STATE GOVERNMENT RELATIONS
House Bill 1005 – Housing
Author: Rep. Doug Miller, R-Elkhart County
Latest action: The bill passed the House and was referred to the Senate Appropriations Committee for further consideration.
Senate Bill 5 – Consumer Data Protection
Author: Sen. Liz Brown, R-Allen County
Latest action: The bill passed the Senate and was referred to the House Judiciary Committee for further consideration.
Senate Bill 183 – Unclaimed Property Matters
Author: Sen. Eric Koch, R-Lawrence, Jackson, Orange and Brown counties
Latest action: The bill passed the Senate and was heard in the House Judiciary Committee on March 8.
Senate Bill 412 – Natural Resource Matters
Author: Sen. Susan Glick, R-LaGrange, Steuben, Noble and DeKalb counties
Latest action: The bill passed the Senate and was referred to the House Natural Resource Committee for further consideration.
House Bill 1316 – IFA Approval
Author: Rep. Doug Miller, R-Elkhart County
Latest action: The bill passed the House and was referred to the Senate Tax and Fiscal Policy Committee for further consideration.
INPRS Insists it is Investing Wisely
Indiana lawmakers want the state agency responsible for managing the pension funds of Hoosier government employees, including teachers, to focus on achieving the highest investment returns at the lowest possible cost. Officials at the Indiana Public Retirement System (INPRS) insist their top priority for investing the $42.5 billion in pension assets always has been hitting a targeted annual rate of return.
FEDERAL GOVERNMENT RELATIONS
Powell Expects Fed to Pick Up Pace of Rate Hikes
Recent economic data suggests the Federal Reserve will need to continue to raise interest rates this year to slow inflation and possibly push rates higher than previously projected, Fed Chairman Jerome Powell told lawmakers on the Senate Banking Committee Tuesday. In prepared remarks, Powell said the latest economic data have come in stronger than expected, with little sign of disinflation in core services – excluding housing – and the labor market remaining tight. That data "suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," he said. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
The Federal Open Market Committee has raised the federal funds rate during each of its previous eight meetings, most recently raising the rate from 4.5-4.75% during its February meeting. Asked where the rate could ultimately end up, Powell said the median assessment of FOMC members during its December meeting ranged from 5-5.5%. FOMC members will meet again later this month and make new assessments at that time. "The data we've seen so far, and we still have other data to see…suggest that the ultimate rate we write down may be higher than what we wrote down in December," Powell said.
The Fed chairman was also asked about remarks by Fed Vice Chairman for Supervision Michael Barr suggesting that significant changes are likely to result from a "holistic review" of bank capital standards. Powell said it is not uncommon for vice chairmen to take a "fresh look" at the standards, with any changes needing approval by the Fed board. He also said, when pressed, that the Fed is committed to tailoring regulation according to an institution's risk profile, "and that is a principle that we'll stick with."
White House Pushes State Policymakers to Restrict 'Junk Fees'
The Biden administration Wednesday released a guide for state legislatures and attorneys general on how they can act against what it has labeled "junk fees" – a broad category of business fees that includes fees banks charge for services such as overdraft protection. The Consumer Financial Protection Bureau also released a new Supervisory Highlights report alleging to have uncovered a range of "unlawful junk fees," including "surprise" overdraft fees charged by banks.
The White House guide cited several examples of alleged junk fees across multiple industries, including hotel resort fees, rental car fees, event ticketing fees, and cable and internet fees. Among the examples was "the banking industry's excessive and unfair reliance on banking junk fees." The administration pointed to several examples of banks ending fees for overdraft protection amid regulatory pressure. In a video conference with state lawmakers that same day, CFPB Director Rohit Chopra and other administration officials urged attendees to scrutinize state laws regarding unfair, deceptive and abusive practices.
In the Supervisory Highlights report, the agency indicated that its examiners have found that institutions have engaged in unfair acts or practices by charging consumers multiple non-sufficient funds (NSF) fees when the same transaction is presented multiple times for payment against insufficient funds in the customer's account. The Federal Deposit Insurance Corp. has scrutinized this same practice but has cited banks for deception under section 5 of the FTC Act, not for unfairness. The FDIC has criticized this for applying new supervisory expectations regarding NSF fees retrospectively without warning and without an opportunity for the public to provide feedback.
The CFPB also stated that its examiners have cited banks for UDAAP findings for overdraft fees resulting from "authorize positive, settle negative" transactions. Under this fact pattern, a first transaction is authorized on positive funds. Then, a second transaction authorizes and posts, lowering the available balance. When the first transaction posts, it posts against negative funds, and the customer is assessed an overdraft fee.
Read the CFPB's supervisory highlights
House Republicans Seek Answers on CFPB's Credit Card Fee Rule
A proposal by the Consumer Financial Protection Bureau to limit credit card late fees would have negative economic consequences for consumers, and the agency needs to explain the process it used to draft the rule, Rep. Andy Barr, R-Ky., House Financial Services Committee Chairman Patrick McHenry, R-N.C., and 16 House Republicans said last week in a letter to the agency.
The lawmakers said that last year, the CFPB broke precedent by failing to address credit card late fees when it issued the annual fee adjustments as required under Regulation Z of the Truth in Lending Act. "In prior years when the CFPB did not make inflation adjustments, because inflation was low, it explained the statistical basis for not indexing the fee," they said. "However, the CFPB has yet to explain or justify why there was not an increase in the most recent annual adjustment announcement – a striking lack of transparency and accountability, and especially so in an era of outsized inflation."
The CFPB has since proposed new rulemaking to end the practice of annually adjusting the late fee safe harbor for inflation, lowering the safe-harbor amount to $8 and capping permissible late fee amounts at 25% of the required minimum payment. The lawmakers posed several questions to Director Rohit Chopra about that decision, including why the agency failed to convene a small business review panel to advise on the rulemaking, as required by law; what data it used to determine the dollar limits; and what communications it has had with the Biden administration, which has labeled late fees "junk fees."
FHA Publishes 40-Year Loan Modification Final Rule
The Federal Housing Administration Wednesday published a final rule allowing mortgagees to increase the maximum term of a loan modification from 360 to 480 months for FHA-insured mortgages after a default episode. FHA also published the mortgage letter establishing the standalone 40-year loan modification policy. The rule goes into effect on May 8.
The rule will permit mortgagees to provide a 40-year loan modification to borrowers, which expands FHA's loss mitigation options to include a standalone 40-year loan modification. According to FHA, the 40-year loan modification can assist borrowers in avoiding foreclosure by spreading the outstanding mortgage balance over a more extended period, making their monthly payments more affordable. The rule also aligns FHA's requirements with loan modification options available to mortgagees for borrowers with mortgages backed by Fannie Mae and Freddie Mac, which provide a 40-year loan modification option.
Fed's Barr: Agencies Continue to Explore Role of Crypto in Banking
Regarding cryptoassets, banking regulators are continuing to consider "whether and how" certain cryptoasset activity can be conducted in a manner consistent with safe and sound banking, Federal Reserve Vice Chairman for Supervision Michael Barr said Thursday. Barr's remarks on the crypto sector came a day after crypto-focused Silvergate Bank announced it was shutting down operations, although he didn't mention the firm, instead pointing to the collapse of FTX in November last year.
"We have just gone through an experience that did not cause enormous disruption to our broader economy, but was quite disruptive to the crypto sector in a way that revealed some of the problems people have been highlighting in the sector for a long time," Barr said in a Q&A session following a speech at the Peterson Institute for International Economics. He added that the Federal Reserve and other agencies are using their existing authorities with respect to the safety, soundness and compliance of the banking system. "But obviously, there is a set of activities going on that is mostly not in the banking sector. It is mostly outside the banking sector, and other market regulators and Congress need to think about the appropriate role for regulation of those entities."
Barr viewed stablecoins as having unique risks, with stablecoin issuers seeking some of the same characteristics of federally insured bank deposits. "Stablecoin issuers represent that their liabilities can be redeemed on demand at par, a dollar for a dollar. In fact, however, the assets backing the liability can fluctuate in value," he said. "Even if the assets backing the claim are high quality, they cannot necessarily be immediately monetized, and operational risks are quite high. As we have seen all too often, depositors sometimes want or need their money immediately, especially in times of stress...The banks we regulate, in contrast, are well protected from bank runs through a robust array of supervisory requirements."
Lawmakers Raise Concerns about Balance Sheet Treatment of Crypto Custody Assets
Rep. Patrick McHenry, R-N.C., and Sen. Cynthia Lummis, R-Wyo., last week asked the banking agencies for clarification regarding an April 2022 staff accounting bulletin issued by the Securities and Exchange Commission. The bulletin, SAB 121, made changes to the way publicly traded entities, including banks, are expected to account for the safeguarding of digital assets held in custody. The bulletin directs companies to recognize a liability and a corresponding asset on their balance sheets, measured at the fair value of the custodied digital assets – a departure from previous long-standing practices regarding custodial assets for banks and other financial institutions.
"Since SAB 121 purports to require banks, credit unions and other financial institutions to effectively place digital assets on their balance sheets, it would trigger a massive capital charge," the lawmakers pointed out. "This, in turn, is likely to prevent these prudentially regulated entities from engaging in digital asset custody. To the contrary, we should be encouraging prudentially regulated financial institutions, like banks and credit unions, to provide digital asset services precisely because they are subject to the highest standards of capital, liquidity, recovery and resolution, custody, cyber-security, and risk management."
McHenry and Lummis asked regulators to respond by March 16 regarding their engagement with SEC staff on the issuance of the bulletin, and whether they plan to direct banks and other supervised institutions to comply with it, among other provisions.