FEDERAL GOVERNMENT RELATIONS
Action Alert: Urge Lawmakers to Oppose New IRS Reporting Rules
The Biden Administration is proposing a sweeping expansion of tax information reporting aimed at raising revenue to help offset the cost of additional spending programs in the American Families Plan. While the initial draft of the Biden administration’s $3.5 trillion spending plan currently does not include the IRS reporting proposal, the language could be added over the coming weeks as the current package is debated. We must continue our grassroots efforts to ensure that this provision stays out of future drafts of the bill.
Contact your lawmakers today to express your opposition to any new IRS reporting that leads to increased compliance costs, damages your customer relationships and threatens customer privacy. In addition to the current action alert seeking bank employee participation, we have created an action alert with messaging specifically designed for bank customer engagement. Please consider sharing this unique action alert link so they may urge Congress protect their financial privacy!
IRS Reporting Provision Pulled From House Budget Bill
With bipartisan opposition growing for a controversial proposal that would to require financial institutions to report information on gross inflows and outflows on all customer accounts above a certain de minimis level, House Democrats have reportedly omitted the provision from their current draft of the budget resolution. This news comes after an intense advocacy push by national and state associations, bankers and bank customers.
While the proposal has been dropped from the House bill, there is still a possibility that it could be added back at a later point in the legislative process.
Sen. Manchin: Reporting Plan ‘Cannot Happen’
Sen. Joe Manchin (D-W.Va.) on Wednesday came out in opposition of the controversial Biden administration proposal that would require financial institutions to report information on gross inflows and outflows of all customer accounts above a certain de minimis threshold, telling a reporter that “no one should be in anyone’s bank account.” In remarks at the Economic Club of Washington, D.C., on Tuesday, Manchin also said that he’d spoken to President Biden about the proposal, telling the president “this cannot happen. This is screwed up.” As to the proposal’s fate in Congress, Manchin said: “I think that one is going to be gone.”
Braun, Young Join Colleagues to Introduce Senate Bill Barring IRS Reporting Proposal
Sen. Tim Scott (R-S.C.) introduced Senate legislation this week that would bar the Treasury Department from requiring financial institutions to report the inflows and outflows of account funds. Both Indiana’s Sen. Mike Braun and Sen. Todd Young have joined the bill as co-sponsors. Rep. Drew Ferguson (R-Ga.) introduced the House version last week. Separate legislation from Sen. Mike Crapo (R-Idaho) and Rep. Kevin Brady (R-Texas) targeting the proposal includes a similar provision.
Read about Sen. Tim Scott’s Senate bill
CFPB Director Concerned About Reg Burden for Small Banks
Consumer Financial Protection Bureau Director Rohit Chopra on Thursday said he is concerned about the potential regulatory burden that rules like the bureau’s pending Section 1071 rulemaking – which addresses the collection of credit application data for small businesses, including women-owned and minority-owned small businesses – could have on small banks, noting that “I’m very sensitive to what our local financial institutions are facing.”
Chopra acknowledged that “a lot of rulemaking that occurs in Washington [is] extremely complicated” and expressed his desire to move toward “simple, bright-line rules” that are “easy to follow [and] easy to enforce.” He encouraged banks to submit comments on the cost of the proposed 1071 data collection, adding that “I want to understand what costs are involved when it comes to reporting.”
In both written and oral testimony before the Senate Banking Committee, Chopra emphasized the importance of what he called “relationship banking,” noting that “we want to make sure we’re attuned to making relationship banking and local banking successful, rather than have them all merge and consolidate.”
CFPB Director: Relationship Banking Must Be Preserved
Consumer Financial Protection Bureau Director Rohit Chopra testified before Congress this week on the importance of preserving relationship banking. Delivering his first semi-annual report to the House Financial Services Committee, Chopra said banks that have relationships with their customers are more responsive to their customers’ needs. In his testimony, Chopra also expressed concerns with big tech’s entry into banking and payments, said the CFPB should focus on the largest firms that pose nationwide harm, and stressed the importance of robust competition and choice.
OCC’s Hsu: Regulators See No Future for ‘Zombie’ Libor
With several tenors of Libor scheduled to sunset at year-end, Acting Comptroller of the Currency Michael Hsu on Tuesday emphasized that regulators will not allow “new Libor exposures – zombie or otherwise – after Dec. 31, 2021, and we mean it.” Hsu was referring to the belief that some form of Libor will survive after that date as “synthetic Libor” or “zombie Libor.”
Warning banks not to be complacent in their transition away from Libor, Hsu emphasized that “at this point in the timeline, the OCC expects every bank to be executing upon a comprehensive plan to address the effects of Libor cessation that is tailored to the bank’s particular exposure to Libor under its current business model, risk profile and strategic plan.”
He also addressed the use of alternative reference rates, reiterating previously issued guidance stating that any replacement rate should be “robust and appropriate for their risk profile, nature of exposures, risk management capabilities, customer and funding needs, and operational capabilities.” Given that SOFR – the Alternative Reference Rates Committee’s preferred Libor alternative – “provides a robust rate suitable for use in most products, with underlying transaction volumes that are unmatched by other alternatives,” Hsu said that his agency’s supervisory efforts around the Libor transition “will initially focus on non-SOFR rates.”
OCC Issues FAQs on Proposed Rule to Rescind 2020 CRA Regulations
The Office of the Comptroller of the Currency on Tuesday issued a set of frequently asked questions on its notice of proposed rulemaking to rescind its 2020 Community Reinvestment Act rule and replace it with rules based on the 1995 CRA rules that were jointly adopted by the OCC, Federal Reserve and Federal Deposit Insurance Corp. The FAQs reiterate the OCC’s intention to work with the federal banking regulators on a separate joint rulemaking to modernize CRA regulations.
Activities that meet the qualifying criteria under the 2020 CRA rule will still receive CRA consideration if the activity was “originated, made, purchased, or conducted while the June 2020 CRA rule is in effect,” the OCC indicated. The FAQs also address examination administration, assessment areas, targeted geographic areas and strategic plans.
FDIC’s McWilliams: Clear Rules Needed on Crypto Assets, Stablecoins
The federal banking agencies “plan to issue a series of policy statements in the coming months” addressing “how existing rules and policies apply to crypto assets, what types of activities are permissible for banks to engage in and what supervisory expectations we have for banks that do engage in such activities,” Federal Deposit Insurance Corp. Chairman Jelena McWilliams said in remarks at an industry event on Monday.
Noting the recent uptick in the use of cryptoassets such as stablecoins and the significant innovation currently taking place in the crypto sector, McWilliams noted that in addition to several benefits, “stablecoins also present certain risks, specifically if one or more were to become a dominant form of payment in the United States or globally. This could lead to substantial sums of money migrating out of insured banks with significant ramifications for credit creation, financial stability, and bank funding.”
She emphasized that “in order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight.” As part of that oversight framework, regulators should ensure that “stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets,” and “should have the authority to ensure the funds are there,” she said.
Department of Labor Extends Compliance Date for Investment Advice Exemption
The Department of Labor issued a field assistance bulletin on Monday to extend the compliance date for the class exemption on investment advice. The bulletin provides temporary operational relief through Jan. 31, 2022, from the requirements of Prohibited Transaction Exemption 2020-02, “Improving Investment Advice for Workers & Retirees,” that a number of banks intend to rely on to continue providing investment advice for compensation to retirement plans and to individual retirement accounts.
The bulletin also states the Department of Labor will not enforce through June 30, 2022, the specific documentation and disclosure requirements for rollovers in PTE 2020-02. As a result of the extension, banks can now deliver fiduciary acknowledgments to existing customers with year-end statements and align annual compliance review with year-end cycles.
DOJ, CFPB, OCC to Target So-Called 'Digital Redlining'
The Department of Justice, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau last Friday announced a sharper enforcement focus on redlining and discriminatory lending practices, and announced the first settlement reached under the new program.
In addition to traditional redlining enforcement methods, CFPB Director Rohit Chopra said that the CFPB would also be “closely watching for digital redlining, disguised through so-called ‘neutral algorithms.’” Chopra noted that “algorithms can help remove bias, but black-box underwriting decisions are not necessarily creating a more level playing field and may be exacerbating the biases feeding into them,” and that “the speed at which banks and lenders are turning lending and marketing decisions over to these algorithms is concerning to me.”
Under the initiative, the Justice Department’s civil rights division will partner with U.S. attorneys’ offices to “mobilize resources focused on making fair access to credit a reality in underserved neighborhoods across our country,” Attorney General Merrick Garland said. Garland noted that the program is DOJ’s “most aggressive, coordinated effort to address redlining.” Several investigations are currently ongoing, he said, adding that he expects to open more in the months ahead. Assistant Attorney General Kristen Clarke added that the initiative will focus on “all types of lenders of all sizes, including non-depository institutions and credit unions.”
FDIC Finalizes Rule to Align Real Estate Lending Standards With CBLR
The Federal Deposit Insurance Corp. last Friday issued a final rule making changes to its guidelines for real estate lending policies in order to align standards with the community bank leverage ratio, which does not require electing institutions to calculate tier 2 capital or total capital. The final rule was unchanged from a proposal issued in June.
The final rule will allow a consistent approach for calculating the ratio of loans in excess of the supervisory loan-to-value limits at all FDIC-supervised institutions, using a methodology that approximates the historical methodology the FDIC has followed for calculating this measurement without requiring institutions to calculate tier 2 capital. The new rule will also avoid any regulatory burden that could arise if an FDIC-supervised bank decides to switch between different capital frameworks.
In addition, the rule will ensure that the FDIC’s regulation regarding supervisory LTV limits is consistent with how examiners calculate credit concentrations, as directed by a statement issued last year that examiners will use tier 1 capital plus the appropriate allowance for credit losses as the denominator when calculating credit concentrations.