September 21, 2023

MBA: Urge Hawley to Withdraw Credit Card Bill

MBA continues to urge bankers to demand that Sen. Josh Hawley withdraw his amendment to an appropriations bill under consideration on the Senate floor that would arbitrarily cap credit card annual percentage rates at 18%.

The amendment is the same language that Hawley introduced as a bill last week. MBA voiced its concerns about the bill to the senator’s staff and asked for further dialogue prior to any action on the bill. Instead, Hawley filed the language as an amendment to the appropriations bill.

“Regardless of whether your bank issues credit cards, our industry must vocally and staunchly oppose all rate cap proposals on credit products,” said MBA President and CEO Jackson Hataway. “We need all bankers to express their opposition to Hawley’s bill.”

Hawley’s justification for this bill is that it is necessary to help consumers fight inflation and reduce the impact of rate increases on debt load. Based on that rationale, the passage of this legislation could immediately open the door to similar caps on any type of credit product, Hataway said.

Commercial loans, mortgage loans, auto loans — all of these products could be viewed as ‘too burdensome’ based on economic conditions at a given time and in need of government intervention,” Hataway said.

Hawley’s bill joins broader legislation from Sens. Elizabeth Warren, D-Mass., Bernie Sanders, I-Vt., and others that would cap interest rates on credit cards and consumer loans. The proposal from Hawley is written with a narrower scope, but it only furthers the aims of these and other legislators who believe banks should not be free to establish risk-based lending models.

There are several direct implications of Hawley’s bill that in and of themselves are incredibly concerning.

• The bill would immediately reduce access to credit for consumers who need it most. Capping rates on credit cards would ultimately mean less issuers in the market that are willing to serve consumers or are forced to offer significantly lower limits on cards. These borrowers will be forced to turn to alternative credit providers like payday lenders, which are exempt from this bill’s requirements.

• The bill would penalize credit-worthy borrowers by requiring an increase in rates or fees across the board to account for additional risk. 
  
  
• The bill tramples on state usury laws and revokes the right of states to determine how financial instruments are structured.

“Missouri banks stand fast in their commitment to consumers and to their communities,” Hataway said. “We know our banks work hard to support their customers and drive financial well-being. Government mandates will cause irreparable harm to many of these consumers and put the broader credit market at risk.”

Tell Senators to Oppose Credit Card Routing Mandates

Sens. Josh Hawley and Eric Schmitt need to hear from banks of all sizes on legislation that would apply Durbin Amendment-style restrictions to the credit card processing market.

Supporters of government mandates in credit card routing, the so-called Credit Card Competition Act, are pushing for this legislation to be included in the defense spending bill — legislation that Congress must pass. 

“Not only is this legislation misguided, but the supporters are willing to complicate legislation to fund military and veterans’ programs just to get their way,” said MBA President Jackson Hataway. “America’s leading military financial services organizations oppose these tactics.”

Imposing credit card routing mandates would hurt consumers and community financial institutions, Hataway added. It would spell the end of popular rewards programs, limit community banks’ ability to offer credit cards and force customer card transactions onto potentially less secure networks.

MBA urges bankers to tell Hawley and Schmitt to reject any attempt to attach the Credit Card Competition Act to any legislation.

FDIC Seeks Dismissal of NSF Lawsuit

The Federal Deposit Insurance Corporation has asked a federal judge to dismiss a lawsuit concerning its guidance on nonsufficient funds fees.

As previously shared by MBA, the Minnesota Bankers Association and Lake Central Bank filed a lawsuit in July against FDIC over its Unfair or Deceptive Acts or Practices Act position on NSF fees for represented items. Their complaint outlines several strong claims against FDIC, including major failures to adhere to the Administrative Procedures Act. Specifically, the lawsuit claims the FDIC did not have authority to amend existing bank disclosure regulations and did not have authority to issue a substantive UDAP rule. Even if the FDIC did have authority to take those steps, the lawsuit claims the agency failed to follow the mandatory rulemaking process in the Administrative Procedure Act, which is the federal law that ensures that government agencies operate in a fair and transparent way.

The FDIC argued that the Minnesota Bankers Association and Lake Central Bank lack standing to challenge the guidance. Attorneys for the FDIC and FDIC Chair Martin Gruenberg wrote “the supervisory guidance is exactly what it appears to be — guidance. It does not ban this practice, it does not create new obligations or independent legal consequences, and it does not serve as a basis for future enforcement actions.”

MBA supports the Minnesota Bankers Association and is prepared to assist the association with its lawsuit against the FDIC.

Senators Introduce New Version of SAFE Act

A bipartisan group of senators have introduced a new version of a billto enable financial institutions to serve legitimate cannabis businesses in states where it is legal. The Secure and Fair Enforcement Regulation, or SAFER, Banking Act would allow all businesses to access deposit accounts, insurance and other financial services, according to a summary of the legislation provided by its sponsors. The bill also would create standards for financial institutions “to maintain customer relationships and to expand access to deposit accounts for underbanked groups.”

The SAFER Banking Act is a revised version of the American Bankers Association-backed SAFE Act, which was introduced earlier this year with sponsors from both parties. ABA is reviewing the new legislation. The Senate Banking Committee has scheduled a Sept. 27 vote on the bill.

Senate Majority Leader Chuck Schumer, D-N.Y., and Sens. Jeff Merkley, D-Ore., Steve Daines, R-Mont., Kyrsten Sinema, I-Ariz., and Cynthia Lummis, R-Wyo., are sponsoring the bill.

“This legislation will help make our communities and small businesses safer by giving legal cannabis businesses access to traditional financial institutions, including bank accounts and small-business loans,” the sponsors said in a joint statement. “It also prevents federal bank regulators from ordering a bank or credit union to close an account based on reputational risk.”

ABA Supports Resolution to Overturn CFPB Data Collection Rule

In a letter to Senate leaders, the American Bankers Association expressed support for a proposed resolution of disapproval seeking to overturn the Consumer Financial Protection Bureau’s final rule implementing Section 1071 of the Dodd-Frank Act. Senate Joint Resolution 32 currently has 39 co-sponsors, including Sens. Josh Hawley and Eric Schmitt, and would overturn the CFPB rule if adopted by both houses of Congress and signed by the president. An identical resolution has been introduced in the House.

ABA said banks support complying with the nation’s fair lending laws, but the enormity of data points to be collected under the rule and the 100-loan threshold for determining which lenders must report would place a significant burden on banks, especially community banks. The definition of “small business” as any business with annual revenues of $5 million or less expands the scope of the rule beyond what Congress intended, the association added. Also, the CFPB’s publication of the data collected will create privacy concerns, and banks will be regularly examined for compliance and data accuracy while nonbanks will not.

“We are concerned that the costs associated with collecting the data and the anticipated reliance on statistical manipulation in fair lending supervision and enforcement will discourage bank lending to small businesses, particularly by community and midsize banks, and we strongly urge Congress to advance S.J. Res. 32 as soon as possible,” ABA said.

House Committee Advances Bills on FinCEN Oversight, CBDC

The House Financial Services Committee advanced legislation Wednesday that would increase congressional oversight of the Financial Crimes Enforcement Network and prohibit the Federal Reserve from issuing a central bank digital currency. In a memo to committee members, the American Bankers Association weighed in on several bills, expressing support for more FinCEN oversight and highlighting banker concerns about a CBDC.

Among the bills passed out of committee was legislation to require the U.S. Treasury Department to keep the House Financial Services Committee and Senate Banking Committee regularly informed about significant or unlawful FinCEN activities. The committee also advanced a bill to require FinCEN to identify the number of Bank Secrecy Act reports filed by financial institutions with FinCEN by type. In its comments, ABA said the latter bill, H.R. 5485, would help banks understand the protection and use of highly sensitive BSA reports by law enforcement and intelligence agencies. “Overall, it will bring a much-needed measure of accountability to the BSA process,” the association said.  The committee also advanced ABA-supported legislation to extend the deadline for the pilot program authorizing suspicious activity report sharing with foreign affiliates from Jan. 1, 2024, to three years after the date the program begins.

The committee was divided along partisan lines over legislation seeking to rein in the Fed’s ability to issue a CBDC, with Republicans supporting the measure and Democrats opposed. Ultimately the committee passed a bill that would prohibit the Federal Reserve from issuing a central bank digital currency or offering products or services directly to an individual. Further, the bill establishes that a CBDC can only be authorized by Congress. ABA supported the measure, H.R. 5403, reiterating its position that a retail CBDC is unnecessary and would present unacceptable risks and costs to the financial system.

Senators Debate Use of AI in Financial Services

Artificial intelligence could cause larger changes in the U.S. financial system than the social media-fueled Silicon Valley Bank run, Senate Banking Committee Chairman Sherrod Brown, D-Ohio said Wednesday during a committee hearing on the use of AI in the financial services sector. During the hearing, Brown and other committee Democrats raised concerns that recent developments in AI technology could enable discrimination against potential customers, put people out of work and make it easier for criminals to defraud financial institutions. Committee Republicans largely focused on cybersecurity concerns and cautioned against overregulation.

In an opening statement, Brown acknowledged that automated technologies such as instant payments have made banking services more convenient for consumers. However, without consumer protections, “AI could just be a new tool for Wall Street and Silicon Valley to swindle Americans out of their savings, trap them in debt and strip them of their financial security,” he said. “And while some uses for AI — like automated credit underwriting and algorithmic trading — have been in practice for years, what’s known as generative AI is creating new ways to remove human decision-making from financial services.”

Committee member Sen. Mike Rounds, R-S.D., noted that financial institutions already spend billions of dollars annually in cybersecurity and that newer technologies that allow individuals to fake voices and appearances could make the problem much worse. However, AI also could be a valuable tool for financial institutions in fighting fraud with its ability to spot patterns and trends, he added. “Financial regulators should allow Congress to act and resist the urge to overregulate new technology as they run the risk of unintended consequences.”