August 12, 2022

ABA, MBA Urge Wagner to Keep Fighting For Bipartisan Tax Cuts

The American Bankers Association and MBA have released a new ad encouraging Congresswoman Ann Wagner to keep fighting for bipartisan tax cuts for families and main street businesses.

“Representative Wagner has fought to reduce taxes on families and small businesses at a critically important moment,” said ABA President and CEO Rob Nichols. “Efforts like this help drive economic growth that benefits communities in Missouri and across the country.”

“We’re pleased to join ABA in launching this new ad recognizing Representative Wagner’s support for bipartisan tax cuts that allow Missouri families to keep more of their paychecks while providing much-needed certainty for businesses as they invest and grow,” said MBA President Jackson Hataway. “We appreciate her ongoing efforts to strengthen our economy and allow Missouri families to save for the future.” 

ABA, Financial Trade Groups Oppose Durbin Expansion Bill In Letter To Congress

The American Bankers Association joined a broad coalition of state bankers associations and credit union associations in a strongly worded letter sent to congressional leaders opposing S. 4674, the Credit Card Competition Act of 2022. The bill, which was introduced by Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., would create new credit card routing mandates that will affect banks that issue credit.

The bill 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 Federal Reserve. 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.

In the letter, the groups emphasized that among other things, the bill would lead to fewer options for consumers, threaten consumer data privacy, adversely affect banks and credit unions, and cause the elimination of credit card rewards programs that consumers value.

“Far from increasing competition in the credit card marketplace, this legislation will reduce the number of credit card issuers competing for consumers’ business, wring out the competitive differences among card products, decimate card rewards programs (e.g. airline miles) valued by American families and our tourism sector, and put the nation’s private-sector payments system under the micromanagement of the Federal Reserve Board,” the groups wrote. “The Marshall-Durbin bill does all this by using legislation to award private-sector contracts to a small handful of the sponsors’ favored payment networks in order to pad the profits of the largest internet and national merchants who are raising prices on American families far more than the real rate of inflation.”

Trade Groups: Proposed CRA Changes Do Not Accomplish Modernization Goals

In its comment letter on the banking agencies’ proposed overhaul of the Community Reinvestment Act regulations, MBA said it opposes the expansion of CRA regulations and supervision without proper enabling legislation. MBA also joined the American Bankers Association and other state banking association in a separate comment letter that noted multiple flaws in the proposed rule that ultimately worked against the agencies’ stated goals. 

In a 43-page letter to the agencies, the associations said there is broad agreement that the CRA regulatory framework must be updated to reflect technology’s transformation of the delivery of financial products and services but that several elements of the proposal are contrary to the objectives of regulatory modernization.

Problematic elements cited in the letter include the following.

• creation of new “retail lending assessment areas” for large banks (which the proposal defines as those with more than $2 billion in assets) without sufficient legal and policy analysis
• creation of a new retail lending test for large banks and intermediate banks that does not take into account the diversity of the banking system
• heightened performance expectations such that banks would need to exceed past performance order to attain the same CRA rating that they received on prior exams

The latter provision was included to incentivize banks to increase lending to underserved communities, but it could disincentive certain types of lending and investment, the associations said.

Another flaw cited by the associations was a one-year implementation period for the final rule. Given the size and scope of the changes proposed, the groups suggested two years would be more appropriate. They also pointed to language concerning “facility-based assessment areas” that, among other things, would require banks to include ATMs and the sites of other deposit-taking technology in their assessment areas.

“A deposit-taking ATM should not trigger the full lending, service, and community development obligations of an FBAA,” they said.

The associations welcomed some provisions in the rulemaking, such as efforts to continue to tailor regulation based on banks’ asset side and business model. However, they reiterated that the comment period was inadequate given the size and complexity of the proposed changes. They also reiterated their support for CRA-like requirements for credit unions and other financial firms, noting that when a credit union buys a community bank, “the bank’s obligations cease to exist and the acquiring credit union has no CRA responsibility to the community.”  

Bowman Raises Concerns About Proposed CRA Changes

A proposed overhaul of Community Reinvestment Act regulations does not adequately account for the costs and benefits of certain provisions in the draft rule, Federal Reserve Gov. Michelle Bowman opined during a recent speech. While saying she was supporter of the fundamentals behind CRA, Bowman expressed concern that banking agencies are moving ahead with changes without attempting to either ensure or analyze whether the benefits exceed the costs, which she called a fundamental element of effective regulation.

Bowman also raised concerns about a proposed review of the regulatory framework for analyzing bank mergers, announced earlier this year by the Justice Department and Federal Deposit Insurance Corporation. Bowman said she would be worried about any changes that make mergers more difficult for small and regional banks and urged banks to submit feedback on the proposal. She also said changes must address longstanding issues with the existing merger framework, such as its failure to account for new technologies and competition from credit unions and other nonbank actors.

Finally, Bowman acknowledged that while returning to on-site bank examination is continuing, progress has been somewhat slow. “That said, the Fed intends to return to some form of on-site supervision. We find substantial value in those in-person interactions during bank examinations.” 

ABA, BPI Urge Cross-Regulator ‘No-Action’ Letters For AML/BSA Innovations

The American Bankers Association joined the Bank Policy Institute in expressing support for the Financial Crimes Enforcement Network’s efforts to implement a process for issuing “no-action” letters. Under a no-action letter, FinCEN would provide the requesting institution with assurance that the agency would not take action against the institution regarding the innovative processes or programs described in the letter.

The associations also urged FinCEN to create a no-action letter process that best ensures that other regulators recognize and accept the no-action letters that FinCEN issues. A “no-action letter issued by FinCEN that is not accepted by all regulators will leave financial institutions with significant exposure to regulatory action, thereby discouraging use of the no-action letter program,” the associations said. “Banks of all sizes are unlikely to devote the level of resources necessary to execute on an initiative that requires a no-action letter if they cannot fully rely on it.”

The associations also asked FinCEN to allow financial institutions and their trade associations to apply for a no-action letter and for FinCEN to provide a response to a no-action letter request within 60 days. In addition, the associations asked FinCEN, if it determines to revoke a no-action letter it had previously issued, to provide the institution that had requested the letter with 18 months to “unwind” any changes it made to its anti-money laundering program in reliance on the letter. The associations also asked that no-action letters be afforded confidential treatment and that FinCEN establish a process to release redacted versions of no-action letters to the public with the requesting institution’s consent.

ABA Urges Regulatory Clarity, Parity For Developing Digital Assets

Responding to the Treasury Department’s recent request for comment on ensuring the responsible development of digital assets, the American Bankers Association reiterated its position that regulatory clarity and parity for banks and nonbanks is necessary to ensure consumer protections and support responsible innovation in the digital asset market.

Digital assets have the potential to enable “enhanced efficiencies, new products and new ways to deliver traditional products,” ABA wrote, noting that banks are undertaking research and innovation “responsibly and within a regulatory framework that ensures consumer protection and limits systemic risk. The same cannot necessarily be said for nonbanks.” ABA expressed its concern that since Executive Order 14067 “Ensuring Responsible Development of Digital Assets” was issued in March, there has been little activity to rein in nonbank crypto companies.

An important first step is for regulators to develop “clear definitions” of digital products that group assets by risk. “Oversight and supervision should be applied to banks and nonbanks engaged in digital asset activities alike to ensure all customers are protected equally, regardless of where they engage with the financial marketplace,” ABA wrote.

ABA also expressed its “serious concerns” with the applicability of the Security and Exchange Commission’s Staff Accounting Bulletin 121 to regulated banking organizations that safeguard crypto assets. SAB 121 puts banks at a “competitive disadvantage in providing cryptocurrency custody services relative to providers that are not prudentially regulated,” ABA wrote, adding that preventing regulated banks from entering the cryptocurrency custody market “pushes digital asset activity outside the regulatory perimeter, making it less safe for consumers.”  

CFPB: Digital Marketers Not Exempt From Consumer Financial Protection Act

Digital marketers providing targeted advertising for financial firms are subject to the Consumer Financial Protection Act and its prohibition on unfair, deceptive or abusive practices. Therefore, these marketers risk potential legal action if they run afoul of the act, according to an interpretive rule issued by the Consumer Financial Protection Bureau.

‌Marketers are currently exempt from CFPA regulation if they provide banks and other financial institutions “time and space” in traditional media outlets, such as television and newspapers, to advertise their products. In a statement, CFPB said today’s digital marketers go far beyond that approach by collecting large amounts of information about consumers and using that data to shape marketing content strategy. Given the fundamentally different nature of the services provided, behavioral marketing and advertising for financial institutions could subject marketers to legal liability, depending on how those practices are designed and implemented, according to the agency.

“The CFPB, states, and other consumer protection enforcers can sue digital marketers to stop violations of consumer financial protection law: Service providers are liable for unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act. When digital marketers act as service providers, they are liable for consumer protection law violations,” the agency said.

FHFA Adds To Scope of Servicers’ Fair Lending Data Collection

Fannie Mae and Freddie Mac will require servicers to obtain and maintain borrowers’ fair lending data on loans they service and to ensure that the data is included in servicing transfers throughout the mortgage term, according to a notice from the Federal Housing Finance Agency.

Servicers will be required to implement the change beginning March 1 of next year. The data collected will include borrowers’ age, race, ethnicity and gender along with preferred language, which the agency said in May it also would require next year.‌

“Having fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need, helping to further a sustainable and equitable housing finance system,” said FHFA Director Sandra Thompson, adding that the need for fair lending data collection was a result of the foreclosure crisis and COVID-19 response.‌

Freddie Mac issued a bulletin on the new requirement noting that the data elements must be stored in a format that can be searched, queried and transferred. Fannie Mae also released an updated servicing guide related to the new requirements.‌

OCC Seeks Comment Of FFIEC’s Cybersecurity Assessment Tool Renewal

The Office of the Comptroller of the Currency, along with other financial regulatory agencies, is soliciting feedback on the renewal of the Federal Financial Institutions Examination Council’s Cybersecurity Assessment Tool. The voluntary information collection resource was created to assist financial institutions in assessing their inherent cyber risks and risk management capabilities.

The agency is looking for comments on:

• whether the collection of information via the CAT is necessary for the proper performance of the agencies’ functions
• the accuracy of the agencies’ estimates of the burden of the collection of information
• ways to enhance the quality, utility and clarity of the information to be collected
• ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology
• estimates of capital or start-up costs and costs of operation, maintenance and purchase of services to provide information

Comments are due by Wednesday, Sept. 7.

Basel Committee Newsletter Addresses Credit Risk In Real Estate, Leveraged Lending

The Basel Committee on Banking Supervision issued a newsletter focusing on credit risk, which has risen in recent months because of inflation and the COVID-19 pandemic. Although the newsletter does not constitute new supervisory guidance or expectations, it emphasized that banks should “maintain prudent risk management practices on real estate and leveraged loans, as supervisors have observed higher risk lending and deficient practices in some areas.”

With regard to real estate lending, some jurisdictions have observed loosening in mortgage underwriting standards, as well as “innovative financing structures (e.g., home equity lines of credit, reverse mortgages, shared equity mortgages) that may present unique challenges in a downturn,” the newsletter said. Risk to commercial real estate portfolios, meanwhile, also remains elevated because of the lingering effects of COVID-19.

The newsletter also noted stresses in leveraged loan and collateralized loan obligations markets and that “there is an increasing bifurcation between stronger and weaker credits, with the latter likely to struggle to service debt or refinance given higher interest rates and wider credit spreads.” In addition, expansion of private debt markets could increase risks between banks and non-bank financial institutions, the committee said.

ARRC Asks Lenders, Borrowers To Take Part In Libor Survey

With all tenors of U.S. dollar Libor set to cease publication in 2023, the Alternative Reference Rates Committee is asking lenders and borrowers to participate in a survey on plans to remediate USD Libor loans. The survey will be used to assist the ARRC and market participants in assessing Libor transition readiness and the need to address any potential operational issues. Respondents must enter their responses into a prepared spreadsheet and submit the document by email to the ARRC Secretariat by Wednesday, Sept. 7.