STATE GOVERNMENT RELATIONS
Indiana Lawmakers Closing in on Halfway Point of Session
Indiana lawmakers have been working at a busy pace since the start of session on Jan. 8. With three weeks of committee work in the books, lawmakers have until the middle of next week to hold hearings on final bills as a key deadline for committee work approaches. The first half of session is expected to conclude early on the week of Feb. 5. After a short break that week, the General Assembly will start the second half of session on Feb. 12.
The IBA is tracking several bills as the 2024 legislative session progresses, including:
- Senate Bill 188 – Actions on deposit accounts
- House Bill 1084 – Privacy of firearms financial transactions
- House Bill 1284 – Deposit account agreements
- House Bill 1209 – Rule against perpetuities
- House Bill 1183 – Foreign ownership of agricultural land
FEDERAL GOVERNMENT RELATIONS
Fed's Bank Term Funding Program to Wind Down March 11
The Federal Reserve Wednesday announced that the Bank Term Funding Program will cease making new loans as scheduled on March 11. The program will continue to make loans until that time.
The BTFP was created after the Silicon Valley Bank and Signature Bank failures to provide an additional source of liquidity to financial institutions and address concerns about consumer confidence in deposits. After March 11, banks and other depository institutions will continue to have access to the discount window to meet liquidity needs, the Fed said.
As the program ends, the interest rate applicable to new BTFP loans has been adjusted such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made, according to the Fed. The rate adjustment ensures that the BTFP continues to support the goals of the program in the current interest rate environment. All other terms of the program are unchanged.
CFPB Proposes Banning NSF Fees for Instantaneous Transactions
The Consumer Financial Protection Bureau Wednesday proposed what it characterized as a “proactive step” to prevent banks and other financial institutions from charging fees for transactions that are instantaneously declined. The proposed rule would prevent financial institutions from charging nonsufficient funds fees or other fees for ATM withdrawals, debit card purchases, peer-to-peer payments or other transactions that are declined “instantaneously or near-instantaneously.” The agency claimed that charging the fee represents an abusive practice under the Consumer Financial Protection Act’s prohibition on unfair, deceptive or abusive acts or practices.
The CFPB acknowledged in the proposal that NSF fees are rarely charged on transactions that currently take place instantaneously. It instead argued that the ban is meant to prevent the practice from becoming more widespread in the future. “As technological advancements may eventually make instantaneous payments ubiquitous, the CFPB believes that is important to proactively set regulations to protect consumers from abusive practices,” the agency said. The CFPB has set a March 25 deadline for public comment on the proposed rule.
Fed Extends Comment Period on Debit Card Interchange Fee Proposal
The Federal Reserve Tuesday announced that it has extended the public comment deadline to May 12 for its proposal to lower the cap on debit card interchange fees. The Fed also published additional data related to the fee cap to give the public more information to consider when filing comments.
The Fed is proposing to revise Regulation II to lower the cap from its current rate of 21 cents and .05% of the transaction, plus a one-cent fraud prevention adjustment, to 14.4 cents and .04% per transaction and a 1.3 cents fraud prevention adjustment, effective June 30, 2025. It would also institute a new process in which the cap is revised every two years. The comment deadline originally was Feb. 12, but that was extended by three months to May 12.
Read the Fed statement on the comment period extension
Read the Fed’s additional data on the proposed fee change
Regulators Say Banks Responsible for Ensuring AI Complies with Law
Any new technology utilized by a financial institution – including artificial intelligence – must be done so in a way that complies with existing law, top officials from four federal agencies said Friday. Speaking at a symposium on responsible AI use hosted by the National Fair Housing Alliance, officials from the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Consumer Financial Protection Bureau stressed that banks are ultimately responsible for how the technology is deployed, even if they are contracting with third parties to provide AI-powered products and services. They also said their agencies already have the statutory authority to regulate the emerging technology.
“You want to be cautious thinking about legislation in this area without first considering what will be the impact on our existing statutory authorities,” FDIC Chairman Martin Gruenberg said. “And a good first rule here, in legislation and the utilization of the technology, is to do no harm. We want to be sure to preserve our existing authorities and hold institutions accountable for the utilization of technology.”
“It doesn’t matter what label you put on it and what the underlying technique is,” Fed Vice Chairman for Supervision Michael Barr said. “Financial institutions and banks understand what model risk management is and how they're expected to conduct it. If they began to use newer techniques of artificial intelligence, including language learning models, then they need to make sure that those comply with model risk management expectations.”
Acting Comptroller of the Currency Michael Hsu also said his agency doesn’t need any new laws regarding AI. At the same time, the “newness” of the technologies means banks and regulators need to engage to understand how they can best achieve supervisory objectives, he added. “The ‘how’ is important and I think this does require quite a bit of engagement.”
All four officials said they are building staff resources on AI governance. CFPB Director Rohit Chopra said his agency is putting more effort into developing whistleblowers with the technological expertise to spot violations. “They're going to be a huge source of really good, high-quality investigative information about lackadaisical use of modeling [and] things that they have said were discriminatory, but an institution has turned a blind eye or gone ahead with it,” he said.