May 25, 2022
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ILC bill withdrawn from committee markup

Legislation to close the industrial loan company loophole was withdrawn from a House Financial Services Committee markup amid concerns with an amended version of the bill.
 
One of the Close the ILC Loophole Act’s (H.R. 5912) lead co-sponsors—Rep. Jesús “Chuy” García (D-Ill.)—withdrew his bill after committee members raised concerns they didn’t receive enough time to review a newly amended version of the measure. Lawmakers also raised questions about a provision that would have added the Financial Stability Oversight Council to the ILC review process.
 
The bipartisan legislation would remove the Bank Holding Company Act’s exemption of ILCs from the definition of “bank” and thereby permanently close the ILC loophole—a top ICBA advocacy goal to ensure a level regulatory playing field and preserve the separation of banking and commerce.
 
ICBA thanks the community bankers with representatives on the committee who weighed in with calls and emails to their lawmakers in support of the bipartisan legislation. ACB leadership was in contact with Rep. French Hill's office throughout the markup process.
Source: ICBA
FDIC supervisory appeals reversal

ICBA expressed disappointment that the FDIC eliminated the independent Office of Supervisory Appeals and restored the Supervision Appeals Review Committee as the final level of review in the agency’s supervisory appeals process.
 
In a news release responding to the reversal by the agency, ICBA said community banks did not have a meaningful chance to utilize the Office of Supervisory Appeals, which became fully staffed and operational only six months ago.
 
 “Without a bipartisan FDIC board, the agency’s decision to reconstitute board-level review using the SARC calls into question its commitment to a more independent supervisory appeals process,” ICBA President and CEO Rebeca Romero Rainey said. “We look forward to continued dialogue with the FDIC on this issue.”
 
Under the revised Guidelines for Appeals of Material Supervisory Determinations, the SARC generally replaces the Office of Supervisory Appeals as the final level of review. Effective immediately and open to a 30-day comment period, the move reverses last year’s revised guidelines establishing the OAS.
 
In a 2020 comment letter in support of the OAS replacing the SARC, ICBA said the best approach to establishing a more transparent and independent appeals process would be to create a separate appeals office independent of the federal banking agencies.
Source: ICBA
Overdraft fee income takes a hit

U.S. banks reported a quarter-over-quarter decline in overdraft revenue in the first quarter after raking in increasing amounts of fee income in each quarter of 2021.

Overdraft-related service charges stood at $2.12 billion for the industry during the first quarter, down from $2.34 billion in the fourth quarter of 2021, according to S&P Global Market Intelligence data.

The shift comes as many banks are moving away from their legacy overdraft and non-sufficient fund, or NSF, fee practices. Some banks are opting to completely nix the fees as regulatory and competitive pressures come to a head, while others are hoping to preserve some of the income by only reducing the fees.
Source: S&P Global Market Intelligence
CFPB boosts ability of states to enforce federal consumer laws

The Consumer Financial Protection Bureau issued an interpretive rule that describes states’ authorities to pursue lawbreaking companies and individuals that violate the provisions of federal consumer financial protection law.
 
The agency’s interpretive rule says:
  • States can enforce the Consumer Financial Protection Act, including the provision making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law.
  • States can pursue claims and actions against a broad range of companies and individuals.
  • CFPB enforcement actions do not halt state actions.

Source: CFPB
Vulnerability Snapshot: Financial Services Sector

Threat actors routinely utilize vulnerabilities that are known to be exploited or have exploits available to
compromise vulnerable entities. In April 2022, the Cybersecurity and Infrastructure Security Agency (CISA) found multiple active vulnerabilities on Financial Services (FS) entities that threat actors can use to compromise FS networks by gaining unauthorized access and executing malicious code.
 
CISA also found use of unsupported operating systems (OSs) and unsecure services that threat actors routinely utilize to gain access to targeted networks.

Source: CISA
House hearing on central bank digital currency

After ICBA expressed opposition to the establishment of a U.S. central bank digital currency, a House hearing will focus on CBDC benefits and risks.
 
In a comment letter to the Federal Reserve and a national news release, ICBA said a U.S. CBDC would introduce significant privacy and cybersecurity risks into the nation’s monetary system and disrupt U.S. banking stability.
 
ICBA said a U.S. CBDC would obstruct the ability of banks to take deposits and make loans, pose privacy and cybersecurity risks, provide a gateway to direct-to-consumer Fed accounts, and damage the Fed’s ability to conduct monetary policy, among other risks.
 
The House Financial Services Committee hearing is scheduled for noon (Eastern time) this Thursday.
Source: ICBA
Fed authority on climate limited

Michael Barr, President Joe Biden's nominee to lead bank supervision at the Federal Reserve, said in his nomination hearing that the Fed's authority on climate change is limited and related only to assessing risks.

"I think that the Federal Reserve is not able to allocate credit, should not be in the business of telling financial institutions to lend to a particular sector or not to lend to a particular sector," Barr said.
The purpose of scenario analyses or other measures should be to understand risks and work on managing them, the vice chair for supervision nominee added.
Source: S&P Global Market Intelligence
Fed finalizes rule governing FedNow

The Federal Reserve Board finalized a rule that governs funds transfers over the Federal Reserve Banks’ FedNow Service, which is scheduled to go live in 2023.
 
The final rule amends Regulation J to establish rules governing FedNow funds transfers while providing legal certainty and clarity on the rights and obligations of parties to FedNow transfers.
 
The final rule incorporates Uniform Commercial Code Article 4A and applies it to all transfers over FedNow.
Source: Federal Reserve
CFPB could examine nonbanks

The Consumer Financial Protection Bureau could soon announce its determinations to examine nonbanks for risky behavior — a move that is garnering both concern and support.

In late April, the CFPB said it will use its dormant legal authority under the Dodd-Frank Act to look at the actions of nonbank financial companies, such as fintechs, that may pose risks to consumers. The number of financial companies that do not resemble traditional banks is rising rapidly, as technology transforms the financial industry.
As part of that broader announcement, the agency said it potentially could publicly release its decisions to examine specific companies based on risk, in a proposed procedural rule.

Attorneys who specialize in CFPB issues said in interviews that the process is rife with uncertainty. The public releases, a departure from the bureau's past practice, could hurt companies outed by the regulator, they added.

As a whole, the use of the dormant authority will give the CFPB a chance to determine quickly whether to examine nonbanks, CFPB Director Rohit Chopra said on April 25 when he released the agency's plans.

"This authority gives us critical agility to move as quickly as the market, allowing us to conduct examinations of financial companies posing risks to consumers and stop harm before it spreads," Chopra said. He later provided more depth on the decision at a congressional hearing the next day.

"Congress has established three categories that are subject to bank-like supervisory examinations," Chopra told the U.S. House Financial Services Committee. "This is the third category that has rarely been used. We have gotten feedback particularly on what are banks and what are nonbanks."

Chopra did not specify how the CFPB would define nonbanks, but said a company would have to be a "covered person" under the agency's general authority in order to be supervised.

Source: S&P Global Market Intelligence
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