FEDERAL GOVERNMENT RELATIONS
ABA, ICBA: Keep Credit Card Routing Bill Out of Defense Spending Bill
The American Bankers Association, Independent Community Bankers of America and nine other associations representing banks and credit unions urged lawmakers last Friday to reject another attempt to attach the Credit Card Competition Act as an amendment to an unrelated defense spending bill.
Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., reintroduced the retailer-supported CCCA earlier this year after failing to generate enough support for the legislation during the previous Congress. The bill’s supporters are now attempting to attach the bill to the Military Construction, Veterans Affairs and Related Agencies Appropriations Act, mirroring their previous attempt to attach the legislation to the larger National Defense Authorization Act. The bill appropriates funds for military housing, veterans’ health benefits and funds, and military facilities.
“Far from increasing competition in the credit card marketplace, [CCCA] will hurt consumers and benefit big box retailers by reducing the number of credit card issuers competing for consumers’ business, removing a consumer’s choice of preferred card network, wringing out the competitive differences among card products, limiting popular credit card rewards programs and putting the nation’s private-sector payments system under the micromanagement of the Federal Reserve board…We urge you to reject this cynical manipulation of our nation’s payments system for narrow financial gain for the nation’s largest retailers,” the associations said in a joint letter to House and Senate leaders.
Kentucky Judge Blocks Enforcement of Small Business Lending Rule
A federal judge in Kentucky last week issued a nationwide injunction blocking enforcement of the Consumer Financial Protection Bureau’s Section 1071 final rule until the U.S. Supreme Court rules on the constitutionality of the bureau’s funding structure. The injunction is separate from a similar order issued by a Texas judge in July, which only applied to American Bankers Association and Texas Bankers Association members.
The Kentucky Bankers Association and eight banks sued the CFPB in federal court in August over the small business lending rule. The plaintiffs asked the court to block enforcement of the rule while the Supreme Court considers a separate case involving the bureau’s funding, CFPB v. Community Financial Services Association of America, which is scheduled to be argued in October and whose decision could be released any time before the end of June 2024. In the order, District Court Judge Karen Caldwell sided with the plaintiffs, saying a temporary nationwide injunction would not harm the CPFB or the public. “Meanwhile, plaintiff banks are incurring expenses that will be unrecoverable and needless if the Supreme Court rules that the CFPB’s funding structure is unconstitutional,” Caldwell wrote.
ABA and TBA asked for a nationwide injunction in their lawsuit, but the judge in that case sided with CFPB in limiting the order only to members of both groups. The associations afterward urged the bureau to voluntarily pause enforcement of the rule while the Supreme Court considers the funding case.
CFPB Sets Reg Z Annual Threshold Adjustments for 2024
The CFPB has announced the 2024 dollar amounts for the annual threshold adjustments for Regulation Z, which implements the Truth in Lending Act. For open-end consumer credit plans under TILA, the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1 in 2024. For Home Ownership and Equity Protection Act loans, the adjusted total loan amount threshold for high-cost mortgages will be $26,092. The adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,305.
For qualified mortgages (QMs) under the general qualified mortgage loan definition, the thresholds for the spread between the annual percentage rate and the average prime offer rate in 2024 will be: 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $130,461; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $78,277 but less than $130,461; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $78,277; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $130,461; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $78,277; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $78,277.
For all categories of QMs, the thresholds for total points and fees in 2024 will be 3% of the total loan amount for a loan greater than or equal to $130,461; $3,914 for a loan amount greater than or equal to $78,277 but less than $130,461; 5% of the total loan amount for a loan greater than or equal to $26,092 but less than $78,277; $1,305 for a loan amount greater than or equal to $16,308 but less than $26,092; and 8% of the total loan amount for a loan amount less than $16,308.
CFPB Issues Guidance on Notifying Applicants of Credit Denials When Using AI
Creditors must provide accurate and specific reasons for denying loan applications even when those decisions were made using technology that employs complex algorithms, the Consumer Financial Protection Bureau said Tuesday in new guidance on the use of artificial technology in credit denials.
In a statement, the CFPB said that creditors are increasingly using complex algorithms, marketed as AI, in their underwriting. Last year the bureau issued a circular stating that the Equal Credit Opportunity Act requires creditors to explain the specific reasons for taking adverse actions when using such technology. The new guidance expands on that previous document by stating that creditors cannot rely solely on the checklist of reasons provided in CFPB sample forms for adverse action notices.
“Creditors that simply select the closest factors from the checklist of sample reasons are not in compliance with the law if those reasons do not sufficiently reflect the actual reason for the action taken,” the CFPB said in a statement. “Creditors must disclose the specific reasons, even if consumers may be surprised, upset or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances.”
Senators Introduce New Version of SAFE Act
A bipartisan group of senators Wednesday introduced a new version of a bill to enable financial institutions to serve legitimate cannabis businesses in states where it is legal. The Secure and Fair Enforcement Regulation, or SAFER, Banking Act would allow all businesses to access deposit accounts, insurance and other financial services, according to a summary of the legislation provided by its sponsors. The bill would also create standards for banks and credit unions “to maintain customer relationships and to expand access to deposit accounts for underbanked groups.”
The SAFER Banking Act is a revised version of the industry-backed SAFE Act, which was introduced earlier this year with sponsors from both parties. The Senate Banking Committee has scheduled a Sept. 27 vote on the bill.
Senate Majority Leader Chuck Schumer, D-N.Y., and Sens. Jeff Merkley, D-Ore., Steve Daines, R-Mont., Kyrsten Sinema, I-Ariz., and Cynthia Lummis, R-Wyo., are sponsoring the bill. “This legislation will help make our communities and small businesses safer by giving legal cannabis businesses access to traditional financial institutions, including bank accounts and small-business loans,” the sponsors said in a joint statement. “It also prevents federal bank regulators from ordering a bank or credit union to close an account based on reputational risk.”
View the text of the legislation
Gruenberg Sees Room for More Supervision of Nonbanks
Nonbank financial institutions have become an integral part of the financial services landscape, and as a result, banks and nonbanks need to be viewed as “an interconnected whole and overseen accordingly,” Federal Deposit Insurance Corp. Chairman Martin Gruenberg said Monday. In a speech on financial stability risks posed by nonbanks, Gruenberg said that nonbanks can transmit risk into other parts of the financial system and “seriously hamper” the credit and financial intermediation needed to support the economy.
Gruenberg noted that the Financial Stability Oversight Council can designate nonbanks as subject to heightened supervision and resolution planning requirements, and the council recently proposed new guidance for how it would make those determinations. However, the issue remains that once a nonbank receives an FSOC designation, it moves from virtually no regulation to full regulation. “Consideration should be given to the development of a more tailored process that reduces undue financial system risk while applying prudential regulation and resolution planning requirements that are fit for purpose in the context of a particular nonbank financial institution's risks,” he said.
Gruenberg also responded to concerns that proposed interagency capital requirements for banks with at least $100 billion in assets would cause more banking services to shift to nonbanks. “The obvious response to that is there should be appropriately strong capital requirements for those activities in the banks, complemented by greater transparency, stronger oversight and appropriate prudential requirements for nonbanks,” he said. “That would be the most effective and balanced way to enhance the stability of the entire financial system.”