April 8, 2022

OFAC Ramps Up Russian Sanctions; Banks, Individuals Targeted

With the Russian invasion of Ukraine still ongoing, the Treasury Department’s Office of Foreign Assets Control announced additional significant steps to sanction Russian individuals and entities. Treasury imposed full blocking sanctions against two Russian banks — Sberbank, the largest state-owned bank, and Alfa-Bank, the country’s largest private bank — as well as several subsidiaries of each bank.

Treasury also targeted sanctions against family members of Russian President Vladimir Putin and Foreign Minister Sergey Lavrov, as well as Russian Security Council members who are complicit in the war against Ukraine.

Treasury noted that President Biden also is issuing a new executive order banning new investment in the Russian Federation and the provision of certain services to any person located in the Russian Federation by U.S. persons, regardless of their location. Earlier this week, Treasury banned Russia from making payments to holders of its sovereign debt with its frozen central bank reserves.

OFAC Sanctions Darknet Market, Virtual Currency Exchange

The Treasury Department’s Office of Foreign Assets Control announced sanctions against Hydra Market, the world’s largest and most prominent darknet market, for being responsible or complicit in cyber-enabled activities against the United States. Hydra is known for offering ransomware-as-a-service, hacking services and software, stolen personal information, counterfeit currency, stolen virtual currency and illicit drugs through its Russian-based site.

OFAC also sanctioned Garantex, an Estonia-based virtual currency exchange that the agency said carries out a majority of its operations in Moscow.

MBA: Pending Credit Union Legislation Is Inappropriate, Ineffectual

MBA was among 51 state bankers associations urging lawmakers to oppose the credit union industry’s “unnecessary” charter enhancement efforts as part of the Expanding Financial Access for Underserved Communities Act.

“Community credit unions can already serve underserved areas if they identify a local need and choose to do so [without legislation],” the groups wrote in a letter to House Financial Services Committee leadership, noting the legislation provides “the ability for credit unions to expand out of market, a reality that the credit union lobby has attempted to obfuscate in this debate. Congress should not help facilitate tax-exempt regional or national banks.”

‌The state associations pointed to the lack of requirements in the legislation comparable to the Community Reinvestment Act, from which credit unions are currently excluded, that would require them to prove their service to low-income communities. The legislation also creates a new loophole in the credit union business lending cap, “a necessary statutory element to ensure this tax-exempt industry continues to fulfill its specified mission of ‘meeting the credit and savings needs of consumers … through an emphasis on consumer rather than business loans,’” they said.

The letter cited analysis showing that credit unions increasingly target wealthy communities, serve wealthy consumers and contribute to widening economic inequality, particularly as they continue to buy banks and expand into commercial lending.

MBA strongly encourages bankers to contact their lawmakers to express their concerns about the legislation. On MBA's website, you can send a message directly to your representative asking them to reject the credit union industry’s latest attempt at charter expansion.

‌Nichols: Inflation Concerns Shouldn't Overshadow Nation's Debt Outlook

Acknowledging the ongoing challenges brought on by sustained high inflation, American Banker Association President and CEO Rob Nichols noted that the nation’s debt outlook also should be cause for serious concern for lawmakers during remarks at a local chamber of commerce meeting in Rhode Island. “It’s a terrible place to be,” Nichols said of the nation’s debt, which is nearly equivalent to U.S. GDP. “No one in Washington is talking about how to pay down our roughly $28 trillion in debt.”

Nichols also addressed other key challenges facing the banking industry, including the growing popularity of cryptocurrencies that has prompted U.S. regulators to explore the idea of offering a central bank digital currency, which he called “a solution in search of a problem.” He also continued to advocate for regulatory parity between cryptocurrency firms and banks, given the growing number of these firms that have sought special purpose bank charters. “If you want to do bank-like things ... there should be a level of supervision over that entity,” he said. “It’s just a level playing field argument.”

FDIC Provides Guidance On Multiple NSF Fees For Re-Presented Items

In its latest issue of Consumer Compliance Supervisory Highlights, the Federal Deposit Insurance Corporation addressed the charging of multiple nonsufficient funds fees for transactions presented multiple times against insufficient funds in the customer’s account. FDIC examiners have scrutinized this issue in recent exams, with some exams remaining open pending resolution of the issue.

In the Supervisory Highlights, the FDIC discussed potential consumer harm from this practice in terms of both deception and unfairness under the Federal Trade Commission Act Section 5’s prohibition on unfair or deceptive acts or practices. The FDIC stated that the “failure to disclose material information to customers about re-presentment practices and fees” — i.e., unclear definitions of “per item or “per transaction” — may be deceptive.

In addition, the FDIC stated that the failure to disclose material information to customers “may also be unfair if there is the likelihood of substantial injury for customers, if the injury is not reasonably avoidable, and if there is no countervailing benefit to customers or competition. For example, there is risk of unfairness if multiple fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for consumers to bring their account to a positive balance.”

The FDIC listed a range of “risk-mitigating activities” that banks have taken to “reduce potential risk of consumer harm and avoid potential [UDAP] violations.” These include the following.

• eliminating NSF fees
• declining to charge more than one NSF fee for the same transaction
• disclosing how NSF fees will be imposed
• providing the customer with sufficient notice of the first NSF fee so that the customer can bring the account balance positive before the transaction is represented
• ensuring the manner in which NSF fees are charged is “communicated clearly and consistently” and “[w]orking with service providers to retain comprehensive records so that re-presented items can be identified”

Yellen Calls For ‘Appropriate Oversight’ For Digital Asset, Crypto Firms

The regulation of cryptocurrencies and digital assets must keep pace with innovation to ensure financial stability and consumer protection, Treasury Secretary Janet Yellen said in remarks at an industry event Thursday.

“Our regulatory frameworks should be designed to support responsible innovation while managing risks — especially those that could disrupt the financial system and economy,” Yellen said. “As banks and other traditional financial firms become more involved in digital asset markets, regulatory frameworks will need to appropriately reflect the risks of these new activities. And, new types of intermediaries, such as digital asset exchanges and other digital native intermediaries, should be subject to appropriate forms of oversight.”

Among other things, Yellen emphasized the need for a regulatory framework that is “tech neutral” — meaning that it would be based on risks and assets rather than specific technologies. “Consumers, investors, and businesses should be protected from fraud and misleading statements regardless of whether assets are stored on a balance sheet or distributed ledger,” Yellen said. “Similarly, firms that hold customer assets should be required to ensure those assets are not lost, stolen, or used without the customer’s permission.”

FDIC Asks Banks To Provide Notice Of Crypto-Related Activities

The Federal Deposit Insurance Corporation issued a letter to FDIC-insured banks asking that any institution considering engaging in crypto-related activities provide notification to the appropriate FDIC regional director, as well as “all necessary information that would allow the FDIC to engage with the institution regarding related risks” — specifically those related to safety and soundness, financial stability and consumer protection. The letter said banks that are already engaged in crypto-related activities should notify the FDIC “promptly.”

The FDIC’s definition of “crypto-related activities” includes the following.

• acting as crypto-asset custodians
• maintaining stablecoin reserves
• issuing crypto and other digital assets
• acting as market makers or exchange or redemption agents
• participating in blockchain- and distributed ledger-based settlement or payment systems, including performing node functions
• participating in related activities such as finder activities and lending

“The FDIC will request that the institution provide information necessary to allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities,” the agency said. “The information requested by the FDIC will vary on a case-specific basis depending on the type of crypto-related activity. However, the initial notification to the FDIC Regional Director should describe the activity in detail and provide the institution’s proposed timeline for engaging in the activity.”

Nichols: FDIC Guidance ‘Runs Counter’ To Yellen’s Responsible Innovation Approach

As policymakers continue to debate the best regulatory approach for cryptocurrencies, American Bankers Association President and CEO Rob Nichols spoke out in strong support of a level regulatory playing field between banks and nonbank cryptocurrency firms — and warned that the new guidance from the Federal Deposit Insurance Corporation could have the opposite effect.

‌“We strongly support the approach outlined by Secretary Yellen today to bring cryptocurrency firms and products into a regulated framework and agree it is an urgent matter for policymakers,” Nichols said. “The secretary’s leadership sets the tone for a coordinated interagency approach that is critical to this effort’s success. Unfortunately, within hours of the secretary’s speech, the FDIC issued guidance that could make it more difficult for highly regulated and supervised banks to engage in crypto markets on behalf of their customers.”

Nichols noted that the FDIC’s new “prior notification requirement” — which follows a similar move by the Office of the Comptroller of the Currency — “runs counter to the administration’s intent to foster responsible innovation, and risks tilting the playing field even more in favor of unregulated crypto firms that are not subject to rigorous oversight and supervision that banks face.”

Hsu: OCC Weighing ‘Conditions’ For Large Bank Mergers To Ensure Resolvability

Speaking at a recent industry event, Acting Comptroller Michael Hsu warned that “there is a gap with regards to large regional banks” when it comes to resolvability and signaled his desire for additional reforms to ensure financial stability in the event of a large regional bank failure.

‌In particular, Hsu advocated for adopting a “single-point-of-entry” resolution strategy for these firms — the same strategy to which global systemically important banks are currently subject under their resolution planning framework. Under this approach, “only the parent holding company is supposed to file for bankruptcy or be taken into receivership; all of the material subsidiaries are expected to continue to operate and function, thus avoiding the chaos of multiple proceedings,” Hsu explained.

Additional reforms include requiring large regionals to hold “sufficient bail-in-able long-term debt at the parent, and ... ensuring the separability of major business lines and/or portfolios.” Hsu acknowledged that such reforms would take time and would require work by the Federal Reserve and the Federal Deposit Insurance Corporation. However, in the near-term, he said the Office of the Comptroller of the Currency is considering “condition[ing] approval of a large bank merger on actions and credible commitments to achieving [single-point-of-entry], [total loss absorbing capacity], and separability.”

99% Of FDIC Supervised Banks Rated Satisfactory Or Better For Consumer Compliance

The Federal Deposit Insurance Corporation said 99% of the banks it supervises were rated satisfactory or better for consumer compliance and Community Reinvestment Act compliance, as of the end of 2021. In the agency’s Consumer Compliance Supervisory Highlights publication, the FDIC said financial institutions continue to adjust their operations in response to the COVID-19 pandemic to ensure consumers have access to the essential products and services they rely on.

‌The agency said it conducted approximately 1,000 consumer compliance examinations in 2021 and initiated 20 formal enforcement actions and 24 informal enforcement actions to address consumer compliance exam findings.

The Supervisory Highlights publication provides an overview of the most salient issues identified by examiners, including those related to the Flood Disaster Protection Act, Real Estate Settlement Procedures Act, the Truth in Lending Act and fair lending.

TCH Raises RTP Network Transaction Limit To $1 Million

The Clearing House announced an increase in the general transaction value limit for payments made on the Real-Time Payments Network. Effective April 18, the new transaction limit will be increased to $1 million from the current limit of $100,000. Depository institutions on the RTP network will be required to accept payments up to $1 million. However, individual participants may choose to set a lower value limit for payments they originate.

FFIEC Issues 2022 Guide To HMDA Reporting

The Federal Financial Institutions Examination Council’s 2022 Guide to HMDA Reporting is now available for download. The 2022 guide focuses on HMDA data submissions due March 1, 2023, and offers the most official source for assisting institutions in their HMDA reporting. This edition includes information on collection of data on ethnicity, race and sex, step-by-step charts summarizing transactional and institutional coverage and a small entity compliance guide.

FHFA Announces Foreclosure Suspension For Borrowers Requesting HAF Assistance

Mortgage servicers will be required to suspend foreclosure activities for up to 60 days if they are notified that a borrower has applied for mortgage assistance under the Treasury Department’s Homeowner Assistance Fund, the Federal Housing Finance Agency announced. The HAF was established to prevent mortgage delinquencies and defaults, foreclosures, loss of utilities or home energy services, and displacement of homeowners experiencing financial hardship after Jan. 21, 2020. 

Chopra: CFPB To Query Core Providers Over Costs, Contracts, Service

The Consumer Financial Protection Bureau is examining the effects of a concentrated core platform marketplace on consumers and banks, CFPB Director Rohit Chopra said. Speaking to the bureau’s community bank and credit union advisory councils, Chopra said he is “concerned that the core services providers that small players rely on have too much power in the system.”

“The contracts written by the major core services providers are making it harder for local financial institutions to switch providers or use add-ons from outside technology providers, which allow the major incumbents to charge exorbitant amounts of money for their services, while discouraging them from quickly adapting their own products and services to fit with an ever-evolving banking tech landscape,” Chopra said. “The high costs, unescapable contracts, consolidation and slow reaction times are harming local financial institutions’ abilities to keep up with their bigger competitors.”

Formed in 2018, the American Bankers Association’s Core Platforms Committee has developed principles for strong bank-core provider relationships that emphasize some of the concerns Chopra expressed: fair and transparent contracts, API access and access to core-controlled bank data. The committee also has released fact sheets on core providers that have met with the committee, developed sample RFP templates and offered free webinars and articles. Most recently, ABA hosted CoreConnection, a first-ever event that brought together 14 top core executives—including the CEOs of Fiserv, FIS and Jack Henry—to answer questions before a community banking audience.

ABA Report: Credit Market Expected To Weaken On High Inflation

Top economists from the largest U.S. banks expect credit market conditions to weaken amid high inflation, according to the American Bankers Association’s Credit Conditions Outlook. The report highlights the results of the ABA Credit Conditions Index and summarizes a suite of indexes derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee. According to the second quarter 2022 report, near-term expectations for credit quality and availability fell sharply for consumers and businesses in March, after a modest decline in the first quarter.

‌EAC economists also downgraded their forecasts for real economic growth in 2022 from 3.3% to 2.5% due to high inflation and new headwinds related to the Russo-Ukrainian War. In the second quarter, the headline credit index fell 22.6 points to 40.9; the consumer credit index declined 26 points to 38.6; and the business credit index declined 19.3 points to 43.2.

CFPB Issues Report On Payday Loan Extended Payment Ahead Of Court Case

A Consumer Financial Protection Bureau report found that payday loan borrowers rarely used extended payment plans for managing payday loans that they could not pay when due. Instead, payday loan rollover and default rates substantially exceeded extended payday plan usage rates. The report compared extended payment plan usage rates to rollover and default rates for payday loans in the 16 states and other jurisdictions that authorize payday loans and address extended payment plans.

‌The report comes as the 5th U.S. Circuit Court of Appeals is set to hear oral arguments May 11 in the payday lenders’ challenge to the 2017 CFPB rule governing short-term loans. When issued in 2017, the rule included prescriptive underwriting provisions and payment provisions, but it now includes only the payment provisions, after the CFPB rescinded the rule’s underwriting provisions in 2020.

The rule’s payment provisions prohibit lenders, including banks, from making a new attempt to withdraw funds from an account after two consecutive failed attempts without consumer consent. Those provisions exempt attempted transfers by institutions that hold the borrower’s account and do not charge an insufficient funds or overdraft fee for the attempted withdrawal. The rule also exempted completely banks and other depository institutions that made 2,500 or fewer small-dollar loans in each of the current and previous years and for which these loans account for no more than 10% of revenues.

OCC Publishes Interest Rate Risk Statistics Report

The Office of the Comptroller of the Currency published its semiannual report on interest rate risk data gathered during examinations of OCC-supervised midsize and community banks and federal savings associations. The statistics are for informational purposes only and do not represent OCC-suggested limits or exposures, the agency noted. The report highlights the following.

• statistics on projected changes in 12-month net interest income in parallel interest rate shock scenarios ranging from –100 basis points to +400 basis points
• projected changes in economic value of equity in parallel interest rate shock scenarios ranging from –100 basis points to +400 basis points
• banks’ policy limits for changes in NII and EVE in parallel interest rate shock scenarios ranging from –100 basis points to +400 basis points
• nonmaturity deposit repricing rates and average lives for different account types

Provident Bank Survey: Small Businesses Bracing For Russian Cyberattacks

A majority of the nation’s small business owners — 78% — are concerned about the threat of a Russian cyberattack in light of recent news coverage, according to new survey data released by Provident Bank. Looking ahead to the next 12 months, three in 10 survey respondents said it is “very likely” their business will experience a cyberattack or cybersecurity breach, compared to just 11% who said it was not likely at all.

‌Seven in 10 small business owners said that addressing a cyberattack or breach was part of their business continuity plan. However, just half said they are actually fully prepared to face a cyberattack on their organization. A similar percentage (around 50%) said that the threat of a cyberattack is something they think about nearly every day.

‌The most common steps taken by small business owners to protect their business and their customers’ data included using a secure Wi-Fi network, using antivirus or anti-phishing software, backing up data, using a VPN and using a password protector tool. When asked how long it takes the business to recover from a cyberattack or security breach, 19.3% said they could recover within hours, 22.5% said within a day and 21.5% said within a month.

Businesses reported that throughout the past 12 months, malicious cyber activity has contributed to increased IT costs, reputational damage, intellectual property loss and lost productivity, among other things.