STATE GOVERNMENT RELATIONS
Indiana Tax Collections Top Projections for July Despite 3.1% Sales Tax Shortfall
Indiana’s state government tax collections for July came in 0.5% above projections even though sales tax revenue fell short of expectations for the fourth straight month, according to the state’s monthly revenue report released last Friday. The shortfall in sales tax collections – the state’s largest revenue source – was offset by higher-than-projected revenue from individual income tax and interest payments. Overall, the State Budget Agency reported just over $1.6 billion in July revenue, which was $8 million above projections from the most recent state revenue forecast released in April. The total revenue figure was $118 million, or 8%, better than collections in July 2022.
FEDERAL GOVERNMENT RELATIONS
CFPB Issues Update to Small Business Lending Rule Filing Instructions
The Consumer Financial Protection Bureau issued an update Thursday to its previously published filing instructions guide for small-business lending data. According to the bureau, the update reorders certain demographic information codes to better correlate with Home Mortgage Disclosure Act data, makes minor wording clarifications to the pricing information data point and makes minor administrative updates to the validation IDs. The CFPB also noted the recent court order staying implementation of the rule for American Bankers Association and Texas Bankers Association members until the U.S. Supreme Court rules on a separate case involving the bureau’s funding structure. View the updated filing instructions.
Read the filing instructions guide
CFPB Penalizes Nonbank Mortgage Provider for Alleged Kickbacks
The Consumer Financial Protection Bureau penalized the nonbank mortgage loan originator and servicer Freedom Mortgage on Thursday for allegedly providing illegal incentives under the Real Estate Settlement Procedures Act to real estate brokers and agents in exchange for mortgage loan referrals. The bureau ordered Freedom to stop making kickbacks and pay $1.75 million into the agency’s victim relief fund.
Freedom provided real estate agents and brokers with incentives such as cash payments, paid subscription services and catered parties with the understanding they would refer prospective homebuyers to the firm for mortgage loans, according to the CFPB. Separately, the bureau issued an order against a real estate brokerage firm, Realty Connect USA Long Island, for allegedly accepting illegal kickbacks from Freedom. Realty Connect will pay a $200,000 penalty.
Read the order against Freedom Mortgage
Read the order against Realty Connect
FOMC Minutes: Members Split on Need for Most Recent Rate Increase
Federal Open Market Committee members were somewhat divided about the need to once again raise the federal funds rate, although ultimately all agreed to do so, according to the minutes from the FOMC’s July meeting released Wednesday. The committee raised the rate’s target range by 25 basis points to 5.25-5.5% last month after approving a pause in June. The decision to raise the rate was unanimous, but a couple members said that they favored leaving the target range unchanged or would have supported such a proposal.
“They judged that maintaining the current degree of restrictiveness at this time would likely result in further progress toward the committee's goals while allowing the committee time to further evaluate this progress,” the minutes state. The members were not identified.
As for future rate increases, committee members stressed that the decision would depend on what economic data shows at the time of the FOMC’s next meeting in September. They all agreed that the committee needs to retain a restrictive policy stance to return inflation to the Federal Reserve’s 2% target. They also agreed that the U.S. banking system was sound and resilient, although there was some concern about the risks associated with a potential sharp decline in commercial real estate (CRE) valuations that could adversely affect some banks and other financial institutions that are heavily exposed to CRE.
CFPB Developing Rules for Information Collected by Data Brokers
The Consumer Financial Protection Bureau is developing rules to prevent “misuse and abuse” by data brokers that track, collect and monetize information about people, CFPB Director Rohit Chopra announced Tuesday during a White House event. The bureau will publish an outline of proposals and alternatives under consideration next month, with plans to issue proposed rulemaking in 2024.
Chopra said the rules under consideration would define a data broker that sells certain types of consumer data as a “consumer reporting agency” to better reflect current market realities. “The CFPB is considering a proposal that would generally treat a data broker’s sale of data regarding, for example, a consumer’s payment history, income and criminal records as a consumer report, because that type of data is typically used for credit, employment and certain other determinations,” he said. “This would trigger requirements for ensuring accuracy and handling disputes of inaccurate information, as well as prohibit misuse.”
The CFPB is also seeking to address confusion around whether so-called “credit header data,” which includes information from credit reports, constitutes a consumer report, Chopra said. “This includes key identifiers like name, date of birth and Social Security number that are contained in consumer reports generated by the credit reporting companies. The CFPB expects to propose to clarify the extent to which credit header data constitutes a consumer report, reducing the ability of credit reporting companies to impermissibly disclose sensitive contact information that can be used to identify people who don’t wish to be contacted, such as domestic violence survivors.”
Chopra said that any updated rules under the Fair Credit Reporting Act can be enforced by the CFPB and state law enforcement across sectors of the economy. The data broker rulemaking would complement work by other government agencies, especially the Federal Trade Commission, he added.
Gruenberg: Agencies to Propose Long-Term Debt Requirement for Larger Banks
Federal banking regulators will soon propose a long-term debt requirement for banks with more than $100 billion in total assets, a decision influenced by the recent bank failures, Federal Deposit Insurance Corp. Chairman Martin Gruenberg said Monday. In a speech at the Brookings Institution in Washington, D.C., Gruenberg outlined additional steps federal regulators are taking in response to the bank failures earlier this year. They include a new long-term debt requirement, previously proposed tougher capital standards for banks over $100 billion, and strengthened resolution planning for banks over $50 billion.
The FDIC, Office of the Comptroller of the Currency and Federal Reserve will propose that banks over $100 billion be required to issue long-term debt sufficient to recapitalize the bank in resolution, Gruenberg said. While many regional banks have some outstanding long-term debt, the new proposal will likely require the issuance of new debt, he added.
The requirement would bolster financial stability by absorbing losses before the depositor class takes losses and creating additional options in resolution, Gruenberg said. And since the debt is long-term, it will not be a source of liquidity pressure when problems become apparent, he added. “Unlike uninsured depositors, investors in this debt know that they will not be able to run when problems arise. This gives them a greater incentive to monitor risk in these banks and exert pressure on management to better manage risk.”
FDIC: Banks Remain Resilient but Face Lending, Operational Risks
The banking industry demonstrated resilience despite weaker economic conditions, sharply higher interest rates, high inflation and financial market stress in early 2023, the Federal Deposit Insurance Corp. concluded in its 2023 Risk Review of the banking sector, published Monday. At the same time, the report noted that banking industry performance has moderated since 2022, although asset quality metrics for the industry overall remained favorable through the first quarter, and the sector remained well capitalized.
Looking ahead, weaker economic conditions and higher interest rates may challenge bank loan portfolios, including credit card, commercial and industrial, residential real estate and commercial real estate (CRE) loans, according to the report. Banks have substantial exposure to CRE lending as CRE loans comprised a quarter of total loans held by the banking industry as of Q1, the agency said. Potential signs of consumer loan problems have emerged at banks as the total past-due rate on credit cards and auto loans rose. The FDIC also noted that operational risks, including cybersecurity risks and risks related to illicit financial activity, remained elevated across the industry.