FEDERAL GOVERNMENT RELATIONS
House Approves Resolution to Overturn CFPB’s 1071 Rule
The House last Friday voted 221-202 to pass a Senate joint resolution to overturn the Consumer Financial Protection Bureau’s final rule implementing Section 1071 of the Dodd-Frank Act, which requires the collection and reporting of credit application data for small businesses. S.J. Res. 32 had previously cleared the Senate with bipartisan support, and it cleared the House with most Republicans and six Democrats voting in favor of the resolution. S.J. Res. 32 would need to be approved by both houses of Congress and signed by the president to overturn the rule. The White House has stated that President Biden intends to veto the legislation.
CFPB Planning Rulemaking on Overdraft, NSF Fees
The Consumer Financial Protection Bureau projects that it will issue a proposed rule this month to consider whether fees charged for overdraft services are finance charges, which would subject the fees to the requirements of Regulation Z, or the Truth in Lending Act, according to the fall agency rulemaking issued by the Office of Management and Budget. The agenda outlines possible rulemaking and regulatory priorities for federal agencies in the coming months. It also shows that the bureau plans to issue a proposed rule this month that would “preliminarily identify the assessment of [nonsufficient fund] fees in certain circumstances as an unfair, deceptive, or abusive act or practice” under the Dodd-Frank Act “and impose requirements to prevent such UDAAPs.” The bureau also plans to issue a final rule to limit credit card late fees this month.
In terms of overdraft fees, the CFPB originally projected that it would commence “pre-rule” activities this fall – not issue a proposed rule, as stated in the agenda. The CFPB had also previously indicated that it planned to pursue pre-rule activities with NSF fees, but the agenda shows it plans to move forward with a proposed rule. The agency didn’t provide further details on either rule.
Outside the CFPB, the Department of Labor projects April 2024 for issuance of a final rule to “update” the salary level used to determine whether an employee is subject to federal minimum wage and overtime requirements. Two hundred and forty-three national, state and local industry trade associations in September urged the DOL to withdraw its overtime proposed rule. FinCEN also announced several upcoming proposed rulemakings. For the beneficial ownership information access rule, FinCEN stated that it expected the rule to be released by the end of this month.
View the fall agency rule list
CDFI Fund Unveils New Application Process
The Community Development Financial Institutions Fund Thursday released a “considerably revised” process for an organization to apply to become a CDFI or to renew its certification. Among the changes are new requirements regarding documenting mission and strategy, adhering to “responsible financing standards,” defining and serving a “target market,” providing development services, and adjustments to accountability standards for CDFIs.
The changes were the culmination of a six-year process to modernize the CDFI certification process by the CDFI Fund, which is administered by the Treasury Department. A phased approach has been introduced for organizations seeking CDFI certification, according to the CDFI Fund. Phase 1 allows non-certified organizations to apply immediately from Dec. 20, while Phase 2 requires currently certified CDFIs to reapply using the revised application starting on Aug. 1, 2024, with a deadline of Dec. 20, 2024. A grace period will be established to allow existing certified CDFIs to maintain their status and eligibility for CDFI Fund programs until Dec. 20, 2024. The CDFI Fund will also provide early reapplication submission opportunities, enabling 700 certified CDFIs to voluntarily recertify before the general deadline (May 31, 2024–July 31, 2024) and receive determinations by Oct. 31, 2024.
Under the revised CDFI certification policies, new applicants and currently certified CDFIs will be required to submit a transaction level report, or TLR, both as part of an initial application and as part of their annual certification and data collection report submission package. The annual certification report has undergone significant changes, introducing new requirements for organizations certified using the revised CDFI Certification Application. To assist organizations in understanding the changes, the CDFI Fund will host a live webinar on Wednesday, Dec. 13, at 1:30 p.m. EST.
Learn more about the application changes
FDIC: Deposit Insurance Fund Reserve Ratio on Track to Reach Statutory Goal
The Deposit Insurance Fund balance was $117 billion as of June 30, the Federal Deposit Insurance Corp. said Thursday in the second of its semiannual updates on the DIF restoration plan. Increased loss provisions – including for the bank failures that occurred in March and May – and strong insured deposit growth resulted in a decline in the reserve ratio from 1.25% on Dec. 31, 2022, to 1.1% on June 30, it added. Despite the decline, the FDIC projects that the reserve ratio is likely to reach the statutory minimum of 1.35% by the statutory deadline of Sept. 30, 2028.
The FDIC established the restoration plan in 2020 to restore the DIF reserve ratio to at least 1.35% by the deadline. The decline in the DIF balance does not include the cost of protecting uninsured deposits as a result of the FDIC’s systemic risk determination announced following the failures of Silicon Valley Bank and Signature Bank, as the agency is required by statute to recover those losses through one or more special assessments, Chairman Martin Gruenberg said. The FDIC announced in November that the assessment would be collected at an annual rate of approximately 13.4 basis points – 3.36 basis points quarterly – for an anticipated eight quarterly assessment periods. No bank with total assets below $5 billion will pay the assessment.
McHenry Won’t Seek Reelection
House Financial Services Committee Chairman Patrick McHenry, R-N.C., said Tuesday that he will not seek reelection next year. McHenry briefly served as acting House speaker in October while lawmakers searched for a permanent leader. He did not reveal any future plans in a statement announcing his decision.
McHenry was first elected to the House in 2004. After next year, he would have been term-limited from his post as Financial Services Committee chairman.
Fed’s Barr: Bank Failures May Prompt Reexamination of Liquidity Requirements
The speed at which deposits left Silicon Valley Bank and Signature Bank, as well as concerns regarding banks’ ability to monetize their liquidity buffers, suggest that it may be necessary to reexamine requirements regarding self-insurance standards and discount window preparedness, Federal Reserve Vice Chairman for Supervision Michael Barr said last Friday.
Speaking at an economic conference in Germany, Barr discussed lessons learned about liquidity risk management following the bank failures in March. He noted that after the 2008 financial crisis, policymakers required large institutions to maintain buffers of high-quality liquid assets that could be converted to reserves in times of stress. But the recent failures “highlighted the fact that, in practice, there can be operational impediments to a bank's ability to monetize its liquidity buffers in large volumes and in a rapid time frame in acute stress,” he said.
Barr also emphasized the importance of contingency funding plans in liquidity risk management for banks of all sizes, highlighting the discount window as an important source of contingent liquidity. Barr also noted that “using the discount window is not an action to be viewed negatively” and banks should be prepared to use the discount window “in good times and bad.”
Barr said SVB and Signature Bank “faced internal operational challenges in quickly identifying and moving collateral that would have provided them additional borrowing capacity at the discount window.” He noted that a majority of banks have legal agreements in place to borrow from the discount window, but most had not recently tested their discount window access before the failures and resulting market stress. “Engaging in testing through actual transactions at regular intervals is a key component of operational readiness,” Barr said.
Read updated interagency guidance on liquidity risks and contingency planning