FEDERAL GOVERNMENT RELATIONS
Federal Reserve Launches FedNow Service
The Federal Reserve officially launched its FedNow service for instant payments on Thursday. The agency said that banks of all sizes can sign up and use the tool to instantly transfer money for their customers at any time of day. As an interbank payment system, FedNow will operate alongside other Fed payment services such as Fedwire and FedACH.
The Fed previously announced that more than 50 early adopters would be able to use FedNow on launch, including 16 service providers that support payment processing for banks and credit unions. When fully available, instant payments "will provide substantial benefits for consumers and businesses, such as when rapid access to funds is useful, or when just-in-time payments help manage cash flows in bank accounts," the agency said.
ACRE Act Introduced in Senate
On Wednesday, Sens. Jerry Moran, R-Kan., and Angus King, I-Maine, introduced the Access to Credit for our Rural Economy Act in the Senate. The ACRE Act would make it easier for farmers, ranchers and rural families to access affordable real estate credit. The bill was introduced in the House earlier this year by Reps. Randy Feenstra, R-Iowa, and Wiley Nickel, D-N.C. Unlike previous versions of ACRE, 2023 marks the first time that the legislation has seen bipartisan co-sponsorship in the Senate.
The ACRE Act would give community banks the same tax-exempt status on certain earned interest that applies to farm credit institutions, allowing farm real estate borrowers and rural homeowners access to lower interest rates. The exemption would also apply to single-family home mortgage loans in rural communities with fewer than 2,500 residents and for mortgages less than $750,000.
Fed's Barr Highlights Digital Redlining Risk Resulting from AI Tools
In a speech Tuesday, Vice Chairman for Supervision Michael Barr cautioned that while artificial intelligence and machine learning have enormous potential, "they also carry risks of violating fair lending laws and perpetuating the very disparities they have the potential to address."
Among those risks is digital redlining in marketing that excludes majority-minority communities or minority applications, Barr noted. "Digital redlining may result if advertisers select their audiences based on a characteristic that is correlated with protected characteristics," he said. "New technologies can also result in 'reverse redlining,' or steering in the advertisement of more expensive or otherwise inferior products to minority communities. These risks are amplified when a model is opaque and lacks a sufficient degree of explainability – the degree to which the bank can understand how data, variables and other features inform the credit decisions."
Barr added that regulators will evaluate through the supervisory process "whether firms have proper risk management and controls, including with respect to those new technologies."
CFPB's Chopra Promises "Rigorous" Stance on Mergers
Consumer Financial Protection Bureau Director Rohit Chopra said in a recent interview with Reuters banks should "expect a more rigorous review of applications" for mergers in the aftermath of the March banking turmoil. Treasury Secretary Janet Yellen and Acting Comptroller of the Currency Michael Hsu recently have voiced support for M&A activity to shore up midsize lenders, but Chopra said "the ink on the rubber stamp has dried up" and that he hopes to see regulators shift "from cheerleader to umpire."