competes Act, MBA was among the 51 state bankers associations and the American Bankers Association urging lawmakers to include the SAFE Banking Act in the final legislation. The SAFE Banking Act, which has been approved by the House six times with strong bipartisan support, would enable banks to serve legitimate cannabis businesses in states where it is legal.

“The SAFE Banking Act is a narrowly tailored solution designed to bring this growing industry into the regulated banking system and provide much-needed visibility into its financial activity,” the groups wrote, emphasizing that banks’ strong anti-money laundering and counter terrorist financing reporting requirements would increase transparency. The legislation also would enhance tax collection in states that have voted to legalize cannabis, they added.

ABA continues to call on bankers to write to their lawmakers in support of the SAFE Banking Act. Letters can be sent quickly and easily through ABA’s grassroots website, Secure American Opportunity.

Fed Announces 50 Basis Point Rate Hike

In a significant move Wednesday, the Federal Reserve announced it will increase the target range for the federal funds rate to 0.75 to 1% and signaled that “ongoing increases in the target range will be appropriate.”

‌“Assuming that economic and financial conditions evolve in line with expectations, there is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings,” Fed Chairman Jerome Powell said in a press conference following the announcement, though he noted that 75 basis point hikes were not currently being contemplated by the Fed. “We will make our decisions meeting by meeting, as we learn from incoming data and the evolving outlook for the economy.”

Despite a decline in first quarter economic activity, however, Powell maintained that “underlying momentum remains strong.” He added, however, that “inflation is much too high,” and that “it is essential we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”

ABA Urges Congress To Reject Bills Restricting Overdraft

In a statement submitted for the record ahead of a Senate Banking subcommittee hearing on overdraft Wednesday, the American Bankers Association emphasized the important role that overdraft protection plays as a source of liquidity for American consumers and urged lawmakers to reject any legislation that would restrict these offerings. Citing data from a recent ABA/Morning Consult Survey, ABA highlighted that nine in 10 consumers find their bank’s overdraft protection valuable, and well over half believe it is reasonable for banks to charge a fee for the service.

“Restrictions on overdraft may lead financial institutions to stop offering these services, which would result in significantly more returned checks and declined transactions,” ABA cautioned. “This, in turn, will mean that consumers will pay returned item fees charged by the payee or merchant and late fees, and may have lower credit ratings or be required to pay using cash, a cashier’s check or a money order.”

As lawmakers examine overdraft protection services, the association urged them to respect and protect consumer choice, noting that consumers who do not wish to have access to overdraft services have ample opportunities to open overdraft-free accounts, including Bank On-certified accounts, which are offered by institutions making up 56% of the U.S. deposit market. ABA also called for a robust Consumer Financial Protection Bureau study of overdraft usage that provides “an evidence-based understanding of regular users of overdraft protection,” and called on Congress reduce barriers that prevent banks from offering affordable small-dollar credit options.

Agencies Issue Joint Proposal To Modernize CRA Regulations

Federal bank regulatory agencies today released a joint notice of proposed rulemaking to modernize regulations implementing the Community Reinvestment Act.

The joint proposal from the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency includes the following key elements.

  • expand access to credit, investment and basic banking services in low- and moderate-income communities
  • adapt to changes in the banking industry, including internet and mobile banking
  • provide greater clarity, consistency and transparency
  • tailor CRA evaluations and data collection to bank size and type
  • maintain a unified approach

Enacted more than 40 years ago, the rule implementing CRA has not undergone a major revision since 1995. The agencies will host a “Ask the Regulators/Connecting Communities webinar” at 2 p.m. Wednesday, May 11, that will provide an overview of the proposal and its objectives. Topics will include assessment areas, qualified activities, evaluation approach, ratings and data collection and reporting. Registration is required for the webinar.

Comments on the proposal are due Friday, Aug. 5. MBA is reviewing the proposal and will be submitting comments. MBA encourages its members to submit comments.

ABA To Policymakers: Don’t Undermine Private-Sector Payments Innovation

In a statement for the record of a House Financial Services Committee task force hearing April 28, the American Bankers Association urged lawmakers to “remain vigilant and deliberate” in their policymaking to ensure that regulations support innovation in mobile banking and payments, rather than overregulating or replacing private sector innovators.

Specifically, ABA called on policymakers to “proceed cautiously with large-scale rewiring” of the payments system, urging them to support “prudently planned” initiatives that are already underway — such as private sector real-time payments initiatives and the Federal Reserve’s FedNow service — rather than pursuing other solutions like creating a central bank digital currency from scratch.

ABA also highlighted the need for consistent regulatory expectations between bank and nonbank payment providers to ensure consumer protection, security and liquidity. In addition, as cryptocurrencies become more mainstream, ABA warned that current regulations are constraining banks’ ability to offer these products to their customers and called on Congress to “to monitor actions by regulators that prevent.” 

Finally, as banks work to provide consumers with fast, safe and reliable payments options, ABA strongly cautioned against expanding the Durbin Amendment, either through the Federal Reserve’s recent Regulation II proposal mandating that banks of all sizes enable two unaffiliated payment debit card networks and accept “PIN-less” transactions for internet purchases, or through legislation that would extend Durbin’s provisions to credit cards. Such expansions, if enacted, “will most acutely harm community financial institutions that want to participate in digital and mobile payments platforms,” ABA said.

ABA Comments On Re-proposed Eligibility Standards For GSE Sellers, Servicers

In a letter to the Federal Housing Finance Agency, the American Bankers Association commented on the re-proposed update to standards that mortgage lenders would have to meet to sell loans to or service loans on behalf of Fannie Mae and Freddie Mac. The update also includes requirements for servicing Ginnie Mae mortgages.

To ensure long-term stability of the enterprises and the housing market, “it is critical to evaluate the adequacy of the net worth and capital ratio requirements for non-depository seller/servicers,” ABA wrote. “While many nonbank mortgage servicers may have started as specialty/default servicers, they now operate with similar business models as large, bank-owned mortgage originator/servicers—but without the strict regulatory regime that governs depositories.”‌

Under the proposal, sellers and servicers would be required to maintain a base net worth of $2.5 million plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing and 25 basis points of the unpaid principal balance for all other 1-to-4-family loans serviced. Depository institutions would continue to rely on their prudential regulatory standards to meet the GSEs’ capital and liquidity requirements. The proposal includes feedback from a January 2020 proposal, as well lessons from the pandemic.

ABA recommended that updated eligibility standards for nonbank mortgage servicers should be imposed with “reasonable phase-in periods” to give institutions time to comply with enhanced capital and liquidity reserves. “ABA believes it is appropriate that these standards are strengthened, but the policy objective is, and should remain, to enhance systemic safety and soundness, not to inadvertently force firms to end participation for inability to comply.”

FinCEN To Issue Proposal On Beneficial Ownership Database This Year

As the Financial Crimes Enforcement Network works to implement the Corporate Transparency Act — a provision of the Anti-Money Laundering Act of 2020 — Acting Director Him Das told lawmakers it will publish a second notice of proposed rulemaking this year “that will propose regulations governing access to beneficial ownership information by law enforcement, national security agencies, financial institutions and others.” The NPRM will follow a previous proposal regarding the implementation of the beneficial ownership reporting requirements.

FinCEN also plans to issue a third proposal revising the customer due diligence regulation for financial institutions “no later than one year after the effective date of the final reporting rule,” as required by statute, Das said in written testimony submitted ahead of a House Financial Services Committee hearing. “The CTA directs that the revisions should bring the CDD regulation into conformance with the beneficial ownership rules under the CTA and reduce unnecessary or duplicative requirements, among other things,” he said. “We are considering all options as we develop the Access Rule NPRM and look forward to receiving public comments on our proposal when it is issued.”

Das noted, however, that as FinCEN’s priorities have shifted, particularly in light of Russia’s invasion of Ukraine and related sanctions activity, “limited resources have presented significant challenges to meeting the implementation requirements of our expanded mandate under the AML Act, including the CTA’s beneficial ownership requirements. ... we are missing deadlines, and we will likely continue to do so.”

FSB Floats Recommendations For Climate Risk Reporting

As regulators around the globe work to develop frameworks for measuring and mitigating climate-related risks, the Financial Stability Board published recommendations for the reporting and collection of climate-related financial data. The Basel, Switzerland-based FSB will accept comments on the recommendations until June 30.

“As authorities continue to evaluate their information needs and move towards regular standardized regulatory reporting requirements, key policy considerations include: the expansion of regulatory returns to gather more granular and specific climate-related data on a regular basis; capacity building including upskilling staff and developing analytical tools; information system capabilities; and proportionality, taking into account the nature, size, and risk profile of a financial institution,” the FSB noted.

Specifically, the FSB recommended that regulators work quickly to:

  • identify the types of information they will need to assess and monitor for climate risk
  • establish supervisory expectations addressing financial institutions’ governance, processes and controls with respect to climate-related data reporting
  • consider using common definitions, such as those proposed by standard-setting bodies, to define climate risk-related terms

The FSB also noted that to the extent that regulators require more specific climate-related information to meet their supervisory and regulatory objectives “above and beyond public disclosures,” they should begin by asking financial institutions to report “qualitative information supplemented with increasingly available quantitative information,” and should move to higher reporting standards and requirements as more robust data becomes available. Finally, the FSB called for global coordination and cooperation as climate risk reporting frameworks are developed.

FDIC Releases 2022 Strategic Goals

The Federal Deposit Insurance Corporation released its annual performance plan that includes the agency’s strategic goals and objectives for 2022. During the year, the agency will work to ensure it:

  • protects insured depositors without recourse to taxpayer funding
  • promptly identifies and responds to potential risks to the Deposit Insurance Fund
  • maintains a strong and adequately financed DIF
  • resolves failed insured depository institutions in the manner least costly to the DIF
  • provides the public and insured depository institutions access to clear and accurate information about federal deposit insurance coverage

CFPB Offers Spanish Language Translations For Reg E, B Documents

The Consumer Financial Protection Bureau has released Spanish translations for certain model and sample forms included in the prepaid rule in Regulation E and for certain adverse action model and sample notices included in Regulation B, the implementing regulation for the Equal Credit Opportunity Act.

FHFA To Make Supplemental Consumer Information Form Mandatory

Fannie Mae and Freddie Mac will now require lenders to use the Supplemental Consumer Information Form, which collects information about the borrower’s language preference, if any, as well as information on any homebuyer education or housing counseling the borrower received, the Federal Housing Finance Agency announced.

The new requirement will take effect for loans with application dates on or after March 1, 2023. Lenders will be required to present the SCIF questions to borrowers and report any data collected to the GSE purchasing the loan. FHFA noted, however, that a response by borrowers to the preferred language question will remain voluntary.

IRS Updates Contribution Limits For HSAs

The Internal Revenue Service released updated contribution limits, adjusted for inflation, for health savings accounts for 2023. For calendar year 2023, the annual limitation on deductions is $3,850 for an individual with self-only coverage under a high-deductible health plan and $7,750 for an individual with family coverage under an HDHP.

For calendar year 2023, an HDHP is defined as a health plan with an annual deductible that is not less than $1,500 for self-only coverage or $3,000 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments and other amounts but not premiums) do not exceed $7,500 for self-only coverage or $15,000 for family coverage.

CFPB Report Flags Auto Servicing, Consumer Reporting Issues

The Consumer Financial Protection Bureau issued a “Supervisory Highlights” report focusing on recent examiner observations of several financial products. Among other things, examiners flagged issues related to auto servicing, consumer reporting, credit card account management, debt collection and mortgage origination.

‌Examiners flagged several issues related to auto servicing, including wrongful repossession, providing misleading information regarding final payment amounts after a deferral and overcharging for add-on products, including guaranteed asset protection products.

With regard to consumer reporting, the CFPB cited instances of furnishers’ failure to: conduct reasonable investigations of indirect disputes, report the results of direct dispute investigations to consumers, correct and update credit report information, and establish and implement reasonable policies and procedures concerning the accuracy and integrity of furnished information.  

NACHA Releases Guide Addressing Contractual Considerations Of Voice Payments

NACHA has created a legal and risk mitigation guide for banks looking to offer voice payment capabilities and applications through smart devices. The reference guide, created by NACHA’s Payments Innovation Alliance, provides background on the importance of terms and conditions when offering voice payments services and how terms may be modified to suit different needs. The guide also offers an overview of use cases, best practices for risk mitigation and a glossary of terms and sample language for legal counsel and compliance staff.

ABA Launches 'Vote 2022' Website Ahead Of Elections

With the 2022 midterm elections approaching, the American Bankers Association has launched a voter resource center on its Secure American Opportunity grassroots platform. The site is meant to help bankers and consumers alike find the information they need to get to the polls.

Visitors to the nonpartisan website can look up key election dates by state, including the following.

  • early voting dates, absentee balloting and registration deadlines
  • view a list of candidates in their state or congressional district
  • learn about key policy issues
  • understand how redistricting will affect the 2022 election
  • register to receive election updates

Bankers also can access ABA’s “get out the vote” toolkit to help banks encourage their employees to vote in their upcoming elections.

ABA Foundation, FBI To Host Webinar Series On Scams Targeting Older Adults

The American Bankers Association Foundation, together with the Federal Bureau of Investigation and other industry partners, will host a free, three-part webinar series throughout the month of May to provide information about fraud and scams targeting older Americans. The first webinar in the series will take place at noon Monday, May 9, and will feature FBI Special Agent Jamie Daly, who will share a deep dive into one of her investment fraud cases involving numerous older victims.

ABA offers resources for banks to help educate consumers on elder fraud and other scams through its Safe Banking for Seniors program.

N.Y. Fed To Host Climate Change Symposium

The Federal Reserve Bank of New York will host a virtual symposium Friday, May 13, on climate change and how it will affect the macroeconomy and the Fed’s dual mandate. Topics discussed will include the following.

  • implications of climate change for monetary policy
  • labor and capital reallocation due to climate change and associated policies
  • climate change, trade and global production
  • climate uncertainty, financial markets and the natural rate of interest

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