Greetings from Guy
By Guy Sims
When I travel to Washington, D.C., I’m always reminded of why I like living in Oklahoma. It’s easy to see how people lose touch with the real world while living inside the Beltway. You just don’t get a sense that many people who live and work there have a clue as to what makes the economy function in Middle America.
Nearly 70 bankers from Oklahoma braved the trip to Washington last week and presented a strong case for the Oklahoma banking industry to regulators. At the meeting with the CFPB, Debbie Rinehart and Sandy Werner gave thoughtful and detailed comments on how onerous consumer regulations are affecting their customers. I know I may regret saying this, but for the first time, I felt like the CFPB officials were listening to our views rather than just looking down their noses at us.
The highlight of the trip for me was our meeting with acting Comptroller of the Currency Keith Noreika. Noreika’s remarks and answers to our questions were the most direct and refreshing dialogue I have heard from a regulator since I’ve been going to D.C.
This man understands the role of regulators in the banking industry. He articulated the need for bifurcated regulations for community banks. He stated bifurcated regulation should be based on the bank’s business model and not asset size. I truly believe if President Trump appoints people of this caliber as heads of the other regulatory agencies, there will be significant positive changes for the community banking industry.
We heard somewhat mixed messages from our Congressional delegation on both tax reform and the chances for regulatory reform. Sen. Lankford did confirm the Banking Committee chairman, Sen. Mike Crapo (R-Idaho), is working on a bipartisan reform bill that could possibly be out this month. The senator could not give details as to what was in the bill but did say the reform would be substantial.
The Bankers’ Night Out programs will be in McAlester and Stillwater this week where we will have more on the Washington trip. I look forward to seeing the bankers from those parts of the state.
Last week, the Consumer Financial Protection Bureau released its final rule that covers generally the small-dollar lending market. Importantly, the final rule protects banks that make small-dollar “accommodation loans” to customers on an occasional basis.
“The OBA challenged the complexity of the initial proposal in 2016 and its applicability to traditional community banks,” said OBA President Roger Beverage. “When we met with the Bureau in 2016 we were told that the initial proposal was intended to be exceptionally complex in order that ‘payday lenders’ – the target of this proposal – would not be able to find a way to skirt or otherwise get around the proposed rule. That was the first time I’d ever heard a bank regulatory agency admit the rule they were proposing was consciously made more difficult to understand so the target entities would have trouble implementing it.
“We explained how it would impact traditional community banks, and asked that they be specifically exempted from this proposal. The Bureau representatives responded by saying, ‘Oh no, we couldn’t do that because then one of these (payday lenders) would just buy one of you and get around the rule that way.
“Really?” Beverage said. “In any event, we submitted a very detailed and specific comment letter, referring to some examples of when these ‘accommodation loans’ were made by member banks. So did a lot of our colleagues, the ABA and the ICBA. At the end of the day, small dollar loans by OBA-member banks were exempted entirely from the rule, BUT . . . there are conditions. These kind of loans
· must be made by a lender (no size limitation – it applies regardless of size) that has made fewer than 2,500 of these kinds of loans in each of the current and previous years, and
· must also account for less than 10 percent of the bank’s revenues;
· for banks that exceed the threshold for the accommodation loan exemption, the final rule preserves the ability of these banks to offer installment loans of 46 days or more, which ABA believes will allow banks to innovate and increase their responsible small-dollar credit products.
“With today’s rule, the bureau has reiterated its earlier view that banks can play an important role in meeting the needs of small-dollar borrowers,” said ABA SVP Ginny O’Neill. “As we continue to analyze the final rule’s 1,690 pages, we hope that it will allow banks to expand programs to effectively meet the small-dollar credit needs of their customers.” ABA will continue to review the final rule and will publish a detailed summary/staff analysis of it.
Here’s the quick summary from the ABA about why bankers have concerns:
First, the rule identifies it as an unfair and abusive practice for a lender to make covered short-term or longer-term balloon-payment loans, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay the loans according to their terms. The question we have is, what is “abusive?” It could be anything the rule writer dreams up. (Note: the rule exempts certain loans from the underwriting criteria prescribed in the rule if they have specific consumer protections).
Second, for the same set of loans along with certain other high-cost longer-term loans, the rule identifies it as an unfair and abusive practice to make attempts to withdraw payment from consumers’ accounts after two consecutive payment attempts have failed, unless the consumer provides a new and specific authorization to do so.
Finally, the rule prescribes notices to consumers before attempting to withdraw payments from their account, as well as processes and criteria for registration of information systems, for requirements to furnish and obtain information from them, and for compliance programs and record retention.
The rule prohibits evasions and operates as a floor leaving State and local jurisdictions to adopt further regulatory measures (whether a usury limit or other protections) as appropriate to protect consumers.
In case you’re interested, here’s some of the introductory comments from the Bureau about why it believes this rule is warranted:
The Bureau is concerned that lenders that make covered short-term loans have developed business models that deviate substantially from the practices in other credit markets by failing to assess consumers’ ability to repay their loans according to their terms and by engaging in harmful practices in the course of seeking to withdraw payments from consumers’ accounts.
The Bureau has concluded that there is consumer harm in connection with these practices because many consumers struggle to repay unaffordable loans and in doing so suffer a variety of adverse consequences. In particular, many consumers who take out these loans appear to lack the ability to repay them and face one of three options when an unaffordable loan payment is due: take out additional covered loans (“re-borrow”), default on the covered loan, or make the payment on the covered loan and fail to meet basic living expenses or other major financial obligations.
As a result of these dynamics, a substantial population of consumers ends up in extended loan sequences of unaffordable loans. Longer-term balloon-payment loans, which are less common in the marketplace today, raise similar risks.
(The following comes courtesy the ABA):
The Senate confirmed Randal Quarles by a vote of 65-32, to serve as the Federal Reserve’s vice chairman for bank supervision. The position, which was created by the Dodd-Frank Act, had not been filled before Quarles’ confirmation.
Quarles is President Trump’s first nominee to be confirmed at the U.S. central bank. He has spent the last several years working in the investment banking industry after serving as a senior Treasury official in the George W. Bush administration. Quarles is expected to take a moderate approach to reduce financial regulation. He has been opposed to the Volcker Rule, which restricts proprietary trading by banks.
Despite the recent appointment, there will soon be three vacancies on the Fed’s seven-member Board of Governors. Stanley Fischer, vice chairman of the Federal Reserve, recently announced plans to step down by Oct. 13 for personal reasons. The Fed has not had its full complement of Governors since 2013.
Currently, the Federal Reserve Board has five members. They are:
- Janet Yellen, chairman (term expires Jan. 31, 2024)
- Stanley Fischer, vice chairman (term expires Jan. 31, 2020) leaving in October
- Randal Quarles (term expires Jan. 31, 2018)
- Lael Brainard (term expires Jan. 31, 2026)
- Jerome Powell (term expires Jan. 31, 2028)
Rob Engstrom was named chief political strategist for the American Bankers Association. In his new role, Engstrom will oversee the critical components of ABA’s political engagement operations: the Fund for Economic Growth, BankPac, grassroots and the ABA-State Association alliance.
“Rob’s knowledge and experience will be a tremendous asset in ABA’s continuing effort to improve the policy environment for America’s banks,” said Rob Nichols, ABA’s president and CEO. “Rob’s leadership and political expertise will be essential as we advocate for policies that will allow banks to better serve their clients, customers and communities. We’re thrilled to have him on board.”
“ABA is the banking industry’s voice in Washington, and I look forward to doing what I can to strengthen that voice,” Engstrom said. “America’s banks are the lifeblood of the economy, and working closely with our state association colleagues, we will make sure the nation’s elected officials understand and appreciate the critical role the industry plays.”
As senior vice president and national political director at the U.S. Chamber of Commerce, Engstrom has been leading the U.S. Chamber’s national political, grassroots and election-related activities, and oversaw an aggressive voter education campaign in 2014 that helped elect pro-business candidates to Congress. In 2016, Engstrom directed the largest and most sophisticated get-out-the-vote effort in the U.S. Chamber’s history, helping secure victories for 95 percent of its endorsed candidates.
Engstrom is forming a consulting firm that will allow him to carry out his new ABA responsibilities while also continuing to provide political direction to the U.S. Chamber. Engstrom begins his work for ABA today.
Engstrom previously served as senior vice president of political and state affairs for the U.S. Chamber Institute for Legal Reform, where he directed all state-level voter education, grassroots and advocacy efforts, and served as the chief liaison between ILR and state chambers of commerce. Engstrom has extensive campaign experience. He was recognized by Campaigns & Elections magazine as one of the top 50 influencers in the 2014 election.
Engstrom resides in Alexandria, Virginia, with his wife Celina. He was raised in Atlanta, Georgia, and is a graduate of Baylor University in Texas.
Fall has arrived and the weather is cooperating with that fact … to a degree. Well, as well as Oklahoma weather can ever cooperate! One thing that is always cooperative, at least with your personal calendar, is OBA education as there’s a seminar, webinar or school always coming up in the near future. Take note of the following:
- Advanced Financial Statement Analysis, Oct. 16, webinar — Attend this proactive seminar and learn a “comprehensive approach” to financial statement analysis.
- Loan Documentation 101: Basic Secured Loan Doc, Oct. 18, webinar — This is the first of a two-part series.
- Loan Documentation 101: Lien Perfection, Oct. 19, webinar — This is the second of a two-part series.
- Marketing & Advertising Compliance, Oct. 24, webinar — As the compliance environment becomes more complex, your marketing department must stay on top of all the rules and regulations. This session can help.
- Real Estate Lending Compliance Seminar, Oct. 25-26, Oklahoma City — An overview of the real estate lending requirements from each regulation is provided, along with comprehensive coverage of selected topics, policy suggestions, employee training tips, audit techniques and steps to eliminate past problems
- HMDA Essentials seminar, Oct. 27, Oklahoma City — The final amendments to Regulation C modify the types of institutions and transactions subject to the regulation, the types of data that institutions are required to collect and the processes for reporting and disclosing the required data.
- OBA 2017 Technology Summit, Nov. 8, Oklahoma City — Spend an informative, education-filled day with RSM’s technology consulting group. The group will share relevant, timely information and industry best practices for your technology risks and challenges.
- 2017 OBA Operations School, Nov. 13-17, Oklahoma City — The Operations School is designed to prepare junior-level officers to mid-level operations managers to manage effectively and efficiently the operations function within a bank.
Finally, insights about trends and expectations regarding agriculture and rural economies will be the focus of the Rural Economic Outlook Conference taking place Oct. 20 on Oklahoma State University’s Stillwater campus. Click here for more information and to register online.