August 4, 2022

MBA-Supported Candidates See Success In Missouri’s Primary Elections

The election was a huge success for MBA’s state PACs, with 93% of the candidates supported by MBA winning their respective elections. Winners of the primary now move on to November’s general election that will determine who will represent the office/district in January.

Among the successful candidates were state Sens. Sandy Crawford, R-Buffalo, and Justin Brown, R-Rolla, who are both former bankers and members of the Senate Insurance and Banking Committee. Reps. Bill Owen, R-Springfield, and Terry Thompson, R-Lexington, — retired bankers who sit on the House Financial Institutions Committee — are unopposed in both the primary and general.

MBA thanks the PAC committees for their work and support during this very tough primary election cycle. There were several races with multiple candidates who support the banking industry, which makes decisions on who to support difficult.

MBA Offers A Quick Overview Of The 2022 Primary Election

Missouri’s primary election was held Tuesday, Aug. 2. Among the seats on the ballot were U.S. Senate, all eight U.S. congressional districts, state auditor, 17 of 34 state Senate districts and all 163 House districts.

In the race to replace Sen. Roy Blunt in the U.S. Senate, Republican Eric Schmitt and Democrat Trudy Busch Valentine emerged victorious from Tuesday’s primary and will square off in November. Also this week, John Wood filed a petition with the Missouri Secretary of State’s office to run as an independent for the Senate. The office has until Aug. 30 to verify the signatures Wood collected. If there are at least 10,000 petitions, Wood also will be on the November ballot.

All incumbents for the U.S. House of Representatives easily won their primary, including Cori Bush, Emanuel Cleaver, Sam Graves, Blaine Luetkemeyer, Jason Smith and Ann Wagner. In the two open seats, former news anchor Mark Alford (R) won District 4 with 35% of the vote and current state Sen. Eric Burlison (R) won District 7 with 38% of the vote. These are considered safe Republican districts.

For state auditor, current state Treasurer Scott Fitzpatrick beat Rep. David Gregory on the Republican ticket. Democrat Alan Green, a former state representative, was uncontested in the primary.

There are seven open seats in the state Senate. The winners of the primary for these seats are as follows.

• Senate District 2 – Nick Schroer (R) / Michael Sinclair (D)
• Senate District 10 – Travis Fitzwater (R) / Catherine Dreher (L)
• Senate District 12 – Rusty Black (R) / Michael Baumli (D)
• Senate District 20 – Curtis Trent (R)
• Senate District 22 – Mary Elizabeth Coleman (R) / Benjamin Hagin (D)
• Senate District 24 – George Hruza (R) / Tracy McCreery (D)
• Senate District 26 – Ben Brown (R) / John Kiehne (D)

All incumbents in the state Senate, except for Sen. Bill White, R-Joplin, who was defeated by Jill Carter, won their respective primary election.

A few incumbents in the Missouri House of Representatives lost in the primary, including the following.

• Randy Railsback, R-Hamilton (lost to Mazzie Boyd)
• John Simmons, R-Washington (lost to Kyle Marquart)
• Neil Smith, D-St. Louis (lost to Chantelle Nickson-Clark)
• Annette Turnbaugh, D-Grandview (lost to Anthony Ealy)
• Wiley Price, D-St. Louis (lost to Del Taylor)

A list of all election results is available the Secretary of State’s website.

Bankers: Ask Congress To Oppose Durbin Expansion Bill

In response to a controversial bill introduced by Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., that would create new credit card routing mandates that will affect banks that issue credit, MBA is calling on all bankers to contact their lawmakers and urge them to oppose the measure.

The Credit Card Competition Act, S.4674, would require covered credit card issuers to add a second network to their customers’ cards, but banks would only be allowed to choose from certain options set by the Fed. In this regard, the bill goes further than the rules put in place for debit card transactions under the Dodd-Frank Act’s Durbin Amendment in 2010, where a bank could choose any two unaffiliated networks. The bill also would require that banks accept virtually any kind of transaction, regardless of the security or fraud recourse it carries, forcing banks to onboard potentially many more than two networks.

MBA and the Missouri Independent Bankers Association recently sent a statement to the media about our opposition to the legislation. The American Bankers Association and eight financial trade groups raised concerns about the bill after its introduction, noting that the proposed mandates would fall “disproportionately” on small card issuers, including community banks.

Luetkemeyer, McHenry, Emmer Seek Info On CFPB Collaboration With State AGs

Congressman Blaine Luetkemeyer is among three senior members of the House Financial Services Committee expressing concern that the Consumer Financial Protection Bureau is acting contrary to its authorizing statute. Luetkemeyer, along with Reps. Patrick McHenry, R-N.C., and Tom Emmer, R-Minn., are seeking information on the CFPB’s collaborations with state attorneys general enforcement actions. Earlier this year, the bureau issued an interpretive rule expanding the ability of state AGs to bring enforcement actions for violations of federal law — including actions against the same entity for harms not being address by the CFPB — and announced more than 20 state AG partnerships.

“It is clear that state attorneys general may enforce the CFPA in cases where the CFPB has not. But the statute does not allow for a state attorney general to become a party to an existing CFPB enforcement action,” they said. “It is therefore inappropriate for the CFPB to recruit a state attorney general that is not otherwise investigating a company, to pursue enforcement as a means of intimidation.”

The lawmakers sought information from the bureau on the statutory authority for its activity with state AGs and what safeguards the bureau is employing to prevent redundant enforcement actions, as well as communications between the bureau and state AG offices.  

Trades: Data Aggregators Should Be Subject To CFPB Examination

The American Bankers Association and seven national trade associations petitioned the Consumer Financial Protection Bureau to initiate a rulemaking to ensure that businesses that collect large amounts of consumer financial data are subject to the same oversight as financial institutions.

The CFPB is currently engaged in rulemaking under Section 1033 of the Dodd-Frank Act, which will establish standards for sharing consumer financial data, typically through third parties, in a secure and transparent manner that gives consumers control. Financial institutions already must meet strict data privacy requirements under federal law and are monitored for compliance for all consumer compliance laws by the bureau, the trade groups noted in the petition. Data aggregators will be covered by the Section 1033 rule but are not subject to CFPB supervision, leaving a significant gap in protection for consumers, they added.‌

The groups called on the CFPB to initiate a rulemaking to define “larger participants” in the data aggregation services market that should be subject to ongoing supervision by the bureau for compliance with the rule when it is final.

“We believe the CFPB should ensure that data aggregators and data users that are larger participants in the aggregation services market — not just banks and credit unions — are examined for compliance with applicable federal consumer financial law, especially the requirements of the forthcoming 1033 rulemaking, including the substantive prohibitions on the release of confidential commercial information,” the associations said.  

Trades: Removing Late Fee ‘Safe Harbor’ Could Harm Consumers

Late fees for financial products, when charged appropriately, incentivize timely payment and good financial management, the American Bankers Association and three other financial trade groups told the Consumer Financial Protection Bureau in response to a request for information this week. Conversely, setting late fees too low means “consumers are more likely to pay late and miss payments, leading to lower consumer credit scores, reduced credit access, and higher credit costs,” they added.

Under the CARD Act, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment, unless the bank instead relied on a safe harbor limit set by regulators. In 2010, the Federal Reserve approved implementing regulations for the CARD Act that set fees at $30 for a late payment and $41 for each subsequent late payment within the next six billing cycles, subject to an annual inflation adjustment. In the years since, CFPB has adjusted the safe harbor amount based on annual changes in the weighted Consumer Price Index.

‌The groups emphasized that reducing or eliminating this safe harbor could ultimately harm consumers and would have particularly negative effects on small institutions with less than $750 million in assets.

“[I]f late fees are not set at an appropriate amount to cover issuers’ costs, effectively encourage on‐time payments and mitigate the risks associated with late payments, issuers may have to rebalance the risks to their credit portfolios in other ways,” they said. “This could include reducing credit lines, tightening standards for new accounts and raising annual percentage rates and fees for all cardholders, including those who pay on time.”

‌The associations recommended that the CFPB retain the current rule, but should the agency proceed with additional rulemaking regarding credit card fees, they urged it to ensure that any proposed permitted fees account for the costs incurred by issuers related to late payments, the deterrent effect of late fees, and the conduct of the cardholder as required under the Truth in Lending Act, the associations said.

FDIC To Increase Focus On CRE Loan Concentration In Exams

Federal Deposit Insurance Corporation examiners will increase their focus on commercial real estate loan concentration in the upcoming exam cycle as economic pressures and changes in work and commerce habits continue to elevate CRE lending risk, according to the most recent issue of the agency’s Supervisory Insights.

The number of banks exceeding supervisory CRE concentration criteria — as defined by interagency guidelines established in 2006 — grew to about 9% of banks in 2021, the agency said. That is well below pre-pandemic levels, but FDIC noted several potential uncertainties facing the CRE market. They include pandemic-induced societal changes:

• downward pressure for office space as more employees worked remotely
• increased hotel vacancies
• reduction in shopping at brick-and-mortar retailers

The agency also cited inflation, rising interest rates and supply chain challenges as potentially increasing risk.

Given those uncertainties, “examiners will be increasing their focus on CRE transaction testing in the upcoming examination cycle. In particular, examiners will be testing newer CRE credits, credits stressed within sub-categories and geographies, and credits with payments vulnerable to rising rates and rising costs,” the agency said.

FDIC also noted that banks with well-developed risk management practices generally adapted better during the pandemic. “For banks substantively involved in CRE lending, this was especially true when robust contingency planning and stress testing/scenario analysis processes were in place.”

FDIC Releases Advisory, Fact Sheet On Deposit Insurance, Crypto

The Federal Deposit Insurance Corporation issued an advisory to banks regarding what it says are misrepresentations by some cryptocurrency companies that their products are eligible for FDIC deposit insurance coverage or that customers are FDIC-insured if the crypto company fails.

“Over the past several months, some crypto companies have suspended withdrawals or halted operations. In some cases, these companies have represented to their customers that their products are eligible for FDIC deposit insurance coverage, which may lead customers to believe, mistakenly, that their money or investments are safe,” the agency said in the advisory. It added that in dealings with crypto companies, “FDIC-insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance.”

The FDIC also issued a two-page fact sheet reminding the public that the FDIC only insures deposits held in insured banks and savings associations and only in the event of an insured bank’s failure. The American Bankers Association supports the FDIC’s efforts to prohibit misrepresentations of deposit insurance by nonbanks. The association has previously noted that the growing instances of misuse of the FDIC’s name or logo is of particular concern, given the potential for significant consumer confusion and the reputational risk that misrepresentation can pose to banks.

Agencies Propose To Update Statement On CRE Loan Accommodations

The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and National Credit Union Administration are seeking public comment on an updated policy statement regarding accommodations and workouts for commercial real estate loans whose borrowers are experiencing financial difficulty. The policy statement was first adopted in 2009.

The updated statement would include the following changes.

• a new section on short-term loan accommodations
• information about changes in accounting principles since 2009
• revisions and additions to examples of CRE loan workouts

The statement also emphasizes the importance of working constructively with borrowers facing financial difficulties and discusses supervisory expectations regarding CRE loan accommodations and workouts.

Comments on the proposal are due Monday, Oct. 3. Among other things, the agencies are seeking input on how the document reflects sound practices in CRE loan accommodation and what additional information it can include to optimize the guidance for managing CRE loan portfolios.  

Labor Department Proposes Asset Manager Exemption Overhaul

The Department of Labor issued a proposal that would significantly amend the requirements for banks and other investment managers of retirement assets to rely on Prohibited Transaction Exemption 84-14, known as the Qualified Professional Asset Manager Exemption. Investment managers rely on the QPAM Exemption to engage in a variety of investment and other transactions that otherwise would be prohibited under the Employee Retirement Income Retirement Act.

Under the proposal, a bank or other investment manager would, among other things:

• be required to notify DOL of its reliance on the QPAM Exemption
• be subject to expanded QPAM ineligibility requirements for criminal convictions and for prohibited misconduct of the QPAM or an affiliate
• be required to include certain contractual provisions, including indemnification language, in the investment management agreement
• be subject to recordkeeping, and recordkeeping inspection and examination, requirements

Comments to the DOL proposal are due Monday, Sept. 26.  

Fed Survey: Business Leading Standards Tighten, Demand Grows Stronger

Lending standards for business loans tightened during the second quarter of 2022, according to the Federal Reserve’s senior loan officer opinion survey. Lenders also reported no change in standards for consumer loans during the survey period.

• C&I — Banks reported having tightened standards on commercial and industrial loans to firms of all sizes after several quarters of continued easing last year and unchanged standards in the previous quarter. Tightening was most widely reported for premiums charged on riskier loans. At the same time, a majority of banks reported stronger demand for loans from large and middle-market firms while a smaller percentage reported stronger demand from small firms.
• CRE — A significant net share of banks (20%-49%) tightened standards for all commercial real estate loan categories. Moderate net shares of banks (10-20%) reported weaker demand for construction and land development loans and for nonfarm nonresidential loans. A modest net share of banks (5%-10%) reported stronger demand for loans secured by multifamily properties.
• Mortgages — On net, banks reported no change in lending standards for most mortgages. However, a moderate net share of banks tightened standards for subprime residential mortgages while modest net shares of banks tightened standards for QM jumbo and non-QM non-jumbo residential mortgages, as well as for HELOCs. Most banks reported weaker demand for all residential real estate loans over the second quarter, except for HELOCs, which experienced stronger demand.
• Personal Lending — Lending standards for all consumer loan categories — credit card loans, auto loans and other consumer loans — remained basically unchanged. Banks also reported most terms on credit card loans remained unchanged. The exception was a modest net share of banks that reported having increased (i.e. eased) credit limits. Banks also reported, on net, leaving most terms on auto loans and other consumer loans unchanged.

OCC's Hsu: Banks Get High Marks On Mitigating Cyber Risk, But There’s More To Do

The financial services sector has done “a good job” so far of building cyber defenses and working with law enforcement and the regulatory community to guard against attacks, but there’s more work to be done, said Acting Comptroller of the Currency Michael Hsu during recent remarks to financial services groups.

He noted that the Office of the Comptroller of the Currency has observed increases in cyberattack frequency and severity against financial institutions and service providers. Cyberattacks, such as ransomware, have elevated risks beyond financial loss, Hsu said.

“Disruption to financial services can significantly impact banks’ abilities to deliver critical services to their customers and has the potential to affect the broader economy. Many of the largest financial institutions … not only support their own customers, but also support critical activities including wholesale payments, trade settlement and custody,” he said.

Hsu said cybersecurity breaches have been caused or intensified by the failure to have effective controls in three areas: strong authentication, effective systems configuration and patch management, and cyber response and resilience capabilities. He said banks need to assess the potential effect that cyber incidents may have on their institutions, as well as the broader financial system, adding that “effective management of basic cybersecurity controls can significantly contribute to enhancing the resilience of systems and operations against cyber threats.”  

Data Breaches Grow Costlier For Financial Institutions

Data breaches cost financial intuitions an average of $5.97 million in 2021 and 2022, with health care being the only sector with a higher cost per breach, according to a report released by IBM Security.

IBM commissioned a 12-month study of 550 organizations across multiple sectors as part of an annual report on data breaches. The cost of dealing with a data breach for financial institutions rose by $250,000 compared to a similar study conducted in 2020-2021. IBM defined financial services as banks, insurance and investment companies.

‌Across all sectors studied, the global average cost of a data breach reached an all-time high of $4.35 million, with breach costs increasing nearly 13% during the last two years of the report, IBM said. Health care organizations paid the most per breach at an average of $10.1 million.

‌Use of stolen or compromised credentials remained the most common cause of a data breach. One trend was an increase in the number of data breaches caused by ransomware, which accounted for 11% of breaches compared to 7.8% in last year’s report.  

Survey Finds Young People Most Likely To Fall For Phone Scams

More than half of mobile subscribers reported losing money to phone scam calls in a recent survey on the prevalence of the problem, with young people the most likely to fall for scams. Branded communications provider First Orion surveyed 2,100 mobile subscribers about their experiences with scam calls and found that 53% of respondents said they had received more scam calls in 2022 than in 2021. Based on measured proprietary scam call data, the company estimates that U.S. mobile subscribers received more than 100 billion scam calls during the first six months of 2022.‌

First Orion also asked whether respondents had ever lost money to scam calls. Of those surveyed, 57% reported losing money to a scam at some point in their lives. Of respondents ages 18-34, 62% reported a financial loss compared to 54% ages 35-54 and 45% older than 55. Nearly two in five respondents reported losing more than $250 to scammers.

Financial services — banks, credit unions and financial advisers — were fifth on the list of most spoofed industries. Insurance spoofs topped the list, followed by government, warranty and health care. Two in five respondents were targeted for financial-related scam calls, making the category the most-reported scam. Learn more about the American Bankers Association’s consumer education campaign on phishing fraud, #BanksNeverAskThat.