January 13, 2022

MBA Report Explores Digital Banking Landscape In Missouri

A new MBA report sheds light on the areas in which Missouri banks believe fintech partnerships will be necessary for success in the next three to five years.

“The fintech phenomenon in the banking sector has evolved substantially in the past several years,” said Jackson Hataway, MBA executive vice president and report’s author. “We’re excited to launch this first-of-its-kind report focusing exclusively on data from Missouri banks about their plans and priorities for digital innovation.”

“The Missouri Digital Landscape: Benchmarking Fintech Across Missouri Banks” discusses several key areas affecting Missouri banks, including the following.

• current banking experiences
• partnerships
• where banks should be investing
• the cores

The report’s findings stem from an MBA survey of its member banks conducted in fall 2021. According to the survey data:

1. New fintech partnerships are in play now, but they will be critically important to bank growth by 2024.
2. Online account opening, online lending and fraud prevention will be the most important areas for partnership in the next three years (with cryptocurrency following closely behind).
3. The vast majority of Missouri banks believe they are average at best in their use of front-office, customer facing and back-office technology.
4. Data management and analytics will receive significant focus from the majority of Missouri banks in the next three years.
5. Staff knowledge is a major limitation on fintech implementation, meaning the battle for digitally-savvy talent will become more serious moving forward.

As more data is gathered, MBA will produce more benchmarking reports for its member banks as they explore and refine their digital innovation strategies.

Supreme Court Strikes Down Vaccine Mandate for Large Employers

The U.S. Supreme Court today blocked the employer vaccine mandate issued by the Occupational Safety and Health Administration, which would have required employers with 100 or more employees to ensure staff are vaccinated or tested weekly for COVID-19, among other requirements.

The mandate was previously upheld by the 6th U.S. Circuit Court of Appeals. In mid-December, business groups challenging the vaccine mandate filed an application with the Supreme Court for an emergency stay of the mandate. Today’s stay by the Supreme Court is effective until the challengers can appeal the 6th Circuit’s decision in that court and to the Supreme Court, a process that likely will take at least several months.

In a separate ruling today, the court upheld a nationwide vaccine mandate for workers at federally funded health care facilities.

ABA: CFPB Section 1071 Proposal Is ‘Unnecessarily Far-Reaching’

MBA, along with the American Bankers Association and the state bankers associations, last week raised concerns about the Consumer Financial Protection Bureau’s long-awaited proposed rule to implement Section 1071 of the Dodd-Frank Act, which concerns the collection of credit application data for small businesses, including women-owned and minority-owned small businesses. In an extensive comment letter, the associations said that the costs of the proposed rule could have significant effects, particularly on smaller banks and their small business customers, and recommended a broader exemption for small institutions.

“The proposed rule’s scope is unnecessarily far-reaching; it would exempt very few community banks, define small businesses so broadly as to include tens of thousands of large businesses, and require institutions to collect and report data on numerous data points in addition to the congressionally required data points,” they wrote. “All of these actions combine to negatively impact community banks and their customers, in stark contrast to Director Chopra’s assertions of support for community banks and relationship banking.”

Specifically, the associations called for banks making no more than 500 small business loans in the two preceding years to be exempt from the data collection requirements and recommended defining a “small business” for the purpose of the rule as one with gross annual revenue of $1 million or less, rather than $5 million or less as proposed. In addition, the associations urged the CFPB not to require the collection of data points that were not specifically mandated by Congress and opposed a requirement for lenders to identify the race and ethnicity of business owners “by visual observation or surname” if they decline to provide that information.

The associations also raised concerns about the rule’s potential to affect the privacy of small businesses — noting that business could be easily re-identified when the data is released to the public, as required by law — and called for a separate rulemaking regarding the modification or deletion of data before it becomes public. Finally, with regard to implementation, the groups called for a three-year time line rather than the proposed 18-month implementation period.

Powell: Fed Will ‘Make Progress’ On Master Accounts For Nonbanks

Federal Reserve Chairman Jerome Powell told members of the Senate Banking Committee that there are “good arguments” for granting non-Federal Deposit Insurance Corporation-insured special-purpose depository institutions Fed master accounts and that the Fed will “make some progress” on the issue.

Powell added that the Fed is taking time to consider the SPDI applications because of how important these applications are from a precedential standpoint. “We start granting these, there will be a couple hundred of them pretty quickly and we have to think about the broader safety and soundness implications,” said Powell.

Asked by Senate Banking Committee Ranking Member Pat Toomey, R-Pa., about whether a central bank digital currency should be developed to enable consumers to have retail accounts with the Fed, Powell confirmed that the Fed does not have the experience or capability to do so. If the Fed were authorized to pursue a digital currency, Powell also confirmed that it should not prevent a privately issued stablecoin from existing with the central bank digital dollar.

During the hearing, Powell also provided an update on a highly anticipated report from the Fed on central bank digital currencies, noting that it is “ready to go” and would be released “in coming weeks.” While Powell said the Fed “[does] take some positions” in the paper regarding CBDCs, he said it will mostly focus on asking questions and seeking input from the public.

Powell also told members that climate change stress tests will “be a key tool going forward.” During the confirmation hearing, Powell told the committee that the Fed is looking at climate stress tests and is focused on “assuring that the large financial institutions understand all the risks that they are taking, including the risks that may be inherent in their business model regarding climate change over time.”

Powell acknowledged that if he is confirmed, climate change would be a top priority over the coming years as it relates to the Fed’s existing mandate.

“Our role on climate change is a limited one but it is an important one — and it is to assure that the banking institutions that we regulate understand their risks and can manage them,” Powell said.

He added, however, that the broader policies addressing climate change must come from legislators and the private sector.

Fed Clarifies Its Approach To HOLA Flexibility

The Federal Reserve has released a long-awaited set of frequently asked questions regarding its approach with regard to Office of the Comptroller of the Currency-regulated federal savings associations and federal mutual savings banks that choose to exercise the option to become a “covered savings association,” as allowed by Section 206 of the 2018 S. 2155 regulatory reform law. The law provided additional flexibility for institutions chartered under the Home Owners Loan Act. The FAQs address consequences under the Bank Holding Company Act, Federal Reserve Act and related regulations and reporting requirements.

‌ABA has previously raised concerns to Fed officials that the approach being taken in letters to individual institutions and in an announcement made by Fed staff at a forum in June 2021 has not been in keeping with the intent of the authorizing statute that created the covered savings association option.

Specifically, ABA noted that certain requirements, such as mandating that mutual holding companies convert to bank holding companies, were directly in violation of the statutory intent to reduce burden. The FAQs clarify that mutual holding companies do not have to convert and make clear that compliance with the qualified thrift lender test for CSAs is under the purview of the OCC, not the Fed.

In addition, they clarify that the parameters of the Bank Holding Company Act would apply to companies that control CSAs and that CSAs would have to become members of the Federal Reserve system, but their primary federal regulator (the OCC) would not change.

U.S. Banks Form Consortium To Support Bank-Minted Stablecoin

Five banks insured by the Federal Deposit Insurance Corporation announced the launch of the USDF Consortium, a group that was formed with the goal of building a network of banks to facilitate the adoption of USDF, a bank-minted stablecoin. The consortium’s founding members include banks in New York, Denver, Nashville and Columbus, Georgia. The group intends to “significantly grow its membership of FDIC-insured banks through 2022 and beyond.” Figure Technologies and JAM Fintop also are founding members.

‌USDF will operate on the public Provenance Blockchain, will be minted exclusively by U.S. bank and will be redeemable on a one-to-one basis for cash from a consortium member bank.

The announcement follows a report issued by President Biden’s Working Group on Financial Markets last year, which recommended that stablecoins, which are typically backed by fiat currencies and carry the expectation that they can be redeemed upon request, only be issued by insured depository institutions.

Study: Banks See Rise In Fraud Attempts, Associated Costs In 2021

Banks saw more monthly fraud attacks in 2021 compared to the year prior, according to a new study from LexisNexis Risk Solutions. The report found that the average volume of monthly fraud attacks for banks earning more than $10 million in annual revenue has increased since 2020 from 1,977 to 2,320.

Fraud costs also continued to rise. For every dollar of fraud loss in 2021, U.S. financial services firms saw $4 in costs, up from $3.64 in 2020 before the pandemic, the study found. Those costs represent the transaction face value for which firms are held liable, fees and interest incurred, fines and legal fees, labor and investigation costs and external recovery expenses.

Online banking accounted for 33% of U.S. banks’ fraud costs in 2021, up from 26% in 2020, while mobile transactions accounted for 29% of costs, up from 20% the year prior. In-person fraud accounted for 21% of fraud costs in 2021, down from 29% in 2020.

The report also found that fraud losses take place across all stages of the customer journey — from new account opening to account login to the distribution of funds from a bank or investment account or a loan. Among U.S. banks, the distribution of funds stage was identified by 43% of respondents as being the phase of the customer journey most susceptible to fraud, followed by account login. Banks noted that identity verification was a top challenge for online and mobile channels at all stages of the customer journey.

New Article Examines Compliance Priorities For 2022

A new article in ABA Risk and Compliance examines the top regulatory compliance trends for 2022 and how compliance departments should think about establishing priorities for the new year. The article addresses the priorities that continue to be relevant and highlights new ones that warrant attention.

‌According to the article, compliance departments should continue to focus on fair lending as the Department of Justice, Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency put fair lending enforcement at the top of their priority lists. CFPB also is reinforcing its focus on technology, including the use of algorithms. The issue of marketing compliance and UDAAP will continue to be on the list, especially as the pandemic hastened the use of digital banking and the majority of consumers’ contacts with their banks now takes place online.

The article also examines fintech partnerships; market power and consumer choice; overdrafts; and environmental, social and governance issues, as well as supervision in a “work from home” world.