SDBA eNews

November 2, 2017

Trump Makes Arbitration Rule Repeal Official

President Trump yesterday signed the Congressional Review Act resolution invalidating the Consumer Financial Protection Bureau’s final rule that had effectively banned the use of mandatory arbitration for consumer financial products. ABA President and CEO Rob Nichols attended the signing at the White House along with other leaders from financial and business groups.

The signing marks a hard-fought victory for the banking industry and for ABA, which has been vocally opposed to the rule since it was proposed in 2015. In comments to the CFPB and lawmakers, ABA repeatedly pointed out that the arbitration rule would have imposed significant costs on consumers and banks of all sizes while enriching plaintiffs’ lawyers.

In an op-ed for The Hill newspaper this morning, Nichols and U.S. Chamber of Commerce President and CEO Tom Donohue wrote that the repeal is a victory for consumers. "Arbitration provides vastly better outcomes for consumers," they wrote. "The CFPB’s study of the topic showed that in cases where arbitrators found for consumers and granted an award, the average award was $5,389. Meanwhile, in 87 percent of class action settlements the bureau studied, consumers received nothing. The 13 percent of those that resulted in settlements only got money to an estimated 4 percent of class members--and the average amount was just $32.35." Read the op-ed.

Nichols Represents Bankers at White House Meeting on Tax Reform

With the House tax reform bill expected to be unveiled as soon as today, ABA President and CEO Rob Nichols joined a small group of business leaders for a private meeting with President Trump Tuesday morning. Held in the Roosevelt Room of the West Wing, the meeting allowed Nichols and others present to share their views on tax reform with the president and to hear Trump’s perspective. Nichols was the lone representative from the financial services sector at the meeting.

“We need your continued input to make sure that the final bill gets all of the details right and that we get that approval,” Trump said during the meeting, which was also attended by Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn. Trump said he hopes the House passes its bill by Thanksgiving and that he will have a bill to sign by Christmas.

ABA staff will review the House bill when it is released and analyze its implications for banks. All year long, ABA has engaged with Congress and the administration on tax reform, and the association stands ready to support legislation that aligns with its core principles: lower corporate rates, a broader base with a simpler tax code, careful treatment of interest deductibility, no industry-specific taxes, eliminating tax subsidies for credit unions and Farm Credit lenders and paying attention to transition rules. Read Trump's remarksRead ABA's principles on tax reform.

ABA Survey: Farm Profitability Remains Down but Fewer Lenders Report Declines

Farm profitability continued to decline in the first half of 2017, according to the latest agricultural lenders survey conducted by ABA and Farmer Mac. While the overwhelming majority of ag lenders--82 percent--reported declines in profitability, that figure was down seven points from six months before. The approval rate for ag loans was 84 percent.

“We were encouraged to see that lenders remain ready to assist farmers and fulfill their credit needs despite the drag in the agricultural economy,” said Brittany Kleinpaste, director of economic policy and research at ABA. “Overall, the data showed that agricultural lenders are a little more optimistic about what’s ahead for their customers than they were in December of 2016.”

Just over half of the lenders surveyed reported an increase in demand for agricultural operating loans, and 53 percent said they expect that trend to continue over the next six months. Lenders were also more confident in stable land values than in the previous survey.

Commodity prices continued to be a top concern among 93 percent of ag lenders, particularly grain and dairy, the survey found. In addition, 87 percent said they were concerned about liquidity, 85 percent were concerned about farm income and 77 percent were concerned about farm leverage. View the survey results.

No Rate Hike From Fed on Eve of New Chairman Decision

The Federal Open Market Committee decided to hold rates at 1 to 1.25 percent, according to a statement released yesterday following the FOMC’s meeting. The decision came on the eve of President Trump's scheduled announcement today of a nominee for chairman of the Federal Reserve.

FOMC members acknowledged that this fall's hurricanes affected payroll employment and caused a spike in gasoline prices, but the unemployment rate continued to fall and inflation--aside from energy and food--remained normal. Consistent with its previous statement, the committee said it expects the hurricanes “are unlikely to materially alter the course of the national economy over the medium term.”

FOMC members said they expect continued economic growth that “will warrant gradual increases” in the target rate, and agreed that the timing and size of future rate hikes “will depend on the economic outlook as informed by incoming data.” Read the statement.

New Survey Highlights Banks' Efforts to Protect Older Americans

With Americans over age 50 accounting for 70 percent of all bank deposits, and with an estimated one in five seniors targeted by financial fraud, the ABA Foundation yesterday released its inaugural Older Americans Benchmarking Report highlighting how banks are working to combat elder abuse.

A majority of banks--71 percent--said they required additional, specialized training for frontline staff to help spot elder financial abuse, while 64 percent reported using automated tools to help better monitor their older customers’ account activity. Six in 10 said they offer products with favorable terms for older customers.

Banks also reported working closely with financial caregivers to detect and prevent elder abuse. In cases where fraud is suspected, 77 percent said they call to notify the financial caregiver, while 55 percent schedule an in-person meeting. When elder fraud is suspected, banks respond by flagging the account for further monitoring (82 percent), reporting the incident to law enforcement (68 percent), and reporting it to adult protective services (62 percent), the survey found.

The survey noted that banks also educate seniors and their caregivers about financial fraud--47 percent of banks surveyed said they host educational events on topics such as avoiding scams, identity theft and choosing a trusted financial caregiver. To help bankers in these efforts, ABA in 2015 launched Safe Banking for Seniors, which provides resources to help bankers engage and educate their older customers. Read the survey report.  Learn more about Safe Banking for Seniors.

Judge Dismisses ABA, Washington Federal Lawsuit Over Fed Dividends

A federal judge on Monday dismissed the lawsuit filed by ABA and Seattle-based Washington Federal seeking damages resulting from the United States’ improper reduction in dividends paid to Federal Reserve member banks. In an email to CEOs of banks affected by the decision, ABA President and CEO Rob Nichols said that ABA is working with Washington Federal and outside counsel to review the opinion and evaluate options for an appeal.

The cut to the long-established dividend was part of the 2015 highway spending bill, which reduced the annual dividend for Fed member banks with more than $10 billion in assets by two-thirds. ABA and Washington Federal’s suit in the U.S. Court of Federal Claims asserted breach of contract and taking of private property without just compensation in violation of the Fifth Amendment to the Constitution.

“While we appreciate that Chief Judge [Susan] Braden moved expeditiously through this process, we are not dissuaded by today’s news,” Nichols wrote. “Congress unilaterally breached long-standing contracts between the Federal Reserve Banks and their member financial institutions and--we believe--engaged in a wrongful taking. ABA remains committed to addressing this deeply harmful policy both in the courts and through legislation.” For more information, contact ABA's Tom Pinder.

Trade Associations Call for National Data Breach Standard

As the House Financial Services Committee on Monday held a hearing on data security, ABA and six financial trade associations wrote to lawmakers calling for a national data security and breach notification standard. In a letter to Reps. Blaine Luetkemeyer (R-Mo.) and Lacy Clay (D-Mo.), the groups called for a standard that would require all entities handling sensitive personal and financial data to have robust protections in place and to notify consumers in a timely manner in the event of a breach. They added that such a standard would help eliminate current inconsistencies between a patchwork of state and federal laws.

“Our existing payments system serves hundreds of millions of consumers, retailers, financial institutions and the economy well,” the groups wrote. “Protecting this system is a shared responsibility of all parties involved and we must work together and invest the necessary resources to combat increasingly sophisticated threats to the payments system.” Read the letter.

Free Magazine Article Focuses on AML/BSA Trends

The cover story in the November/December 2017 issue of ABA Bank Compliance magazine covers anti-money laundering and Bank Secrecy Act compliance and enforcement trends, noting that under the current administration these compliance expectations will continue to intensify.

The cover story is available for free and the full issue is available online for subscribers. Other stories in this issue cover complying within the lifecycle of a fintech product, assessing redlining risk by analyzing peers and navigating amendments to the Consumer Financial Protection Bureau's servicing rule. Read the cover story. Subscribe to ABA Bank Compliance.

Compliance AllianceQuestion of the Week

Question: Do we report pre-qualifications for HMDA in 2018?

Answer: No, pre-qualifications that are outside the definition of a preapproval are not reportable under HMDA 2018.  It is important to note, though, that the bank's definition is not decisive as to classifying the inquiry as a pre-qualification or preapproval. Rather, the CFPB provides definitions that must be used in making the determination.

Generally, a prequalification is defined as "a request (other than a preapproval request) by a prospective loan applicant for a preliminary determination of whether the prospective loan applicant would likely qualify for credit under the financial institution’s standards, or for a determination of the amount of credit for which the prospective applicant would likely qualify. The 2015 HMDA Rule does not require a financial institution to report prequalification requests, even though these requests may constitute 'applications' under Regulation B."

A preapproval, though, is an application and reportable if it is for a home purchase loan, not secured by a multifamily dwelling, not for an open-end LOC or reverse mortgage, and reviewed under a bank preapproval program. A preapproval program in one in which a bank conducts a comprehensive analysis of the applicant's creditworthiness, resources, etc., and then issues a written commitment with certain limitations. Further, if the bank reviews applications in this manner, but only on an ad hoc basis, it is not considered to have a preapproval program, but must be generally consistent with procedures for these reviews. Finally, preapproval program reviews are only reportable if they resulted in a denial, an offer that was not accepted, or a closure due to application incompleteness. If the review results in a covered loan, then it is reported as a covered loan, not an application.

More information (see pages 32-35).

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Contact Alisa DeMers, SDBA, at 800.726.7322 or via email.