STATE GOVERNMENT RELATIONS
House Committee to Hear Bill Regarding Employer Vaccine Mandates
Late last week, House lawmakers announced a rare committee meeting to convene this month to hear HB 1001. The House Employment, Labor and Pensions Committee is scheduled to meet on Dec. 16 to discuss the provisions of the introduced bill. HB 1001 includes language needed to allow federal funding for COVID-19 assistance to continue in the absence of a governor’s public health emergency executive order. The bill also contains controversial language placing new requirements on employers that mandate the vaccine as a condition of employment. The committee is expected to only hear testimony on the bill and take no action until the start of session in January.
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!
OCC Nominee Withdraws from Consideration
Saule Omarova – President Biden’s nominee to serve as the next comptroller of the currency – announced Wednesday that she would withdraw her name from consideration after several Democratic senators signaled their opposition to her nomination.
Omarova – who is currently a professor at Cornell Law School – was previously a banking attorney and served in the Department of the Treasury. Over the course of her career, she has advocated for a number of policy changes that would substantially transform the bank regulatory landscape, including reforms that would require community banks to “pass through” their deposits to the Federal Reserve and effectively make them utilities and end the dual banking system. In a statement, President Biden said he will continue to work to find a new nominee for the position.
FinCEN Proposes Beneficial Ownership Reporting Requirements
The Financial Crimes Enforcement Network Tuesday proposed regulations to implement the Corporate Transparency Act, a bipartisan bill that was included in the Anti-Money Laundering Act of 2020. The proposal would require corporations, limited liability companies and similar entities to report certain information about their beneficial owners, as FinCEN looks to ultimately create a beneficial ownership registry.
Collecting this information is intended to help prevent and combat money laundering, terrorist financing, tax fraud and other illicit activity, FinCEN indicated in its notice of proposed rulemaking. FinCEN defines a beneficial owner as an individual that exercises “substantial control over the reporting company,” or owns or controls at least 25% interest in the reporting company.
The proposed rule would require a reporting company to provide the name, birthdate, address and a unique identifying number from an acceptable identification document (along with an image of the document) for each beneficial owner and company applicant. Individuals would also have the option to provide beneficial ownership information to FinCEN and obtain a “FinCEN identifier,” which can then be provided in lieu of other required information.
Comments on the proposal will be due on Feb. 7. FinCEN is planning additional rulemakings to implement the CTA, including establishing rules for who may access beneficial ownership information through the database and what safeguards will be put in place to secure and protect the data, and revising the customer due diligence rule to reflect the new reporting requirements. FinCEN is also in the process of developing the database infrastructure.
OCC’s Hsu Pushes Envelope with Call for ‘No-Cost Overdrafts’
The Office of the Comptroller of the Currency has identified principles for banks to implement what it calls “responsible overdraft programs that benefit financially vulnerable consumers,” while continuing to encourage banks to offer other options for short-term, small-dollar credit, Acting Comptroller of the Currency Michael Hsu said in a speech Wednesday. With policymakers increasingly scrutinizing bank overdraft programs—and with several banks recently announcing changes to their overdraft offerings – Hsu noted that his agency has conducted its own review of bank overdraft programs and identified “several features . . . that could be modified or recalibrated to support financial health.”
Among these features are: requiring consumers to opt-in to overdraft programs; providing a grace period before charging an overdraft fee; allowing negative balances without triggering an overdraft fee; offering consumers balance-related alerts; providing consumers with access to real-time balance information; linking a consumer’s checking account to another account for overdraft protection; collecting overdraft or non-sufficient funds fees from a consumer’s next deposit only after other items have been posted or cleared; not charging separate and multiple overdraft fees for multiple items in a single day; and not charging additional fees when an item is re-presented.
Although Hsu stated that a “race to the top for the most pro-consumer overdraft program” could effectively reform banks’ practices, he also said that “[n]ew rules and the credible threat of enforcement actions” are needed to bring about the reform the OCC is seeking. In his remarks, Hsu appeared to express a preference for offering free overdrafts, rather than overdraft-free account options, such as Bank On-certified accounts, which can “limit financial capacity,” he claimed. “For those living paycheck to paycheck, the flexibility offered by low- to no-cost overdrafts can empower them to pay their bills on time, avoid high-cost alternatives, and improve their credit profile,” Hsu added.
House Advances Libor Legislation
By an overwhelming bipartisan vote of 415-9 Wednesday, the House passed H.R. 4616, the Adjustable Interest Rate (Libor) Act, an industry supported bill that would address “tough legacy” contracts that currently reference Libor, which will cease to be published by June 2023. The legislation would provide a solution for these tough legacy contracts that lack sufficient fallback language and cannot be amended, the groups wrote. It also offers uniform treatment for all U.S. contracts that fall under federal legislation, creates a safe harbor from litigation “and prevents otherwise inevitable litigation costs and gridlock.”
CFPB Finalizes Reg Z Libor Proposal
As the industry prepares for the discontinuation of Libor, the Consumer Financial Protection Bureau Tuesday finalized changes to Regulation Z designed to facilitate the transition to alternate reference rates. The final rule amends open-end and closed-end provisions to provide examples of replacement indexes for Libor indexes that meet Reg Z standards.
The final rule explains how to choose a compliant replacement index for existing open-end and closed-end loans, including examples of factors to meet the regulation’s standards for index replacement. The rule identifies certain Secure Overnight Financing Rate-based spread adjusted indexes for consumer products as examples of compliant replacements for one-month, three-month or six-month tenors of U.S. dollar Libor for both open-end and closed-end loans. The Wall Street Journal prime rate is also considered a compliant index replacement for home equity lines of credit and credit cards.
The bureau noted that it is reserving judgment about whether to include references to a 1-year USD Libor index and its replacement index, and that it is considering issuing a supplemental final rule once it obtains additional information.
The final rule will take effect April 1, 2022, with a mandatory compliance date of Oct. 1, 2022, for revisions to the change-in-terms notice requirements. One provision – adding a date to the top of the model forms for notices of rate adjustments to adjustable rate mortgages – will take effect Oct. 1, 2023. Along with the final rule, the CFPB also issued an updated set of frequently asked questions regarding the Libor transition.
ARRC Recommends SOFR Fallbacks for 1-Week, 2-Month Libor Contracts
As required by state laws passed in New York and Alabama, the Alternative Reference Rates Committee published a statement last Friday selecting and recommending forms of the Secured Overnight Financing Rate – its preferred alternative to Libor – along with associated spread adjustments and conforming changes, to replace references to 1-week and 2-month U.S. dollar Libor in certain contracts affected by the state laws. Those tenors of Libor are scheduled to sunset on Dec. 31. The ARRC also published a set of frequently asked questions on the application of the New York state law.
The ARRC’s recommendations apply only to the relatively narrow set of Libor-based contracts for those tenors and that are affected by those states’ laws. For contracts with fallbacks that give a party (such as the lender or noteholder) discretion to choose a replacement rate, the state laws also provide a safe-harbor if that party chooses the SOFR-based rate and conforming changes recommended by the ARRC. The ARRC’s recommendation lays out an approach for a breadth of products, including asset-backed securities, business loans, consumer products, floating rate notes, and more.
OCC: Operational, Strategic Risk Elevated; Banks Remain Resilient
In its Semiannual Risk Perspective Report, the Office of the Comptroller of the Currency Monday flagged operational risk and strategic risk as being elevated, with banks continuing to face increasingly sophisticated cyberattacks and take strategic risks in order to improve earnings in the current economic environment. The OCC noted that “banks are showing resilience in the current environment, with satisfactory credit quality and strong earnings, but weak loan demand and low net interest margins continue to weigh on performance.”
In addition, the OCC noted that compliance risk also remains heightened as COVID-19 relief programs wind down. “The conclusion of these programs creates increased compliance responsibilities, high transaction volumes, and new types of fraud, as banks continue to respond to a changing operating environment,” the OCC indicated. Meanwhile, credit risk remains “moderate,” and “loan portfolios have been resilient and widespread credit deterioration has not materialized from the [COVID-19] crisis due to appropriate risk management by banks,” the report said.
Turning to community banks in particular, the OCC found that some firms have “assumed increased credit and interest rate risk consistent with their operating strategies,” and emphasized the need for these institutions to “ensure financial resilience, without compromising sound business models and strategic plans, to avoid excessive risk taking, and to maintain adequate controls when managing investment and lending programs and third-party relationships.”
Additional challenges facing community banks include strategic risk – particularly with regard to effective strategic planning, talent acquisition and retention and succession planning.
Boozman Op-Ed Targets Postal Banking Pilot
A U.S. Postal Service pilot program to test postal banking will further complicate already-strained mail delivery, Sen. John Boozman (Ark.) wrote in a new op-ed. In The Hill, Boozman wrote that the USPS likely overstepped its authority by unilaterally launching the pilot. He noted Senate Republicans are demanding answers on the USPS’s statutory authority to operate the program. The USPS quietly launched the pilot in September to offer check cashing, bill paying, ATM access, and expanded money orders and wire transfers in Washington, D.C.; Falls Church, Va.; Baltimore; and the Bronx, New York.