Tuesday, June 18, 2024

Executive News: August recess leaves time to ponder Hill happenings

We’ve finally reached Aug. 1 and it means two things: The kids are about ready to go back to school and Congress is headed home for the month.

We’ve finally reached the August recess; this is when legislators have the opportunity to spend an entire month back in their districts. We’ll be seeing a lot of town halls over the next couple of weeks as they criss-cross their districts, meeting with as many constituents as possible.

Adrian Beverage, OBA President and CEO

There has been a lot going on in Washington the last couple of months, and I think now is a perfect time to see where everything stands and what we are working on.
While there are several pieces of legislation floating around, I wanted to bring you up to speed on several lawsuits you should be interested in. One suit involves the Consumer Financial Protection Bureau, and two involve the FDIC.

In late April, the Texas Bankers Association, along with Rio Bank in McAllen, Texas, filed suit against the CFPB. Several weeks after the lawsuit was filed, the American Bankers Association joined alongside. The lawsuit is directed at the CFPB’s final rule of Section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act that would require commercial lenders to collect data from loan applications. The statutory amendment sought to facilitate the enforcement of fair-lending laws that would require lenders to determine if the business is women-owned, minority-owned or a small business, and to compile 13 data points about the business. Below are several of the key points of the lawsuit:

It argues the final rule is invalid because the CFPB’s funding structure is unconstitutional, relying heavily on the Fifth Circuit’s Community Financial decision.

The final rule is arbitrary and capricious because it didn’t consider comments relevant to the statue’s purpose.

The lawsuit asserts that the final rule exceeds the statutory scope of section 1071 because it expanded the 13 data points listed in the statute to 81 items in the final rule.

On Monday, July 31, a district court granted the plaintiffs’ motion for a preliminary injunction, sparing TBA and ABA members from having to devote time and resources complying with the rulemaking until the Supreme Court resolves a case regarding the constitutionality of the CFPB’s funding structure.

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On July 20, the Minnesota Bankers Association and Lake Central Bank filed suit against the FDIC.

The lawsuit concerns one of the most contentious regulatory compliance issues banks have faced recently; the FDIC’s Unfair or Deceptive Acts position regarding NSF fees on re-presented checks.
The lawsuit is not focused on the subject matter of the FDIC’s UDAP rule. Instead, it focuses on procedural issues. Specifically, the lawsuit claims the FDIC did not have authority to amend existing bank disclosure regulations and didn’t have authority to issue a substantive UDAP rule.

Even if the FDIC had the authority to take those steps, the lawsuit claims the agency failed to follow the mandatory rulemaking process in the Administrative Procedure Act, which is the federal law that ensures that government agencies operate in a fair and transparent way.

The OBA and other state associations are working closely with the MBA on this suit. The MBA is gathering information on how other state associations can be supportive of its action. The OBA will strongly consider all options once we receive the information.

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On the legislative front there are several issues that we are working on, and we’ll continue pushing certain issues and playing defense on others.
ACRE (H.R. 3139) — The Access to Credit for our Rural Economy Act will help rural America by making it easier for farmers, ranchers and rural homeowners to access low-cost credit. We have been working on this bill for years and we are starting to see some good momentum.

ACRE will do the following:

Lower the cost of making a loan backed by agricultural real estate, thereby increasing community bank participation in the rural real-estate market.

Enhance competition between lenders for agricultural and rural housing loans, lowering the cost of credit for rural borrowers.

Help expand access to local credit in rural America by enabling more community banks to make agricultural real estate and rural home loans.

ACRE excludes from gross income the interest received by a qualified lender on all loans secured by farm real estate and aquaculture facilities. Additionally, ACRE would exclude from gross income the interest received by a qualified lender on home mortgage loans of $750,000 or less in rural communities of no more than 2,500 people.

This tax exemption for interest-income on agricultural loans has been an effective tool to support rural lending by government-sponsored enterprises, and ACRE would simply expand that tax treatment to all federally insured banks, thereby increasing loan supply and decreasing costs for borrowers.

Credit Card Competition Act (S.1838) — This piece of legislation is commonly referred to as Durbin 2.0. It would have the same chilling effects on credit cards the original Durbin amendment had on debit cards.

There was a strong attempt from the proponents of this bill in late July to get it attached to the National Defense Authorization Act – fortunately members of the Senate didn’t move forward.
We will see this bill again soon. I wanted to make sure you are aware of the implications it would have on your bank and your customers. We’ll need your help again soon to contact members of the Oklahoma delegation and ask them to oppose this bill.

The Credit Card Competition Act would expand government-imposed routing mandates to the credit card market. Proponents of the legislation say it will inject more competition into the market; however, it’ll do anything but. Imposing government mandates on credit card routing, as this legislation will do, could have negative impacts for community banks and consumers alike.
This bill is being pushed by the biggest grocery stores, big box and online retailers, and is opposed by travel experts. It could spell the end of card rewards programs.

When was the last time you booked a flight using rewards points? Or saved on gas? If you’re like millions of Americans, you probably take advantage of credit cards rewards. Those rewards are supported by the banks and card networks who supply them. This legislation could mean the end of those rewards, as the funding that enables those popular programs would be eliminated.
Debit card rewards went away when a similar law went into effect for those cards and the same will happen for credit if the Credit Card Competition Act is passed.

The misguided legislation will harm banks of all sizes and consumers. Community banks focus first and foremost on serving their community and their customers. For many community banks, one convenient option they provide to customers is credit card services. If routing mandates like the Credit Card Competition Act are imposed, community banks may lose the ability to support credit card offerings for their customers.

The key component of this legislation is it will allow the government to mandate which networks can be used for routing credit cards. Rather than allow banks to choose networks based on security and soundness, they will be forced to use a network the government chooses.

Bank and card companies work hard to ensure the networks they use are the most secure; cheaper, alternative networks being pushed by mega-retailers may not have the same priority.
Currently, every time you use your debit card, the orginal Durbin Amendment comes into play. It contained provisions intended to limit the amount of interchange revenue banks can receive on debit card transactions.

These interchange fees are most banks’ largest source of non-interest, non-fee income and is the revenue stream offsetting the cost of offering a checking account.

Rather than save consumers money as promised, merchants pocketed the savings they reaped from the government price cap, while community banks lost a revenue source to support important consumer benefits like free checking and debit rewards. Community banks have also lost substantial revenue due to the cap on interchange fees. This limits investments small community banks can make in staying competitive in a fast-moving payments landscape and their ability to provide the best financial products to meet customers’ needs.

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We will have plenty to deal with Congress returns to Washington in a couple of weeks.

With that in mind, I want to make sure you know about our upcoming Washington Visit. Our Annual Visit is Sept. 24-26. We will meet with all your regulators and members of the Oklahoma delegation. It’s a great trip and we are hoping to have 100 bankers join us this year.

Should you have any questions regarding the Washington Visit or anything else please don’t hesitate to contact me.