Thursday, December 1, 2022

Executive News: Looking ahead to last-minute legislation

Well, here we are: In my opinion, this is the most dangerous time for any industry.

We are within weeks of the first round of midterms for President Biden. History will tell you if Congress is controlled by the same party as the president, it will suffer a loss of congressional seats and usually control of the House.

Adrian Beverage, OBA President and CEO

The current administration has a low approval rating and the consensus is the House will flip to Republican control. The only question seems to be how big will the advantage be for Republicans?

We’ve been hearing rumors for months that Democratic members will try to cram some legislation through in the weeks before the midterm elections. The Democratic-controlled House knows it may lose control of the agenda, and the Senate is up for grabs in November. If the Democratic Party can get some bills passed right now, they might have a chance to see the finish line should it maintain control of the Senate after the general elections.

Since we last talked, the House is moving an overdraft protection bill, and meanwhile the Senate just introduced a bill being referred to as Durbin 2.0.

Starting with the overdraft bill, H.R. 4277 was introduced last year by Rep. Caroline Maloney (D-N.Y.) and this bill is referred to as the Overdraft Protection Act. Although the bill was introduced last year, it was brought up in a hearing last week and passed committee.

The Overdraft Protection Act would upend a framework established in 2009 when the Federal Reserve amended Regulation E to require customers to “opt-in” for overdraft protection for one-time debit card (in-store, point-of-sale purchases) and ATM transactions.

This opt-in process involves clear pre-election and post-election disclosures, and consumers may opt-out at any time. The Federal Reserve’s decision to require a consumer’s opt-in only to point-of-sale debit card and ATM transactions was based on consumer testing that demonstrated consumers want check, ACH and recurring debit card transactions paid because these transactions tend to be important payments (i.e., rent, car and utility payments).

This finding was recently supported by a February 2022 Morning Consult survey that found 74% of consumers are happy their depository institution covered an expense when their account was overdrawn.

If the Overdraft Protection Act is enacted, depository institutions would be prohibited from charging consumers more than one overdraft fee in a month and more than six overdraft fees in a year, regardless of a consumer’s choice to opt-in. In contrast to the Federal Reserve’s rule, this limit would apply to any overdraft transaction regardless of form of payment – i.e., all check, ACH, bill-pay, debit card (point-of-sale and recurring) transactions.

In other words, the bill’s limits on overdraft usage would replace the consumer’s choice with a government mandate.

This bill is also unnecessary because banks of all sizes already offer consumers a wide array of account options, including accounts that do not offer overdraft protection. As an example, depository institutions accounting for 56% of the deposit market offer Bank On-certified accounts – simple, affordable bank accounts that do not charge overdraft or insufficient fund fees.

Congress should not limit the choice of consumers who wish to have overdraft services when overdraft-free accounts are so widely available.

We have sent lots of information and talked with all members of the Oklahoma delegation and there currently isn’t any support for this legislation.

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Last week, Sen. Durbin (D-Ill.) and Se. Marshall (R-Kan.) introduced S.4674 the so-called “Credit Card Competition Act of 2022.”

In 2010 we received what is commonly referred to as the Durbin Amendment, Durbin 2.0 is equally as bad. This version proposes new credit routing mandates that would give retailers, not consumers, the power to decide which credit card network transactions would be routed over.

All in spirit of mega retailers making more money.

Consumers, small businesses and small financial institutions will lose big if this happens. We partnered with other trade associations, as well as the ABA, to send a letter to our delegation. Below are bullet points from the letter we delivered.

1. Credit routing mandates will hurt consumers:
Consumer choice for credit cards would disappear. Instead of consumers picking what network they prefer, merchants could force them to go with the cheapest option.

Credit card rewards programs would disappear. Companies invest billions in rewards and benefits to attract customers. Without the competitive incentive to invest, those programs will disappear. The original Durbin Amendment debit routing mandates resulted in reduced free or low-cost banking services for thousands of consumers. Additionally, a 2014 study by George Mason University found the Durbin Amendment increased the unbanked population by one million Americans, primarily in minority and low-income communities.

Cybersecurity will be at risk. If merchants are simply allowed to choose the cheaper networks that haven’t invested in the latest security technology, consumer payment data would be vulnerable to the foreign networks. This bill is a surefire way to provide more private consumer information to unreliable foreign networks.

Prices will rise for consumers. Establishing a dual-routing system will represent a significant expense raising costs for consumers.

2. Credit routing mandates will hurt small businesses:
Credit routing mandates would hurt small businesses. When they are still recovering from the economic impact of the pandemic – billions driven from the credit market – lenders will be forced to reduce small business lending to recoup their losses.

Small businesses will face a higher cost of acceptance – increasing the cost of doing business when they can least afford it.

Small merchants also stand to lose valued services provided by card issuers and payments networks, such as monitoring and preventing fraud, implementing new fraud prevention technologies and maintaining and improving the U.S. electronic payment system infrastructure.

3. Credit-routing mandates will hurt small financial institutions:
Credit-routing mandates are a back-door price control on small community banks, imposing the same routing mandates as large multinational banks. The price control is like the flawed 2010 Durbin Amendment that regulated debit cards. Small financial institutions stand to lose between $5 billion and $9 billion in annual interchange revenue from these mandates that do nothing to improve the market for consumers.

Routing mandates on credit cards will only further restrict lending for small businesses and individual banks and credit unions and eliminate credit card rewards and promotions, thus narrowing choices for consumers.

S.4674 hasn’t received a hearing in committee yet, but we are hearing it could come soon. There isn’t a companion bill introduced in the House yet, but it’s likely on the way. We’ll keep you posted on any developments on both of these bills as they will each have a significant impact on your bank should they become law.

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The OBA will finally be going back to Washington D.C, in September for our annual Washington Visit.
Due to COVID-related concerns, we haven’t been able to go the last two years. We’re excited to go back, and as you can see, there is plenty going on in Washington.

This year’s visit will be Sept. 26-28 and we’ll be staying at the Waldorf Astoria hotel. This visit provides you an opportunity to meet with members of the Oklahoma delegation and all of your primary regulators. Please consider joining us, there is plenty of information at www.oba.com or just call me.