June 16, 2022

Fed Approves Highest Rate Hike In 28 Years

In a move to slow the specter of generationally high inflation, the Federal Reserve increased the target range for the federal funds rate by three-quarters of a percentage point to a range from 1.5% to 1.75% — the central bank’s most aggressive hike since 1994. MBA CEO Max Cook was interviewed by a local TV station about the Fed’s decision.

At a press conference immediately following the announcement, Fed Chairman Jerome Powell said a similar increase may be necessary next month.

“From the perspective of today, either a 50 basis-point or a 75 basis-point increase seems most likely at our next meeting,” Powell said. “We anticipate that ongoing rate increases will be appropriate.”

“Overall economic activity appears to have picked up after edging down in the first quarter,” the Federal Open Market Committee said in a statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.” In addition, FOMC noted that the invasion of Ukraine by Russia is “weighing on global economic activity,” while causing “tremendous human and economic hardship” and “additional upward pressure on inflation.”

Parson Signs Eminent Domain, Money Laundering Bills Into Law

This week, Gov. Mike Parson took action on two bills of interest to the banking community. Parson signed House Bill 2005, which expands protections for Missouri farmers against certain eminent domain proceedings, and House Bill 1472, which updates the state’s money laundering law.

House Bill 2005 is the culmination of a yearslong effort to prevent the installation of the so-called Grain Belt Express, an electric transmission line that will run from west to east across the state. The bill, however, is not retroactive, meaning it will not prevent the Grain Belt Express line from moving forward but instead only applies to future projects.

Among the provisions in the legislation include an increase to the compensation required to pay for ag land to 150 percent of the fair market value and a requirement that electrical corporations provide an amount of energy in Missouri proportional to the length of the transmission line within the state.

The bill was sponsored in the House by Rep. Mike Haffner, R-Pleasant Hill, and carried in the Senate by Sen. Jason Bean, R-Holcomb.

House Bill 1472 is intended to target human traffickers by updating Missouri’s money laundering law to account for new technologies, including cryptocurrencies. The bill adds a definition for “cryptocurrency” and replaces the definition of “currency” with one for “monetary instruments.”

The bill was sponsored by Rep. Patricia Pike, R-Adrian, and carried in the Senate by Sen. Bill White, R-Joplin.

Other bills signed by Parson this week include Senate Bills 655 (LAGERS), 718 (education), 725 (ground ambulance services), 799 (offense of escape from custody) and House Bill 2162 (opioid addiction).

Parson Joins Fellow Governors In Opposing Proposed SEC Climate Rule

Gov. Mike Parson was among 16 governors expressing their opposition to a proposed rule from the Securities and Exchange Commission that would require public companies to disclose information about climate risks affecting them, their greenhouse gas footprints and any emissions-reduction plans they may have adopted.

In a letter to President Biden and SEC Commissioner Gary Gensler, the governors expressed deep concern that Gensler’s “proposed rule veers far outside the SEC’s authority as a federal agency. The proposed rule will harm businesses and investors in our states by increasing compliance costs and by larding disclosure statements with uncertain and immaterial information that the federal government—let alone the SEC—is not equipped to judge.”

The governors urge the SEC to withdraw the proposed rule, noting “the unprecedented level of federal overreach makes your proposed rule an especially dangerous step.” The governors note that the SEC proposal injects subjective political judgements into disclosures intended to protect investors and promote orderly capital markets. In closing, the governors state that ”the approach in the proposed rule is especially foolish at a time when the cost of energy, and everything that depends on energy, has skyrocketed.”

ABA Opposes Overdraft Bill Ahead Of Markup

Ahead of a markup scheduled in the House Financial Services Committee, the American Bankers Association sent a memo to lawmakers expressing opposition for H.R. 4277, the Overdraft Protection Act. Sponsored by Rep. Carolyn Maloney, D-N.Y., the bill would amend the Truth in Lending Act to make changes to existing overdraft rules.

Specifically, it would prohibit banks from charging consumers more than one overdraft fee in a month and more than six overdraft fees in a year, regardless of the consumer’s choice to opt-in to overdraft protection. ABA warned that the bill “would prevent important payments from being paid, deny customers access to liquidity during challenging times and cause customers to incur additional fees and inconveniences.”

The association also pointed out that banks of all sizes already offer consumers a wide array of account options, many of which do not charge overdraft or NSF fees, including Bank On-certified accounts that are currently offered by depository institutions accounting for 56% of the deposit market.

ABA Raises Concerns About Sweeping Digital Asset Regulation Bill

Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo., have introduced the Responsible Financial Innovation Act — a significant bill that would create a regulatory framework for digital assets.

Among other things, the legislation would assign regulatory authority for digital asset spot markets to the Commodity Futures Training Commission, creating a new advisory committee focused on developing guideline principles, empowering regulatory agencies and advising lawmakers on fast-developing technology. It also would establish 100% reserve, asset type and detailed disclosure requirements for all payment stablecoin issuers. Importantly, the bill would not require that all payment stablecoin issuers become depository issuers, as some other policymakers have recommended.

The American Bankers Association has long advocated for providers of digital assets to be subject to the same regulatory framework as banks and raised concerns about the legislation, noting that it “would effectively create a parallel supervisory and regulatory structure that holds non-bank firms to lesser standards than banks, and therefore offers their customers and our financial system fewer protections. We believe [Federal Reserve Chairman Jerome] Powell’s principle of ‘like activity, like regulation’ should guide this debate, and we look forward to sharing our perspective as the legislative process plays out.”

Senate Banking Committee Advances Barr Nomination

By a 17-7 bipartisan vote, the Senate Banking Committee advanced the nomination of Michael Barr to serve as vice chairman for supervision at the Federal Reserve. The committee also advanced the nominations of Jaime Lizarraga and Mark Uyeda to serve as commissioners of the Securities and Exchange Commission. The nominations now move to the full Senate for consideration.

ABA, Trade Groups Support Retirement Legislation

The American Bankers Association joined a coalition of financial, insurance and employment trade groups in a letter supporting S. 4353, the Rise and Shine Act. The bill would increase access to retirement plans and streamline retirement disclosure and notice obligations.

In a letter to Senate Health, Education, Labor and Pensions Committee Chairwoman Patty Murray, D-Wash., and Ranking Member Richard Burr, R-N.C., the groups noted that “we look forward to working with the committee on the Rise and Shine Act and integrating it into a holistic, bipartisan retirement security package.”

SBA OIG Calls Out Lack Of Guidance To Lenders On PPP Fraud

The U.S. Small Business Administration failed to provide lenders with “sufficient, specific guidance to effectively identify, track, address and resolve potentially fraudulent [Paycheck Protection Program] loans,” a new report by the SBA Office of the Inspector General found. The report also noted that SBA lacked a detailed, well-defined structure to handle PPP fraud.

Among other things, the OIG recommended that SBA through its Office of Capital Access provide lenders with formal guidance addressing the handling of PPP fraud. “Because SBA did not provide specific guidance to lenders, they were faced with uncertainty on how to resolve issues they were uncovering,” the OIG said. “The lack of specific guidance for lenders increased the risk of guaranteeing and forgiving PPP loans for potentially fraudulent and ineligible applicants.”

The OIG identified more than 70,000 potentially fraudulent PPP loans, totaling more than $4.6 billion.

FinCEN Seeks Feedback On Plan To Issue No-Action Letters

As part of its implementation of the Anti-Money Laundering Act of 2020, the Financial Crimes Enforcement Network is seeking public feedback on a new process for issuing no-action letters. Federal agencies may use no-action letters as a form of enforcement discretion about a specific practice, policy or product that it formalizes in a letter to the entity requesting it; they have been used in the past to facilitate innovation efforts at regulated entities.

“A no-action letter process has the potential to spur innovation and enhance overall effectiveness of the AML/CFT framework and the implementation of financial institutions’ compliance programs,” said FinCEN Acting Director Him Das.

The advance notice of proposed rulemaking seeks comment on whether FinCEN should issue no-action letters and, if so, how the process should work. Specifically, FinCEN asked about FinCEN jurisdiction, changes in circumstances, revocations, denial, confidentiality and consultation requirements. Comments on the notice are due by August 6.

CFTC Seeks Feedback On Climate-Related Financial Risk

The Commodity Futures Trading Commission issued a request for information regarding climate-related financial risks related to the derivatives markets and underlying commodities markets — the latest federal regulatory agency to issue a climate-related RFI. Among other things, the CFTC is seeking input on the types of data that could enhance the agency’s understanding of climate-related financial risk, scenario analysis and stress testing, risk management and disclosures.

The CFTC noted that it “may use this information to inform potential future actions including, but not limited to, issuing new or amended guidance, interpretations, policy statements, regulations or other potential commission action within its authority under the Commodity Exchange Act, as well as its participation in any domestic or international fora.”

Comments on the RFI are due 60 days after publication in the Federal Register.

CFPB Seeks Input On Consumers’ Ability To Obtain Information From Large Institutions

The Consumer Financial Protection Bureau is seeking public feedback “related to relationship banking and how consumers can assert the right to obtain timely responses to requests for information about their accounts from banks and credit unions with more than $10 billion in assets, as well as from their affiliates,” according to a request for information.

Specifically, the bureau is seeking input on the types of information consumers request, difficulties they may experience obtaining that information from the financial institution, customer service representative compensation, obstacles consumers face that adversely affected their ability to bank and call center practices.

ABA Supports FASB Action To Aid Libor Transition For Derivatives Markets

As the derivatives market works to transition away from the London Interbank Offered rate, the American Bankers Association wrote to the Financial Accounting Standards Board in support of a deferral of the sunset date for the transition relief provided by FASB and the expansion of the definition of the Secured Overnight Financing Rate to include term SOFR as eligible to be designated a benchmark index for hedge accounting purposes.

ABA also expressed support for FASB’s continued work toward the development of a principle for interest rates eligible for fair value hedge accounting. As FASB moves ahead with its fair value hedging project in light of the reference rate transition, ABA urged it to consider including the Bloomberg Short-Term Bank Yield Index as a U.S. benchmark interest rate. “This will allow fair value hedge accounting to be applied to a fixed rate loan hedged by a receive BSBY/pay fixed interest rate swap to align the accounting with risk management practices,” ABA said.

ARRC Issues Recommendations For Contracts Linked To USD Libor ICE Swap Rate

The Alternative Reference Rates Committee issued recommendations for contracts linked to U.S. dollar Libor Intercontinental Exchange Swap Rates. These recommendations include a suggested fallback formula that can be used for USD Libor ISR fixings after three-month USD Libor has been discontinued or becomes non-representative. The ARRC noted that these contracts “are not covered by federal [Libor] legislation and … counterparties may need to take proactive steps to address the end of USD [Libor] ISR.”

Specifically, the ARRC recommended that market participants inventory their contracts, identify the existing fallback provisions and, where necessary, take proactive steps to address the Libor cessation by:

• converting these positions to their SOFR or SOFR ISR equivalent
• incorporating hardwired fallbacks consistent with the approach suggested by the ARRC and included in the prevailing version of the International Swaps and Derivatives Association definitions
• considering calling or buying back debt instruments with problematic fallback provisions

If a legacy position cannot be proactively converted or amended, “the ARRC believes that, once three-month USD LIBOR has ceased to be published as a representative rate, the fallback formula suggested would accurately represent the at-the-money rates of standard interest rate swaps which are tied to it and which incorporate the fallback provisions introduced in the ISDA 2020 IBOR Fallbacks Protocol,” the committee noted. “As a result, if the contractual fallbacks involve calculation agent determination, the ARRC recommends that calculation agents consider the ARRC’s suggested fallback formula in determining a successor rate.”

FinCEN Advisory Addresses Growing Threat Of Elder Financial Exploitation

The Financial Crimes Enforcement Network issued an advisory alerting financial institutions to the growing trend of elder financial exploitation, which involves the illegal or improper use of an older adult’s funds, property or assets and is often happens through theft or scams. The advisory highlights behavioral and financial red flags to aid banks with identifying, preventing and reporting suspected abuse. The release also coincided with World Elder Abuse Awareness Day on June 15.

Financial institutions filed 72,000 suspicious activity reports in 2021 related to elder exploitation, an increase of 10,000 reports from 2020. The Consumer Financial Protection Bureau’s estimate of the value of suspicious transactions linked to elder financial exploitation increased from $2.6 billion in 2019 to $3.4 billion in 2020, the largest annual increase since 2013.

‌Following Bank Secrecy Act risk-based compliance, the advisory recommends that banks perform additional due diligence where appropriate and remain alert to suspicious activity that could indicate that customers are financial exploitation perpetrators, facilitators or victims.

The American Bankers Association Foundation offers resources to help older Americans and their caregivers guard against financial fraud through its Safe Banking for Seniors Program.

Fannie, Freddie Issue 'Equitable Housing Finance Plans'

As required by their regulator, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac released multiyear plans detailing how they will identify homeownership barriers faced by Black and Latino consumers and how they will address racial and ethnic gaps in homeownership.

Among other things, the plans address how the GSEs will execute future consumer education initiatives, help tenants build credit profiles and enable better access to financial services, expand counseling services to support housing stability and use technology to improve access to sustainable credit and fair home appraisals. The plans also highlight special purpose credit programs the GSEs will test to help address barriers to sustainable homeownership, including for mortgage servicing.

Under a new pilot transparency framework created by FHFA, the GSEs will also be required to publish and maintain a list of pilot programs and “test-and-learn” activities on their public websites.

Survey: Consumers Worried About Continued Fed Rate Hikes

The cost of existing credit card debt continues to rise as the Federal Reserve has increased interest rates this year — so far, by $4.9 billion, according to a recent WalletHub survey.

Most signs point to the Federal Reserve increasing its target rate on June 15, and the expected 50 basis point increase would cost credit card users roughly $3.2 billion this year, according to the study. WalletHub’s analysts don’t expect much of a change in mortgage rates following an upcoming hike because mortgage markets have already accounted for the move, they noted. This already has increased the cost of new mortgages by around 21 basis points, which translates to roughly $20,520, assuming an average home loan of $433,200.

About 50% of people plan to spend less money due to rate increases, according WalletHub’s survey findings, and 70% are concerned that the Fed might be raising rates too fast. About two-thirds feel that the Fed should stop increasing interest rates.

NFIB: Small Business Optimism Hits 48-Year Low

The National Federation of Independent Business’ Small Business Optimism Index decreased 0.1 point in May, the NFIB reported, while the share of small business owners expecting the economy to improve in the next six months fell four points to a net negative 54%, the lowest reading in the survey’s 48-year history.

Twenty-eight percent of small businesses reported that inflation was the single most important problem in operating their business, down four points from April. Just 6% of businesses believe that now is a good time to expand, according to the survey, and just 1% say they have plans to increase inventory. The net percent of owners who expect real sales to be higher decreased three points to a net negative 15%.

Article Explores How Targeted Messaging Can Enhance Financial Literacy

A lack of financial knowledge costs consumers an estimated $352 billion a year in the U.S. each year, providing an opportunity for banks to step in, Plinqit Founder and CEO Kathleen Craig writes in a new article for ABA Bank Marketing.

Craig notes that banks are in a “unique position to help” by delivering their customers targeted content that can help build their financial knowledge while supporting the bank’s acquisition and retention strategy.

“Banks must share information with customers in a way that is easy to understand and gets their attention. By offering content that is presented in an understandable and meaningful way, financial institutions can form deeper connections with their customers and position themselves as mentors,” she writes.