August 25, 2022

MBA Releases 2022 Edition Of These Laws Affect You

The 2022 Missouri legislative session was marked by discord among the members of the General Assembly, particularly the Senate. As a result, the Senate lost valuable floor time, and many bills were stalled and failed to pass for lack of time. This included two MBA priorities — our Missouri “Rural Credit Access” economic bill and our ATM crime bill. 

Lawmakers passed a historically low number of bills this session. Some of those bills contained multiple provisions (known as omnibus bills). Nearly 20 bills were approved by the House on the last day of session after the Senate adjourned early for the year. Gov. Parson vetoed four bills, including an agriculture omnibus bill that included provisions related to tax credits and an income tax rebate for certain individuals. Both issues will be addressed during a special session in September.

MBA tracks every bill that could become a vehicle to help or hurt our industry. The 2022 edition of These Laws Affect You focuses primarily on laws that directly and significantly affect banking. However, we have included a few bills that present economic or community impact that you may find of interest. New laws are generally effective Aug. 28, 2022.

Parson Calls For Special Session To Address Tax Cuts, Agribusiness

Gov. Mike Parson is calling lawmakers back to Jefferson City beginning Tuesday, Sept. 6, for a special legislative session to focus on personal income tax cuts and several provisions relating to agribusiness. Legislation is expected to be filed in the Senate the week of Sept. 6 and, if successful, move to the House during the week of the annual veto session, which begins Sept. 14.

Parson’s tax reform proposal includes reducing the individual income tax rate, increasing the standard deduction and further simplifying the tax code.

Parson also asked lawmakers to revisit the agriculture omnibus bill that he vetoed during the Regular Session, which includes modifications to the Family Farms Act, extends sunset provisions to several current tax credit programs, and creates several new tax credit programs. Parson vetoed the bill because the tax credit programs contained a 2-year sunset, rather than a typical 6-year sunset.

Parson announced the official call for a special session Monday, August 22, and will travel the state to discuss his plan with the public ahead.

Op-ed: Durbin-Marshall Credit Card Plan Would Hurt Local Banks, Consumers

Legislation in Congress giving merchants broad say over which credit card routing networks they use puts consumers’ financial information at risk and could spell the end of popular rewards programs, Julie Huber, executive vice president of Equity Bank in Wichita and regional representative of the Kansas Bankers Association board, wrote in a recent op-ed for The Wichita Eagle.

‌Senate Bill 4674, introduced by Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., would mandate that merchants can choose how card transactions are routed so that they can choose a cheaper payment rail, but cheaper isn’t necessarily better, Huber said. There is a cost for maintaining secure networks, and the cheaper alternatives may not be able to support rewards programs.

“Just imagine that you use your credit card to make a purchase, thinking that you will be receiving points, only to find out that the store where you bought the item diverted your purchase to a different routing rail and so no points were awarded to you,” she wrote.

‌Huber noted that Durbin previously led a successful charge to force banks and credit unions to offer at least two routing networks for debit card transactions, to deleterious effect.

“It made checking accounts and debit cards more expensive for your local bank to offer and it virtually eliminated debit card rewards for consumers,” she wrote. “The Federal Reserve’s own economists did a study following implementation of the original Durbin mandate and found that only 1% of merchants lowered prices for consumers, in contrast to 22% of merchants that raised prices.”

“As a 30-year community banker, I firmly believe history will repeat itself if the Marshall-Durbin legislation is adopted and applied to credit card transactions,” Huber wrote.

Trade Groups Oppose Proposed Increase In Deposit Insurance Assessments

The American Bankers Association and five trade associations came out against a proposed two basis-point increase in deposit insurance assessment rates in comments submitted to the Federal Deposit Insurance Corporation, saying “such an aggressive assessment rate increase is unwarranted.”

The FDIC signaled in June its intent to raise rates starting during the first quarterly assessment period of 2023. The proposed increase, which would remain in effect until the Deposit Insurance Fund reserve ratio meets the FDIC’s long-term goal of 2%, would amount to a 54% increase in the current average assessment rate. The agency previously approved a DIF restoration plan to restore the reserve ratio to the statutory minimum of 1.35% in 2028, but a sustained increase in insured deposits because of the pandemic and major unrealized losses in its securities portfolio caused the reserve ratio to drop to 1.23% earlier this year.

In their letter, the associations said the analysis underpinning the proposed increase does not account for recent changes in deposit levels or interest rates. They also said the factors that caused the reserve ratio to fall and remain below its statutory minimum, and which the FDIC assumes will continue, will soon disappear. The groups added that the rate hike runs counter to what Congress intended when it adopted the legislative framework to raise rates, as lawmakers wanted to avoid the snap increases the agency is now proposing.

“Forgoing a procyclical increase, particularly when the DIF reserve ratio is projected to return to its statutory minimum without the need for any increases in assessments, will free up bank resources and better enable banks to maintain lending in support of economic activity during any economic downturn, thereby supporting the economy at large and, ultimately, the public,” the groups said.

ABA Supports FCA’s Efforts To Improve Services For YBS Farmers, Ranchers

The American Bankers Association recently expressed its support for the Farm Credit Administration’s proposed rule regarding loan policies and operations to increase direct lender associations’ young, beginning and small farmer and rancher activity and reinforce the supervisory responsibilities of the funding banks.

‌FCS institutions have not done nearly enough in recent years to support and encourage YBS farmers and ranchers, despite a statutory mandate to do so, ABA wrote in its comment letter. From 2016 to 2017, new loan volume and the number of new loans to YBS farmers and ranchers dropped across all categories, the association said, noting that FCA “must use whatever means are at its disposal to hold FCS institutions accountable for providing credit and other related services to these particularly vulnerable populations.”

ABA expressed its support for the proposed rule’s objectives, including the following.

• increasing direct lenders’ YBS loan activity
• reinforcing the supervisory responsibilities of the funding banks
• requiring each direct lender association to adopt an independent strategic plan for their YBS program
• providing elements for the purpose of evaluating the year-over-year successes and shortfalls of each direct lender association’s YBS program

ABA called FCA’s decision to require associations to report on past performance a “commonsense requirement” that is “long overdue.”

ABA urged FCA to approach each objective with more than incremental progress in mind. “FCS institutions' accountability to FCA and service to YBS farmers and ranchers should be paramount,” ABA wrote. “Accordingly, the framework for accountability laid out in the objectives should be fully strengthened and interpreted by FCA to ensure the greatest level of accountability is sought and required.”

Trades To CFPB: Banks Provide Superior Customer Service

The American Bankers Association joined the Bank Policy Institute and Consumer Bankers Association in asserting that banks provide superior customer service through a variety of channels and tools — including branches, online, mobile applications and telephone — in a comment letter submitted to the Consumer Financial Protection Bureau.

‌The letter responds to the CFPB’s request for information on the customer service that banks provide to consumers and whether consumers face obstacles in seeking to obtain high levels of customer service. The RFI was issued in June in conjunction with the CFPB’s launch of an initiative to “improve customer service at big banks.” The CFPB stated that many large financial institutions “are increasingly shifting toward algorithmic banking” and that the agency seeks to “restore relationship banking in an era of consolidation and digitization.”

The associations strongly disputed the CFPB’s characterization of the level of customer service that banks provide.

“Banks provide products and services that help consumers meet their financial needs, and they are continuously innovating to better serve customers in this highly competitive marketplace,” the trade groups said. “Banks serve customers where they are and at the times when customers want to access banking services. The multitude of ways customers can access banking services and receive assistance with those services is a hallmark — not a detriment — of the U.S. banking system.”

The associations’ letter cites ABA survey data that found that 81% of consumers believe “tech improvements by banks are making it easier to access financial services” and that 97% of customers rank their bank’s customer service as “excellent,” “very good” or “good.”

ABA Launches #BanksNeverAskThat Toolkit  

In preparing for its national #BanksNeverAskThat anti-phishing campaign, the American Bankers Association has released a new toolkit for bankers that includes videos and social media posts, printables and more. To access the toolkit, banks must register to participate in #BanksNeverAskThat.

The #BanksNeverAskThat campaign begins in October. ABA is hosting a free webinar at 1 p.m. Wednesday, Aug. 31, to provide an overview of phishing scams and explain why banks should amplify the issue to customers. They will also discuss campaign highlights, new content and results to date; the benefits of participating in #BanksNeverAskThat; how to register to participate and when to take action; and best practices for deploying ready-made assets on social media platforms.

Financial Services Execs See Talent Acquisition As Serious Business Risk

C-suite executives in the financial services sector are more likely to view talent acquisition and retention as a major business risk than their counterparts in other sectors, according to a survey of 722 U.S. executives by accounting firm PricewaterhouseCoopers. Of financial service executives surveyed, 44% cited staffing as a “serious” risk versus 38% across all sectors. Cybersecurity was the top business risk that worried executives in all sectors, with 40% of respondents listing it as a serious threat — a higher percentage than any other category.

The financial services sector also was among the most likely to offer flexible work options, with 68% of respondents saying they’ve expanded remote work choice where possible or plan to do so. Only 27% said they’ve implemented a plan for having employees on-site more often, compared to 32% overall. At the same time, financial services executives were less optimistic about the future of the economy than their counterparts, with 70% of respondents believing a recession was likely in the next 12 months, compared to 60% overall.

Poll: Community Bank Customers Pay Attention To Digital Services

Customers are taking notice as community banks partner with financial technology companies to offer digital banking services, according to a survey released by digital payments firm Grain Technology. The company surveyed more than 2,000 bank users in the U.S. and found that 93% of community bank users said that their bank offers “extensive” digital services. At the same time, 62% of respondents who used community banks said they were satisfied with their bank’s current customer service.

The company also surveyed respondent attitudes about community banks and found that roughly a third of individuals either have never heard of one or were not informed enough to have an opinion. However, after learning that community banks derive funds from and lend to the community where they operate, 80% of all respondents said they would consider banking at a community bank.

FDIC Study: Raising Deposit Insurance Assessments Led To Drop In Bank Lending

Raising deposit insurance assessment rates during a time of economic stress led to a “significant drop” in bank lending growth, which disproportionately affected smaller community banks, according to a working paper published by the Federal Deposit Insurance Corporation’s Center for Financial Research. The authors used confidential FDIC data from the 2008-2009 financial crisis to explore the link between deposit insurance premium regulations and bank lending, finding that the lending growth rate shrunk 1.6% in the quarter following a seven basis-point increase in deposit insurance premiums. Banks with less than $100 million in assets experienced a 2% decline.

‌The authors used credit unions as a control group, noting these institutions are not subject to the same deposit insurance premiums as banks.

“Our finding suggests that deposit insurance premiums, which have been relatively overlooked in the procyclicality discussion, can be a significant driver of bank credit procyclicality,” the authors wrote. “It also shows that changes in deposit insurance premiums can influence the real economy through the bank lending channel and suggests there may be costs to raising deposit insurance premiums that should be considered, particularly during a crisis.”

CDIAC Members Discuss Economic Conditions, Top Policy Issues

Current banking conditions remain “mostly stable, but there are concerns over the longer term given current economic conditions,” members of the Federal Reserve’s Community Depository Institutions Advisory Council said during a meeting that took place earlier this year, according to newly published minutes. Loan demand was mixed, with business and consumer lending demand growing but mortgage and construction lending slowing, according to committee members. Commercial real estate lending held steady.

Members also discussed a number of banking policy issues, including central bank digital currencies, which one member called “the single most important issue for the future of community banking … because it has the potential to fundamentally change [the] financial system.” Members generally agreed that the potential benefits of a CBDC “were often overstated and would be hard to realize.”

‌The council also raised concerns about a lack of clear direction from regulators regarding the evaluation of climate-related risk. Among other things, they expressed concern that guidance for large institutions that have been proposed by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation would have the effect of “steering financing of industries toward smaller banks, which would then lead to regulators applying the guidance on smaller institutions.”

Turning to the issue of overdraft, council members emphasized that overdraft services are valued by bank customers and that placing additional restrictions on overdraft fees could ultimately curtail banking services.

FHFA To Create Affordable Housing Advisory Committee

The Federal Housing Finance Agency will establish a federal advisory committee on affordable, equitable and sustainable housing. The committee will provide input regarding affordable, equitable and sustainable housing needs and any regulatory or policy changes that may be necessary to address those matters, according to the agency. It also will provide input on barriers to access to such housing and long-term sustainability.

FHFA will seek out individuals to serve on the committee, although it is not yet taking applications. Members must be engaged in the financing, development and/or administration of affordable, equitable and sustainable housing and housing policy. They also must have relevant expertise in areas such as fair housing, single-family or multi-family lending, market technology or consumer advocacy.