September 16, 2022

Lawmakers Focus On Tax Cuts, Agribusiness In Special Session

Special session is underway in Jefferson City as lawmakers gaveled in Wednesday to begin discussions on tax cuts and incentives for agribusinesses. Hearings are scheduled in both the House and Senate next week, with the Senate Appropriations Committee set to hear 13 bills Monday.

The agriculture package includes two provisions supported by MBA. One increases the thresholds to qualify for a family farm breeding livestock loan so more farmers are eligible to participate in the program. The other provision creates a specialty agricultural crops loan program. Banks that offer these types of loans receive a tax credit equal to 100% of the amount of interest waived for the first year of the loan. These bills are sponsored by Sen. Lincoln Hough, R-Springfield (Senate Bill 4), Sen. Mike Bernskoetter, R-Jefferson City (Senate Bill 17), Sen. Justin Brown, R-Rolla (Senate Bill 15) and Rep. Bradley Pollitt, R-Sedalia (House Bill 3).

Negotiations continue over tax policy. In his call for a special session, Gov. Mike Parson asked lawmakers to reduce the top individual income tax rate from 5.3% to 4.8%, increase the standard deduction by $2,000 and the eliminate the bottom income tax bracket.

While several bills filed this week fall within the governor’s call (personal income tax cuts), other filed bills focus on reducing the corporate income tax rate or a combination of both personal and corporate rate cuts. Discussions between the House, Senate and the governor are expected to continue over the next several weeks.

Hough, who is likely the next budget chair and will play a key role in negotiations, proposed a gradual reduction to the top income tax rate from 5.3% to 4.5%, but only if general revenue hits a threshold to trigger a cut. Senate Bill 3 also includes a one-time tax credit worth $325 for individuals making less than $125,000 and $650 for couples making less than $300,000.

All told, nearly 30 bills were filed by lawmakers this week, with several falling outside the scope of the governor’s call. These bills range from recreational marijuana, sports gambling, repealing the motor fuel tax and banning critical race theory in schools, among other topics.

Lists of bills filed in the House and the Senate are available online.

OFCCP Extends Deadline For FOIA Request Of EEO-1 Report Data

In August, a Freedom of Information Act request was filed with the Labor Department’s Office of Federal Contract Compliance Programs seeking the disclosure of employee diversity data collected in “EEO-1 Reports” submitted between 2016 and 2020. OFCCP has extended the deadline for objections to the release of EEO-1 reports requested under the FOIA to Wednesday, Oct. 19. OFCCP extended the deadline to ensure that covered contractors had time to ascertain whether they are covered and submit objections.

Of note, OFCCP stated in the extension notice that it is emailing contractors that the agency believes are covered by the FOIA request. OFCCP is using the email address provided by contractors that have registered in OFCCP’s contractor portal and the email addresses provided as a contact for the EEO-1 report. This may help alleviate the concern by banks that have filed EEO-1 reports solely because they have 100 or more employees (another class of businesses that are required to file EEO-1 reports) — not because the bank considers itself to be a federal contractor. OFCCP will send a notice to those businesses, including banks, whose EEO-1 reports are at risk of being disclosed to the FOIA requester.

The American Bankers Association has updated its members-only staff analysis on this issue.

Bankers: Marshall-Durbin Bill, Fed Proposal Will Hurt Consumers, Banks Alike

Legislation giving merchants broad say over which credit card routing networks they use will be a security risk for consumers as well as a blow to banks of all sizes, bank and credit union representatives said Wednesday during a well-attended briefing on S. 4674 for Capitol Hill staff hosted by the American Bankers Association and the National Association of Federally-insured Credit Unions.

The bill, introduced by Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., is supposed to apply only to banks with more than $100 billion in assets, but ABA board member Shan Hanes, CEO of Heartland Tri-State Bank and chair of Kansas Bankers Association, said his 28-employee bank heard the same story with the Durbin amendment of the last decade.

“We’ve been carved out before and we got carved up instead,” he said.

“We’re far too small to issue our own credit cards,” Hanes said. “However, we want to be able to offer credit cards to our customers, so we partner with a large institution to issue those cards. … As I look at this bill, what concerns me most are the consumers: this bill does nothing to protect the consumer, it does nothing to help the consumer financially and, frankly, it puts their most sensitive data at risk to fraudsters.”

Lavonne Heaviland, president of centralized operations at FirstBank in Colorado, raised similar concerns while adding that S. 4674’s dual routing mandate means higher processing costs, which will be passed on to issuers and merchants alike.

“That will impact customers because rising costs means that issuers will have to make tough decisions that come down to: How do we manage our reward programs, which are funded by interchange revenue? How do we maintain consistency within the networks and provide innovation to our customers? Does that mean that we will have to reintroduce annual fees for credit cards, which will then impact the ability for low- to moderate-income customers to be able to get access to rewards programs?”

There are many standards in place that govern how financial institutions and merchants alike protect consumer data, added ABA Senior Vice President Paul Benda.

“If we start removing those controls, and we start making this a price-sensitive thing where merchants want to get the cheapest option they can to save more money, you're going to start seeing those controls go away and you're going to start seeing a less-protective environment.”

The panelists also expressed concern about the Federal Reserve’s proposal to expand Regulation II, which implemented the Durbin amendment on debit cards, and is the regulatory equivalent of the Marshall-Durbin dual-routing bill in key respects. The proposal would mandate that banks of all sizes offer new payments options to merchants, regardless of whether those are in the best interest of cardholders. ABA and more than 1,400 community financial institutions have called for the Fed to withdraw its proposal due to the likely impacts on fraud costs and small financial institution competitiveness.

GOP Senators Accuse CFPB Of ‘Highly Politicized’ Agenda

The Consumer Financial Protection Bureau under Director Rohit Chopra is pursuing “a radical and highly-politicized agenda unbounded by statutory limits,” the 12 Republican members of the Senate Banking Committee said in a letter to the agency. The senators singled out CFPB’s “relentless smear campaign” against banks that offer overdraft services.

“Charging fees that customers chose to pay should not be disturbing or illegal, and yet, the CFPB appears to have developed a particular disdain for banks charging their customers for services, pejoratively calling overdraft protection ‘junk fees,’” they said.

The senators accused CFPB of changing its rules so it could publish previously confidential information about financial institutions to make it easier to threaten them with reputational harm.

“The one-sided nature of the CFPB’s rule change gives the agency the ability to publicly tarnish an institution’s name without affording the firm the power to defend itself,” they said.

The senators also alleged the agency changed its rules of adjudication to make it harder for companies to defend themselves against novel enforcement theories and easier for the agency to engage in regulation by enforcement.

Waller: ‘Significant’ Rate Increase Needed To Tame Inflation

Federal Reserve Gov. Christopher Waller said he supports a “significant increase” in the federal funds rate at the next Federal Open Market Committee meeting on Sept. 20-21. Speaking at a recent economics conference, Waller said it is too soon to say whether inflation will start subsiding despite a recent softening in how fast prices are rising.

“(F)ears of a recession starting in the first half of this year have faded away and the robust U.S. labor market is giving us the flexibility to be aggressive in our fight against inflation,” he said.

Waller noted that although he supports an increase at the next FOMC meeting, “looking further out, I can't tell you about the appropriate path of policy. The peak range and how fast we will move there will depend on data we will receive about the economy.” Still, Waller stressed he doesn’t expect rate increases to stop anytime soon. “I expect that getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the target range for the federal funds rate until at least early next year.”

ABA, BPI Urge FFIEC To Embrace Industry-Developed Cyber Profile

In a letter to the Federal Financial Institutions Examination Council, the American Bankers Association and the Bank Policy Institute offered feedback on the FFIEC Cybersecurity Assessment Tool, a voluntary tool developed in 2015 to help financial institutions assess their cyber risk and preparedness. Emphasizing that the tool should continue to be a voluntary resource, they called on the council to leverage other cybersecurity tools that have been created since the release of the CAT, including the Cyber Risk Institute Profile, which was created with help of ABA and BPI and is continually updated.

“[L]everaging the CRI Profile would provide greater opportunity for financial institutions to minimize the burden to responding to numerous bespoke exams, as well as provide regulators with greater visibility into systemic risk by using a widely adopted cyber control assessment and assurance that examiners and financial institutions are speaking the same language,” the groups wrote. “By basing examinations on existing and widely-recognized standards, government agencies would be better positioned to hire examiners because a larger pool of potential candidates are familiar with the baseline examination expectations.”

They further recommended that FFIEC encourage examiner training on other global standards and frameworks for cyber risk assessment, including the National Institute for Standards and Technology’s Cybersecurity Framework, to which the CRI Profile is aligned.

FDIC, FinCEN Publish Summary Of Recent Digital Identity Proofing ‘Tech Sprint’

The Federal Deposit Insurance Corporation and the Financial Crimes Enforcement Network published key takeaways and solution summaries from a recent “tech sprint” to develop solutions for banks and regulators to help measure the effectiveness of digital identity proofing — the process used to collect, validate and verify information about a person.

Through the tech sprint, the FDIC and FinCEN sought solutions that:

• increase efficiency and account security
• reduce fraud and other forms of identity-related crime, money laundering and terrorist financing
• foster customer confidence in the digital banking environment

Teams proposed solutions that followed one of three distinct approaches.

• tools that would measure the effectiveness of identity proofing systems
• development of a scoring methodology for remote identity proofing
• envisioning an identity provider consortium or platform

OCC Names Chen Chief Climate Risk Officer

The Office of the Comptroller of the Currency announced the appointment of Yue Chen as chief climate risk officer. In her new role, Chen will oversee the agency’s Office of Climate Risk and report directly to Acting Comptroller of the Currency Michael Hsu. She previously was executive deputy superintendent of the climate division at the New York State Department of Financial Services and, before that, director of conservation investments at the Nature Conservancy. She has a doctorate in chemical engineering from the Massachusetts Institute of Technology.

GAO Recommends Agencies Better Prepare For Bank Exam Disruptions

A recent review of how federal regulators handled COVID-caused disruptions to bank examinations has led the Government Accountability Office to make two recommendations for how those same regulators could better prepare for future disruptions.

In its report, GAO noted that regulators couldn’t examine most banks and credit unions in person during the pandemic, so they implemented workarounds such as rescheduling exams and reviewing scanned copies of loan files. Of the five regulatory agencies reviewed that have risk management programs, three had updated their programs to reflect pandemic-related changes in risk and also reviewed pandemic lessons learned. The other two had done one or the other, but not both.

GAO singled out the two regulators that had not taken both steps. The agency recommended that the Federal Reserve develop and document specific action steps and time frames for completing the components of its enterprise risk management framework related to identifying and assessing risks to its supervisory mission. The Fed has neither agreed nor disagreed with the recommendation, GAO said. The agency also recommended the Office of the Comptroller of the Currency review potential lessons learned related to how it managed adjustments to supervisory activities during the COVID-19 pandemic. The OCC said its review would be completed by March 2023.

CFPB Study: BNPL Loans Grew Tenfold Since 2019

Buy-now-pay-later services have exploded in popularity, with five BNPL lenders reporting a near tenfold increase in the number of loans issued since 2019, the Consumer Financial Protection Bureau said in a study. Late last year, the agency issued market monitoring orders to five lenders — Affirm, Afterpay, Klarna, PayPal and Zip. The firms reported offering 180 million loans totaling more than $24 billion in 2021, up from 16.8 million loans totaling $2 billion two years prior.

The CFPB study also found that:

• 73% of applicants were approved for credit in 2021, up from 69% in 2020
• the average purchase financed by a BNPL loan rose from $120 to $135 during that same time frame
• 10.5% of borrowers were charged at least one late fee in 2021
• 89% of loan repayments were made on a debit card last year, virtually unchanged from each of the previous two years

CFPB also identified “several areas of risk of consumer harm,” such as “inconsistent consumer protections” and “data harvesting,” and said it will “identify potential interpretive guidance or rules to issue with the goal of ensuring that buy-now-pay-later lenders adhere to many of the baseline protections that Congress has already established for credit cards.” The agency said that as part of the review, it will subject BNPL lenders to “appropriate” supervisory examinations like those of credit card companies.

In a March letter to CFPB, the American Bankers Association expressed concern about the rapid growth of BNPL products offered by nonbanks and noted that ABA members go to great lengths to comply with applicable consumer credit laws and provide fair and responsible access to credit.

“To ensure consistent protections, it is imperative that that these basic protections and sound practices are afforded to all consumers by all BNPL providers,” the association said. “Nonbank BNPL providers should be monitored for aggressive origination and underwriting practices, inadequate disclosures, and unpredictable credit reporting practices. Promoting sound practices as they relate to these basic consumer protections would improve the efficiency and competitiveness of the BNPL market and the consumer credit market as a whole.”

ABA Unveils New Videos On Scams Targeting Seniors

As part of its Safe Banking for Seniors campaign, the American Bankers Association Foundation released seven new videos intended to help raise awareness about the top scams targeting older Americans. The films provide an overview of scams in general, as well as information on specific scams that commonly target seniors, including family impostor scams, government impostor scams, tech support scams, money mule scams, sweetheart scams and lottery scams.

“Criminals know that older Americans hold approximately 65% of bank deposits in the U.S. and unfortunately, that concentration of wealth often makes them prime targets for financial exploitation,” said ABA Foundation Executive Director Lindsay Torrico. “These videos will bolster bank efforts to safeguard their senior customers and help bank employees, caregivers and family members spot scams before they can do any damage.”

The videos, along with ABA’s existing suite of Safe Banking for Seniors resources, are available for free to banks.

ABA To Host Political Engagement Webinar This Month

With midterm elections fast approaching, the American Bankers Association will host a free webinar for bankers at 2 p.m. Tuesday, Sept. 27, at which ABA’s political engagement team will provide an update on its work on behalf of the industry. In addition to covering the 2022 landscape and races to watch, the program will cover the team’s investments made via BankPac, independent political activities, get-out-the-vote outreach, grassroots opportunities and partnership with the state bankers associations. The webinar is open to all banks and will be recorded.

Most Consumers Stick To Traditional Banking Over Digital Alternatives

Most consumers do not view digital banks as a “true alternative” to traditional banks, according to a survey by industry news site PYMNTS.com and software solutions provider Treasury Prime. The two companies polled 2,124 U.S. consumers about their attitudes concerning digital banking and found that 39% of respondents said digital banks could be an alternative to traditional banks. Still, of those respondents, more than half said they had no plans to switch to a digital bank.

Asked why they were sticking with a traditional bank, 34% of respondents cited a lack of interest in digital bank alternatives, 15% cited concern for the overall security of their money and information, 14% did not trust digital banks’ reliability or longevity, and 13% wanted to retain access to physical branches.

At the same time, the survey found that two-thirds of respondents were using digital banking services of some kind, with millennials and members of Generation Z being among the heaviest users. Freelancers, small business owners and consumers who live paycheck to paycheck with issues paying bills were more likely to gravitate toward digital banks, according to the report. Improved transfers were the main draw for respondents with digital-only banking interest, with 43% saying it was their greatest motivator. The next most common motivator was lower costs (33%) followed by improved notifications (17%).