STATE GOVERNMENT RELATIONS
New State Laws Take Effect July 1
The majority of bills that passed the 2021 Indiana General Assembly and were signed by Gov. Eric Holcomb were set to become state law on Thursday, July 1. The General Assembly concluded its legislative work for the 2021 regular session at the end of April. Just over 215 bills were ultimately signed into law by the governor. While a few bills became effective law upon the signature of the governor, most bills had an effective date of July 1, which is a standard date of implementation. For more information regarding the bills that are notable to the financial services industry, please refer to the IBA legislative summary.
FEDERAL GOVERNMENT RELATIONS
Senate Lawmakers Introduce Bill to Level Playing Field Between Banks, FCS
Sens. Jerry Moran (R-Kan.), John Boozman (R-Ark.), Mike Rounds (R-S.D.), Kevin Cramer (R-N.D.) and Roger Marshall (R-Kan.) on Wednesday introduced S. 2202, the industry-advocated Enhancing Credit Opportunities in Rural America Act of 2021, which would end the taxation of interest earned from agricultural real estate loans.
This would not only reduce servicing costs for community banks providing these types of loans, it would also level the playing field between banks and the tax-advantaged Farm Credit System – making it easier for banks to support the farm sector through real estate loans. A bipartisan companion bill was introduced in the House earlier this year by Reps. Ron Kind (D-Wis.) and Randy Feenstra (R-Iowa).
FinCEN Issues National Anti-Money Laundering Priorities
The Financial Crimes Enforcement Network on Wednesday issued government-wide policy priorities for anti-money laundering and countering the financing of terrorism. According to the priorities, the most significant AML/CFT threats currently facing the country are corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organization activity, drug trafficking organization activity, human trafficking and human smuggling, and proliferation financing.
In a separate interagency statement issued by FinCEN and the federal banking agencies, the agencies indicated that publication of the priorities “does not create an immediate change to Bank Secrecy Act requirements or supervisory expectations for banks.” The agencies reported they will revise their BSA regulations within the next six months to address how the priorities will be incorporated into banks’ BSA requirements.
The agencies added that they will not examine banks for the incorporation of the priorities into their risk-based BSA programs until the effective date of the revised regulations. The priorities list will be updated every four years, as required by the Anti-Money Laundering Act of 2020.
Read the interagency statement
Fed’s Quarles Skeptical on Benefits of U.S. CBDC
Cautioning against “American susceptibility to boosterism and fear of missing out” leading to “occasionally impetuous, deluded crazes or fads,” Federal Reserve Vice Chairman for Supervision Randal Quarles raised several concerns on Monday about the purported benefits and “considerable risks” of developing a U.S. central bank digital currency (CBDC). The speech comes as the Fed undertakes a wide-ranging research project on the costs and benefits of a U.S. CBDC.
Speaking at the Utah Bankers Association’s convention in Sun Valley, Idaho, Quarles said the potential benefits of a U.S. CBDC are “unclear,” given that the ones most often touted by CBDC backers – relevance of the dollar and financial inclusion – are already being advanced by market participants. “I believe we can promote financial inclusion more efficiently by taking steps to make cheap, basic commercial bank accounts more available to people for whom the current cost is burdensome, such as the Bank On accounts developed in collaboration between the Cities for Financial Empowerment Fund and many local coalitions,” he said. Even if realized, he added, such benefits would be questionable given the “very good” condition of the U.S. payments system and ongoing private sector and Fed efforts to improve it.
Quarles also highlighted risks from a U.S. CBDC, including cyberattacks, money laundering risks, undermining private-sector competition and operational risk as a Fed “CBDC could, in essence, set up the Federal Reserve as a retail bank to the general public… We will need to consider whether the potential use cases for a CBDC justify such costs and expansion of the Federal Reserve’s responsibilities into unfamiliar activities, together with the risk of politicization of the Fed's mandate that would come with such an expansion.”
CFPB Finalizes Rule to Assist Borrowers Affected by COVID-19
As expected, the Consumer Financial Protection Bureau on Monday finalized a rule to facilitate streamlined loan modification efforts and establish a temporary COVID-19 emergency pre-foreclosure period under Regulation X that would prohibit servicers from making the first notice or filing required to initiate foreclosure until Dec. 31. This “pre-foreclosure” period would apply to mortgage loans secured by the borrower’s principal residence.
The final rule – which takes effect Aug. 31 – builds on existing rules, which prohibit a servicer from making the first notice or filing required by law until a borrower’s mortgage loan obligation is more than 120 days delinquent. The CFPB issued the rule in response to concerns that a large number of borrowers may exit forbearance at the same time this fall when they reach the maximum term of forbearance and could strain servicer capacity.
The rule exempts institutions that meet the small servicer standard of 5,000 loans or less serviced annually.
In addition, final rule will temporarily allow mortgage servicers to offer certain loan modifications made available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application. It also requires servicers to discuss specific additional COVID-19-related information as part of their early intervention obligations; clarifies servicers’ reasonable diligences when the borrower is in a short-term payment forbearance program made available to a borrower experiencing a COVID-19-related hardship based on the evaluation of an incomplete application; and offers a definition of “COVID-19-related hardship.”
HUD to Propose Reinstating 2013 ‘Disparate Impact’ Rule
The Department of Housing and Urban Development last week proposed to recodify its 2013 discriminatory effects rule. If finalized, it would overturn HUD’s September 2020 final rule that conformed HUD’s 2013 disparate impact rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, which recognized disparate impact analysis to demonstrate discrimination claims under the Federal Housing Administration but added key limitations to ensure the burden of proof in disparate impact cases is with the plaintiffs. The 2020 final rule never took effect because a Massachusetts federal district court judge stayed the rule pending consideration of consumer advocates’ challenge to the rule as arbitrary and capricious.
Under the 2013 rule that HUD proposes to recodify, the burden shifts to the defendant to prove that its policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest, if the plaintiff first proves that the policy or practice caused or predictably will cause a disparate impact on a protected group. In contrast, the 2020 final rule added five elements that must be included in disparate impact claims under the FHA. Comments are due Aug. 26.
FDIC Modifies Resolution Plan Rules
The Federal Deposit Insurance Corp. last Friday outlined a modified approach to implementing its rule requiring insured depository institutions (IDIs) with $100 billion or more in total assets to submit resolution plans. The FDIC’s announcement had been expected, following a 2018 federal legislation promoting tailoring of financial regulations put in place following the 2008 financial crisis. The modified implementation rules extend the resolution plan submission frequency to a three-year cycle and provide new details on the FDIC’s intended engagement with the affected firms and the capabilities testing it will require from them throughout the filing cycle.
The new approach also exempts filers from some content requirements that have been less useful to the FDIC or are obtainable through other supervisory channels. In addition, on a case-by-case basis, the FDIC plans to exempt filers from certain content requirements based on its evaluation of how useful the information would be in planning a resolution of the IDI in question. Each filer will receive a letter from the FDIC that specifies exempted plan content and the due date for the next filing.
Resolution plans will be submitted in two groups, with the first group consisting of IDIs whose top-tier parent company is not a U.S. global systemically important bank or a Category II banking organization under the Federal Reserve’s tailored enhanced prudential standards, Regulation YY.
The second group will be all other IDIs with $100 billion or more in total assets. For institutions with less than $100 billion in total assets, the moratorium on submission of IDI plans announced in November 2018 remains in effect.
CFPB Report Flags Consumer Reporting, Debt Collection, Payday Lending Issues
The Consumer Financial Protection Bureau on Tuesday issued a “Supervisory Highlights” report focusing on recent examiner observations of several financial products. Among other provisions, examiners flagged issues related to consumer reporting, debt collection and payday lending.
Examiners noted several issues related to consumer reporting, including failure by consumer reporting companies to comply with accuracy procedures; failing to place security freezes on consumer’s reports; and failing to update and correct consumer information. The bureau also flagged issues related to debt collection, such as companies making prohibited calls to a consumer’s workplace, failure to cease communication on written request and deceptive means of collection.
Additionally, the bureau flagged one instance of redlining, citing HMDA data from the lender as well as direct mail marketing campaigns “that featured models, all of whom appeared to be non-Hispanic white,” and the inclusion of “headshots of its mortgage professionals in its open house marketing materials” that “showed only professionals who appeared to be non-Hispanic white.” The bureau also found that the lender’s office locations were nearly all concentrated in majority non-Hispanic neighborhoods, and reported that examiners “determined that the lender employed mostly non-Hispanic white mortgage loan officers and identified emails among mortgage loan officers containing racist and derogatory content.”