FEDERAL GOVERNMENT RELATIONS
Federal Court Pauses CRA Rule Implementation Following Industry Lawsuit
A federal judge in Texas late last week issued a preliminary injunction against enforcing new rules implementing the Community Reinvestment Act in a lawsuit brought by several industry trade groups.
The American Bankers Association, Independent Community Bankers of America, and five national and state associations sued banking agencies in February for exceeding their statutory authority with their recent amendments to final rules implementing the CRA. In a lawsuit filed in the Northern District of Texas, the groups asked the court to vacate the rules. They also sought a preliminary injunction preventing the agencies from enforcing the rules while the court decides the merits of the case.
District Court Judge Matthew Kacsmaryk granted the plaintiffs their request to pause implementation of the rules while the case moves forward. Among other things, Kacsmaryk said the plaintiffs had shown that banks would incur substantial and unrecoverable costs if the rules were to be enforced only to be struck down at a later date.
The other plaintiffs in the lawsuit are the U.S. Chamber of Commerce, Texas Bankers Association, Independent Bankers Association of Texas, Amarillo Chamber of Commerce and Longview Chamber of Commerce. In a joint statement, the plaintiffs said they welcomed the decision.
“While we strongly support the goals of CRA, the Final Rules exceeded the banking agencies’ regulatory authority and created disincentives for banks to lend in low- and moderate-income communities that need access to credit the most,” the groups said. “We look forward to litigating this matter to a final judgment.”
Hsu Suggests Requiring Banks, AI Companies to Reimburse Customers for Fraud
A new British regulation requiring banks to reimburse customers for losses resulting from push payment fraud “deserves greater discussion and debate” in the U.S., particularly when the fraud is powered by artificial intelligence, Acting Comptroller of the Currency Michael Hsu said Thursday. In a speech on economic fairness, Hsu discussed the role of AI in the banking sector, saying the technology can be both a tool for fighting fraud and a vehicle for turbocharging the problem. Banks and AI companies are best positioned to deliver fraud solutions, he said.
As a possible motivation for the banking and AI sectors, Hsu pointed to the U.K.’s Payment Systems Regulator, which recently issued a rule requiring banks to reimburse customers when criminals trick them into sending money to a fraudulent account. The reimbursement is split 50/50 between the customer’s bank and the receiving bank.
“In cases where AI plays a role in the fraud, splitting the liability evenly between the customer’s bank, the receiving bank and the AI platform would seem to be a good starting point for consideration," Hsu said. Such a liability split would protect consumers while creating strong incentives for those best positioned to develop effective defenses.”
Fed’s Bowman: Proposed Bank Merger Reforms Step in Wrong Direction
Recent proposals to reform the regulatory approval process for bank mergers and acquisitions may actually make the problem worse, as policymakers have put improving the speed for reaching decisions on merger applications “lower on the list of priorities,” Federal Reserve Governor Michelle Bowman said Tuesday.
The Office of the Comptroller of the Currency in February proposed to end the time limit for automatic approvals of mergers of banks that it supervises as well as reevaluate its approval process, while the Federal Deposit Insurance Corp. last month proposed a major overhaul of its approval process. Speaking at a Kansas City Fed event on the future of banking, Bowman was critical of the FDIC proposal in particular, saying that some of the proposed changes – such a move away from deposit-based analysis in merger consideration – could result in more delays in the process.
“We should focus on ensuring that we can improve the speed and timeliness of regulatory decision making, applying review standards that are reasonable and consistent with the statutory framework,” Bowman said. “Too often it seems that regulators discount the fact that these organizations do not simply hit the pause button during the merger review process. We must remember that these organizations are businesses that continue to operate and must do so in a way that supports their ongoing business operations and future growth.”
Bowman also said that the M&A process can be inappropriately influenced when regulators make demands on firms that are not squarely grounded in statutory approval requirements or based on safety and soundness considerations. “During the application deliberation process, regulators can impose limitations or restrictions to address specific supervisory or policy concerns in the form of ‘conditions’ or ‘commitments’ on the approval,” Bowman said. “While this can be an important tool, it should not be used to replace rulemaking or existing regulations and statutes that guide regulatory action; we should not engage in ‘regulation by application.’ Conditions or commitments that impose obligations that are inconsistent with our existing regulatory framework raise issues of significant concern.”
SEC Official: Agency Taking Consistent Approach to Crypto
The Securities and Exchange Commission’s head of enforcement, Gurbir Grewal, defended his agency’s actions against illicitly traded cryptoassets. Grewal said despite the crypto sector’s claims that it is not subject to securities laws, the SEC has consistently applied the Howey Test, which is the standard for determining what may qualify as a security, to determine whether instruments are investment contracts. He said the crypto sector’s arguments amount to saying, “we want a different set of rules than those that apply to everyone else.”