April 14, 2022

MBA Calls Out CFPB Attacks On Bank Fees

Highly prejudicial. Derogatory. Inflammatory. That’s how MBA described the Consumer Financial Protection Bureau’s request for information on fees associated with financial products and services offered by banks and nonbank financial institutions, including overdraft fees, insufficient funds fees, credit card fees, remittance fees, prepaid account fees and mortgage fees, among others.

In its comment letter, MBA wrote the CFPB’s RFI and accompanying press release “attack the banking industry repeatedly and without citing any evidence or facts. The Bureau relies on a factual and logical fallacy by equating bank fees to the junk fees imposed by resorts, hotels and concert promoters.”

The letter also noted that “all bank fees are comprehensively and fully disclosed in strict accord with CFPB regulations, using model forms issued by, and terms defined by the Bureau.” MBA added the RFI and public statements from the CFPB create “a false and inflammatory narrative attacking community banks.”

“This is simply the product of a monolithic government bureau that has convinced itself that it knows best and must act to deny consumer choice and access to vital and innovative financial services. The basis for action adopted by the bureau is that consumers are not competent to manage their financial affairs,” MBA wrote.

MBA thanks its members for submitting their own comment letters and for providing information that MBA used in its comment letter to the CFPB.

ABA, SBAs: CFPB Fee RFI Shows ‘Deeply Flawed Conclusions’ 

MBA was among the 51 state bankers associations that joined the American Bankers in directly challenging the Consumer Financial Protection Bureau on a recent request for information regarding fees associated with financial products and services offered by banks and nonbank financial institutions, including overdraft fees, insufficient funds fees, credit card fees, remittance fees, prepaid account fees and mortgage fees, among others.

“[T]he RFI makes clear that the bureau has already drawn a series of deeply flawed conclusions regarding the market for consumer financial services and the use of fees in the market,” the associations said in a joint comment letter. “An RFI that asks for ‘stories’ about fees that ‘you believed were covered by the baseline price’ or ‘unexpected’ or ‘seemed too high for the purported service,’ and closes by asking how the bureau should ‘address the escalation of excessive fees’ is not a search for the facts, but instead is a solution in search of a problem.”

‌The groups offered fact-based evidence emphasizing that the market for consumer financial services is “fiercely competitive” and that as required by laws and regulations that the CFPB itself administers, fees are clearly and conspicuously disclosed to consumers in multiple ways. “Available evidence, including the bureau's own testing and reports, show that consumers understand these disclosures, and appreciate the products and services provided even if they have to pay fees for them,” they wrote.

Finally, the associations urged the CFPB to “not substitute its own judgment for the sound decisions of consumers who choose to use valuable services offered by financial institutions” and cautioned that while [the CFPB] has broad authority to initiate a rulemaking to improve disclosures, the bureau has very limited authority to restrict fees substantively, and doing so would reduce consumer choice and access to products and services.”

ABA President and CEO Rob Nichols doubled down on the associations’ message in a statement shortly after the comment letters were filed.

“Surveys show that consumers recognize the value they get from the wide array of banking services available to them today,” Nichols said. “Anyone unsatisfied with the terms of a financial product, which must be clearly disclosed under existing CFPB rules, has thousands of other options in today’s highly competitive marketplace. Our comment letter sets the record straight and makes clear that the bureau’s misguided campaign against fictional ‘junk fees’ is unfortunately an attempt at ‘junk’ regulating without any supporting facts.”

Trade Groups: CFPB’s Revised Adjudication Rules A ‘Step In The Wrong Direction’

The Consumer Financial Protection Bureau’s newly revised rules of practice for administrative adjudication are “a step in the wrong direction,” expanding the powers of the bureau’s already-powerful director and reducing protections for defendant companies, according to a letter from a coalition of financial services groups that included the American Bankers Association.

In particular, the groups noted that concentrating adjudicative authority in the CFPB director creates legal uncertainty and risks depriving defendants of due process and that the implementation of the revised rules could unfairly favor the bureau in many cases. They also urged the bureau to revert back to prior rules while it considers further changes to its adjudication processes.

“Concentrating even greater power in a director who serves at the will of the president, the revised rules will not enhance the impartiality and fairness that are the hallmarks of sound administrative adjudication processes,” the groups wrote. “Rather, they will lead to legal interpretations that will be promptly abandoned once the White House changes hands, outcomes driven by policy rather than impartial application of law to the facts of a case, and a frustration of the due process that is promised all Americans. In short, the revised rules will make it harder for the CFPB to ‘enforce federal consumer financial law consistently’ as required by Congress in the Dodd-Frank Act.”

CFPB Issues Blog Post Criticizing NSF Fees

The Consumer Financial Protection Bureau issued a blog post that criticized banks that charge nonsufficient funds fees. The CFPB listed by name banks that have announced they are eliminating NSF fees and banks that have not made an announcement as of April 1. The CFPB also stated that it is “closely scrutinizing whether and when charging these fees may be unlawful.”

ABA Survey To Assess CBDC Effect On Banking

MBA encourages its members to complete a survey from the American Bankers Association that assesses how a central bank digital currency network would affect the banking industry. Responses to the survey will help in estimating the share of bank deposits that could be at risk of being converted into CBDC and how that could impact the cost of funds, and by extension, access to credit. The brief survey consists of two questions. Please complete the survey by Friday, April 22.

Hsu Advocates For Bank-like Regulation For Stablecoins

Acting Comptroller of the Currency Michael Hsu called for establishing an “intentional architecture” for stablecoins that would focus on “stability, interoperability and separability” and also take into account privacy, security and the need to prevent illicit finance. Speaking at an industry event, Hsu suggested that well-regulated bank-issued stablecoins may be preferable to a central bank digital currency as policymakers consider supporting the U.S. dollar’s international role. He noted that the nation’s current bank-centric model is “not an accident. It is the result of a carefully architected monetary and banking system [which] has supported the role of the U.S. dollar as the world’s reserve currency.”

Hsu also appeared to express a preference for a bank-like “fixed set of safety and soundness-like requirements” that would apply to all stablecoin issuers — as opposed to offering a wider set of licensing options. “[T]he wider the variability, the more likely a risky issuer blows itself up, sparking contagion across peers,” he cautioned.

In addition, there is a need for interoperability among U.S. dollar-based stablecoins, he said, noting that “in the long-run, interoperability between stablecoins and with the dollar — including a CBDC — would help ensure openness and inclusion. It would also help facilitate broader use of the U.S. dollar — not a particular corporate-backed stablecoin — as the base currency for trade and finance in a blockchain-based digital future.”

Finally, Hsu raised the issue if intraday liquidity risk if banks were to being transacting in both traditional payments and blockchain-based payments. To address this problem, he floated the idea of “requir[ing] that blockchain-based activities, such as stablecoin issuance, be conducted in a standalone bank-chartered entity, separate from any other insured depository institution subsidiary and other regulated affiliates. Additional safeguards could be considered, including enhancements to restrictions on interaffiliate transactions applicable to IDIs,” he added.

IMF Analysts Call For Regulatory Parity Between Banks, Fintech Firms

Fintech firms and traditional banks should be governed by proportional policies, wrote International Monetary Fund analysts in a blog post that accompanied the IMF’s latest chapter in its Global Financial Stability Report exploring the implications of fintech’s rapid growth.

‌“When fintechs provide bank-like services but operate under less stringent regulations than banks, financial stability risks can arise,” according to the report. “The business model of fintechs relies on rapid growth, which — in the absence of appropriate regulations — can lead to excessive risk-taking, including by banks trying to defend their market position. This can lead to capital erosion and higher systemic risk.”

‌The blog’s authors highlighted decentralized finance, or DeFi, as being particularly vulnerable to risks — market, liquidity and cyber.

“Cyberattacks, which can be severe for traditional banks, are often lethal for these platforms, stealing financial assets and undermining user trust,” they wrote. “The lack of deposit insurance in DeFi adds to the perception of all deposits being at risk.”

While fintech firms often challenge traditional banks, the two “often remain intertwined,” IMF analysts added, which poses challenges for financial regulators that may “require supervisory and regulatory action, including better consumer and investor protection.”

ABA Recommends Changes To SEC’s Proposed MMF Reforms

As the Securities and Exchange Commission contemplates reforms to strengthen the transparency and resiliency of money market funds, the American Bankers Association urged the commission to “carefully consider any changes that may affect the availability of these funds to bank fiduciary and non-fiduciary accounts.” The proposed reforms come in response to volatility observed in MMFs during the early days of the pandemic.

Among other things, the SEC is proposing to:

• eliminate the current liquidity fee and redemption gate mechanism in the rule
• introduce “swing pricing” to internalize related costs on redeeming investors when there are net redemptions in a pricing period
• double the daily liquid asset and weekly liquid asset minimum liquidity requirements
• expand disclosure requirements
• require stable net asset value funds, such as government money market funds, to switch to floating NAV in the rare case of negative interest rates

In its comment letter, ABA urged the SEC to allow government MMFs to decide, based on their determination of the needs and characteristics of their investors, whether reverse distribution mechanism or floating NAV is the most appropriate way to manage the effects of negative interest rates. Many bank sweep programs for fiduciary and custody accounts are built on the assumption that the MMF has a stable share price, and ABA noted that any changes to these systems to accommodate a very rare potential for negative interest rates would be costly and operationally difficult.

The association also warned that the swing pricing outlined in the proposal would be costly and difficult to implement and urged SEC “to weigh the effect of swing pricing on the availability of these funds and to consider in that context the alternative framework of liquidity fees if in the best interest of the fund and its investors.”

ABA Requests Withdrawal Of DOL Guidance On Cryptocurrency Investments

In a letter to the Department of Labor, the American Bankers Association and several financial and retirement trade groups requested that the DOL withdraw regulatory guidance that intends to discourage plan investment options in cryptocurrencies and other digital assets. The guidance states that DOL “expects to conduct an investigative program aimed at plans that offer investments in cryptocurrencies and related products.”

Although the groups did not take a position on the appropriateness of retirement plan investments in cryptocurrency, they noted that the DOL guidance — which was issued without public notice or input — should have been subject to the formal rulemaking process.

In addition, they pointed out that the guidance is inconsistent with:

• the fiduciary standard of care under Employee Retirement Income Security Act
• DOL regulations governing plans’ availability of brokerage windows to plan participant
• substitution of the fiduciary’s judgment with the DOL’s judgment concerning appropriate and inappropriate plan investments

The trades requested that the department develop guidance on retirement plan investment options in cryptocurrencies and other digital assets through notice-and-comment rulemaking.

Agencies To Host Webinar On Cyber Security Notification Rule

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency will host a joint “Ask the Regulators” webinar at 1 p.m. Thursday, April 28, on the recently finalized computer security notification rule, which has a compliance deadline of May 1.

Webinar participants can email questions in advance to asktheregulators@stls.frb.org and questions submitted before Wednesday, April 20, will receive priority for responses by panelists. The webinar will also be made available for future viewing.

New Article Offers Strategies For Helping Bank Customer Cope With Ransomware

With the threat of ransomware attacks increasing every day, a new article in the ABA Banking Journal examines the intersection of ransomware and cryptocurrencies, as well as what banks should do if they suspect their clients have fallen victim to a ransomware attack.

“Regardless of the size of your institution, you’re going to encounter this issue,” notes Sharon Cohin Levin, a partner at Sullivan and Cromwell, who recommends that banks create a playbook so that they aren’t caught off guard by news of an attack. “Everything you can do in advance to prepare—to have that playbook, to know how to respond—is going to help your institution, and it’s also going to help your customer. They’re in a crisis, and you’re going to be working with them to find the most effective way to deal with that crisis, consistent with your legal and regulatory requirements.”