August 19, 2022

Missouri Financial Associations Urge Congressional Delegation To Oppose Durbin Expansion Bill

In joint letters to each member of Missouri’s congressional delegation, MBA, the Heartland Credit Union Association of Missouri and the Missouri Independent Bankers Association urged lawmakers to oppose S. 4674, the Credit Card Competition Act of 2022. The bill, which was introduced by Sens. Roger Marshall, R-Kan., and Dick Durbin, D-Ill., would create new credit card routing mandates that will affect financial institutions that issue credit cards.

The bill would require covered credit card issuers to add a second network to their customers’ cards, but banks would only be allowed to choose from certain options set by the Federal Reserve. In this regard, the bill goes further than the rules put in place for debit card transactions under the Dodd-Frank Act’s Durbin Amendment in 2010, where a bank could choose any two unaffiliated networks. The bill also would require that banks accept virtually any kind of transaction, regardless of the security or fraud recourse it carries, forcing banks to onboard potentially many more than two networks.

In the letter, the groups said the “bill undermines credit card payment networks by compromising efficiency, security and consumer choice.” They added that “Big box retailers, in an effort to reduce their interchange fees, are asking the federal government to force the card networks to offer merchants alternative routing services, essentially allowing the merchants to override consumer choice. … Big retailers would make consumer information less secure while driving up costs and decreasing access to safe and affordable credit. Consumers will have fewer choices of card networks because retailers can override customers’ decisions based on the benefits to their bottom lines. … they can choose their card routing service based on the cheapest cost without any consideration for security, giving bigger windfalls to big box retailers.

MBA urges bankers to contact their senators and representatives to voice their opposition to government mandates on credit card routing. Ask them to oppose S. 4674, the Credit Card Competition Act.

MBA Files Comments Opposing FDIC Deposit Insurance Fund Bank Assessment Increase 

MBA filed a comment letter with the Federal Deposit Insurance Corporation on Tuesday outlining its opposition to a proposed rule that would increase initial base deposit insurance rates. The proposed rule would increase rates by 2 basis points, effective Jan. 1, 2023.
 
The FDIC is required maintain the Deposit Insurance Fund reserve ratio at a statutory minimum of 1.35% and is required to adopt a restoration plan when the reserve ratio falls below the statutory minimum. Banks have experienced extraordinary deposit growth during the pandemic because of the federal government’s fiscal response to ameliorate the economic impact of the pandemic. Deposit levels are gradually returning to pre-pandemic norms. 

In its letter, MBA said the increase "would have a significant negative economic impact on community banks in Missouri and around the U.S., potentially driving up prices for bank products and services paid by consumers and business customers." MBA urged FDIC to postpone an assessment hike and "reconsider the crucial assumptions used to justify the significant rate increase, including consideration of more recent data and trends, and to take account of current market conditions, and give weight to structural improvements and reinforcements in the overall safety and soundness of the banking industry in recent years." 

The comment period for this proposal ends Saturday, Aug. 20. Comments can be submitted online or via email to comments@fdic.gov. Include RIN 3064–AF83 on the subject line of the message. 

FDIC Issues Guidance For Missouri Banks Affected By Flooding

The Federal Deposit Insurance Corporation has issued guidance for banks and borrowers in areas of Missouri hard hit by severe storms and flooding in late July. The agency is encouraging banks to work constructively with borrowers experiencing difficulties beyond their control because of damage caused by the severe storms and flooding. Banks may receive favorable Community Reinvestment Act consideration for community development loans, investments and services in support of disaster recovery, FDIC said. It also will consider regulatory relief from certain filing and publishing requirements.

FDIC Issues Guidance For Multiple NSF Fees Charged For Representment

The Federal Deposit Insurance Corporation released guidance on the practice of charging multiple nonsufficient funds fees for transactions presented multiple times against insufficient funds in a customer’s account, adding that it will recognize an institution’s proactive efforts to self-identify and correct violations.

The FDIC listed a range of “risk-mitigating activities” institutions could pursue regarding NSF fees, including the following.

• eliminating the fees
• declining to charge more than one NSF fee for the same transaction, regardless of whether the item is re-presented
• conducting a comprehensive review of policies and practices related to re-presentments
• clearly communicating to customers the amount of fees and when those fees will be imposed

If institutions self-identify re-presentment NSF fee issues, the agency expects them to take several steps, including providing restitution to affected customers and “promptly” correcting NSF fee disclosures and account agreements.

The FDIC said it recognizes an institution’s proactive efforts to self-identify and correct violations. “Examiners will generally not cite (unfair or deceptive acts or practices) violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination.” The agency added that in recent examinations, it has identified instances where institutions have been unable to reasonably access accurate ACH data for re-presented transactions beyond two years. In those cases, the FDIC has accepted a two-year look-back period for restitution. “The FDIC expects supervised institutions to promptly address this issue," the agency said.

Fed Issues Final Guidelines For Payments System Access

The Federal Reserve announced final guidelines that it will use when evaluating requests for master accounts with the Fed or access to the agency’s financial services. The finalized guidelines are substantially similar to those first proposed by the Fed in 2021, which came amid growing requests from fintech firms and entities with novel bank charters to gain access to the payments system.

According to the Fed, the guidelines include a tiered review framework to provide additional clarity on the level of scrutiny that Reserve Banks will apply to different types of institutions with varying degrees of risk. For example, institutions with federal deposit insurance would be subject to a more streamlined level of review, while institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review.

In a statement, Fed Vice Chair Lael Brainard said the guidelines “provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive and innovative payment system.” However, in separate remarks, Fed Gov. Michelle Bowman said the guidelines are only a first step and that more work needed to be completed to implement them. “There is a risk that this publication could set the expectation that reviews will now be completed on an accelerated timeline,” she said.

The American Bankers Association has called on the Fed to establish standards for access to the payments system. In joint comments submitted with two other trade groups in 2021, ABA said the proposed guidelines needed to be strengthened to address the risks certain entities post to the payments system, including those entities that are not federally insured and that operate with nontraditional business models. ABA President and CEO Rob Nichols said that the association hopes the final guidelines provide much-needed clarity and consistency to master account eligibility and approval.

“As we indicated in our comment letters, we embrace financial innovation, but we should not do anything to undermine the strength and resiliency of our banking system,” Nichols said. “Allowing new financial players to access the Federal Reserve system without requiring them to meet the same high standards as banks poses real risks. We will watch carefully to ensure that these new guidelines, particularly the tiering requirements, recognize those risks, and we look forward to seeing the Board and the Reserve Banks apply these guidelines fairly but rigorously.”

Fed Issues Guidance For Banks Seeking To Leap Into Crypto

In a supervisory letter, the Federal Reserve said that Fed-supervised banks seeking to engage in activities related to cryptocurrency and other digital assets must first assess whether such activities are legally permissible and determine whether any regulatory filings are required. The letter also stated that banks should notify the Fed before engaging in crypto-asset-related activities.

The supervisory letter is similar to guidance previously issued by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation; in all cases, the agencies require banks to notify regulators before engaging in any kind of digital asset activity, including custody activities. The three agencies released a joint statement late last year in which they pledged to provide greater guidance on the issue in 2022.

The Fed noted in its letter that the crypto-asset sector presents opportunities for banks but comes with many potential hazards, including cybersecurity risks and financial stability risks. “A supervised banking organization should, prior to engaging in these activities, have in place adequate systems, risk management and controls to conduct such activities in a safe and sound manner and consistent with all applicable laws, including applicable consumer protection statutes and regulations,” the letter stated. Banks already engaged in crypto activities should contact the Fed “promptly” if they have not already done so, the agency said.

Fed staff “will provide relevant supervisory feedback, as appropriate, in a timely manner.” The Fed also encouraged state member banks to contact state regulators before engaging in any crypto-asset-related activity.

Fed Minutes: Higher Rates Likely To Remain ‘For Some Time’

A tight labor market and high inflation convinced the Federal Open Market Committee to unanimously approve a 75-basis point rate-hike in July, according to minutes released this week. Moreover, some participants said that once the policy rate had reached “a sufficiently restrictive level,” it likely would need to remain there “for some time” to ensure inflation was firmly on a path back to the Federal Reserve’s 2% target.

The minutes show FOMC participants anticipated that ongoing rate increases would be necessary but didn’t hint at what shape those would take. However, “as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.”

Participants saw little evidence to date that inflation pressures were easing. They did judge inflation would respond to monetary policy tightening but given the delay in associated moderation of economic activity, inflation pressures “would likely stay uncomfortably high for some time.”

FHFA Proposes To Change Affordable Housing Goals For Fannie Mae, Freddie Mac

The Federal Housing Finance Agency announced changes to the methodology Fannie Mae and Freddie Mac will use to measure their multifamily housing goals. Under a proposed rule, the GSEs will switch from using the number of units in multifamily properties financed annually by each institution to the percentage of units financed.

FHFA last year established benchmark levels for the multifamily housing goals for 2022, citing the pandemic and the potential for unforeseen changes to multifamily market conditions as reasons for sticking to a single year. The proposed goals would be for 2023 and 2024. The agency is not proposing any changes to the underlying criteria that determine which multifamily units qualify for credit.

FHFA acknowledged that its existing methodology does not incentivize Fannie Mae or Freddie Mac continue to acquire mortgages backed by goal-qualifying units after the institutions have purchased enough mortgages to meet the minimum numeric benchmark.

“Today’s proposed rule would ensure that each Enterprise’s focus remains on affordable segments of the multifamily market and reaffirms FHFA’s commitments to its statutory duty to promote affordability nationwide,” said FHFA Director Sandra Thompson. “The proposed change to the methodology will make the multifamily housing goals more responsive to market conditions.”

FHFA Announces Updated Eligibility Standards For GSE Sellers, Servicers

The Federal Housing Finance Agency announced updated standards that mortgage lenders will have to meet to sell or service loans on behalf of Fannie Mae and Freddie Mac. In addition, Ginnie Mae also updated its requirements for servicers of Ginnie Mae mortgages in coordination with FHFA. Among other things, the standards create several new requirements for nondepository sellers and servicers to help mitigate the risk posed by these firms.

Under the new standards, sellers and servicers will be required to maintain a base net worth of $2.5 million plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing and 25 basis points of the unpaid principal balance for all other 1-to-4-family loans serviced. Fannie and Freddie sellers and servicers would be required to maintain a capital ratio of tangible net worth to total assets that is greater than or equal to 6%. Depository institutions can continue to rely on their prudential regulatory standards to meet the GSEs’ capital and liquidity requirements.

The majority of the requirements, including those related to net worth and liquidity, take effect September 2023.

CFPB Guidance Warns Nonbank Financial Firms On Data Security

The Consumer Financial Protection Bureau published a circular explaining that nonbank financial firms, such as fintech companies and credit reporting agencies, may violate the Consumer Financial Protection Act’s prohibition on “unfair acts or practices” if they fail to protect sensitive consumer financial information. The circular notes that insufficient data protection also may violate the Gramm-Leach-Bliley Act’s Safeguards Rule but states “while these requirements often overlap, they are not coextensive.” The circular provides examples of when financial firms can be held liable for lax data security protocols. It also names three data security measures that, if lacking, could increase the risk that a firm’s conduct triggers liability under CFPA: multifactor authentication, adequate password management and timely software updates.‌

Banks are already subject to and routinely examined for compliance with vigorous federal privacy and data protection laws, including GLBA. In a statement accompanying the release of the circular, CFPB Director Rohit Chopra noted, however, that many nonbank actors and financial technology companies have not been subject to careful oversight of their data security.

ABA To Hold Free Webinar On Anti-phishing Campaign For Banks

The American Bankers Association will hold a free webinar at 1 p.m. Wednesday, Aug. 31, about the association’s national #BanksNeverAskThat anti-phishing campaign that returns in October. ABA experts will provide an overview of phishing scams and explain why banks should amplify the issue to customers. They also will discuss campaign highlights, new content and results to date; the benefits of participating in #BanksNeverAskThat; how to register to participate and when to take action; and best practices for deploying ready-made assets on social media platforms.

Consumers Cite Security As Top Reason For Choosing Bank In Poll

Security and fraud protection are replacing “low or no fees” as the top reasons why consumers choose a new bank, according to a new survey of bank customers by the analytics firm Verint. The company polled more than 5,000 customers of the 20 largest U.S. banks earlier this year and found overall satisfaction with their banks had dropped since a similar survey in 2021, although a majority of banks still received high marks from respondents.

Asked what factors matter most when choosing a financial institution, respondents said security of personal information was most important. Next was low or no fees, followed by fraud protection, fraud alerts and convenient locations in their area.

“With the rise of digital-first engagement, customers are more aware of the vulnerability of their personal information, so having confidence in their financial institutions’ security measures is growing in importance,” the report’s authors said.

Verint also looked at how different generations interact with their banks. Nearly half of baby boomer and Generation X respondents said they didn’t know fraud alerts were available from their banks, compared to 36% of millennials. Researchers also found that Gen Z and millennials were more likely to need help with various aspects of financial management, like cutting costs and setting a budget.

“As global inflation rises, a lack of assistance with financial management is likely to have a bigger impact on younger generations than it might have 6-12 months ago. With many willing to switch accounts, offering products or services that help address the gap in Gen Z’s and millennials’ financial knowledge requires serious consideration if banks want to retain a loyal customer base in the long term,” the authors said.

Survey: Consumers Largely Satisfied With Banking Service Providers

Most consumers are satisfied with their banking service providers and do not plan to switch institutions in the near future, with the trend likely to continue as long as most people are focused on short-term financial goals rather than long-term plans, according to a new survey of consumer banking and payments by research firm Morning Consult.

Morning Consult polled up to 4,400 U.S. adults about their financial well-being every month over the past year. The number of individuals who are financially worse off compared to a year ago grew as inflation took its toll, with half of respondents saying the money they have or will save won’t last. Consumer progress toward financial goals like giving to charity and saving for retirement also declined as larger numbers of respondents reported a lack of money at the end of the month.

Large majorities of respondents — 90% to 95% — said they were satisfied with their financial institution, whether it be a traditional bank, digital bank, credit union or credit card company. Few were thinking about switching banking service providers given their current preoccupation with meeting short-term financial goals. However, citing previous research on the topic, the report’s authors noted consumers may be enticed to switch to banks that pay higher interest on savings accounts.

‌Other findings follow.

• Overall demand for lending products such as mortgages and auto loans decreased as interest rates rose. The share of adults who reported at least one credit card in their household remained unchanged.‌

• The number of individuals using digital banking, which grew in popularity during the pandemic, has remained unchanged in the U.S. compared to many other countries, where in-person banking has rebounded.‌

• Use of ATMs, bank branches and digital wallets declined, although more people reported using a digital wallet than visiting an ATM or bank branch. Still, the U.S. lags behind most other major economies in digital wallet adoption.

Future Homebuyers Turn To Web, Social Media For Financial Advice

Millennials and Gen Z individuals planning to buy their first home rely heavily on websites and social media to learn about personal finance, according to a survey of potential homebuyers. The financial fitness app developer FinLocker joined with University of Southern California students in March and April to survey millennials, those born between 1981 and 1996, and Gen Z, born between 1997 and 2012 but with an average age of 20 for the purposes of the study.

More than 51% of millennials ranked home ownership as a financial goal compared to 30.8% among Gen Z. The survey found both generations learn about personal finance topics, such as how to save and follow budgets, primarily from family and friends. However, millennials next preferred finance websites, personal finance blogs and influencers. Gen Z respondents overwhelming turned to social media. The report’s authors cited previous research showing YouTube in particular was a popular source for financial information. “Mortgage lenders, banks and credit unions can increase exposure to their business through financial education posted to these popular social media channels,” they wrote. 

New J.D. Power Study: Inflation Affecting Consumers’ Financial Well-being

As inflation remains elevated and consumers face persistently higher prices for goods and services, nearly two-thirds — 64% — of them are now considered “financially unhealthy,” according to new data released by J.D. Power. In a survey of bank customers, respondents’ overall level of satisfaction with their current financial condition reached a 12-month low, and the share of bank customers classified as financially healthy fell 11 percentage points during that period.

Seven in 10 consumers acknowledged that price increases are outpacing increases in their income, leading many to seek out additional sources of funds, such as personal loans. J.D. Power found that 34% of consumers who applied for a personal loan in the past 12 months did so to supplement income because of lost wages. That figure was just behind the 39% who said they applied for personal loan to pay off debt — the most common reason cited for doing so.

The survey also suggested a lack of awareness among bank customers about how their bank could help them manage their debt; two-thirds said they were unaware of debt management assistance offered by their bank. That figure was even higher among customers over the age of 40 (78%), customers whose financial health is stressed (76%) and customers whose financial situations are vulnerable (72%).