SDBA eNews

June 27, 2019

Ask Lawmakers to Co-sponsor Legislation to Delay CECL Implementation 

The Financial Accounting Standard Board’s new Current Expected Credit Loss (CECL) standard poses significant operational challenges for the banking industry. CECL, which goes into effect January 2020 for some banks and later for others, will change the economics of lending and the unintended consequences are likely to result in changes to credit availability, product mix and cost of credit, particularly for consumers and small businesses.

ABA believes that dramatic changes to bank accounting standards such as this should be studied and analyzed—before implementation—in order to fully understand the implications and impact it will have on the availability of credit in our communities. Fortunately, some in the U.S. Senate and House understand that and have introduced legislation (S. 1564/ H.R. 3182) that would delay implementation of FASB’s CECL standard until regulators can properly assess the effect this new standard will have on financial institutions, their customers and the broader economy. South Dakota's Sen. Mike Rounds is a co-sponsor of S. 1564.

Ask your lawmakers to co-sponsor S. 1564/H.R. 3182 to delay CECL until its full effects can be assessed and mitigated. Take action

New Report Finds Credit Unions Operate with 'Scant Regard' for Statutory Mission 

In advance of Wednesday's 85th anniversary of the Federal Credit Union Act’s enactment, new research released on Tuesday found that credit unions are falling short of their mission to serve households of “small means.” In fact, according to the research by respected analyst Karen Shaw Petrou, credit union members are disproportionately from middle- and upper-income households, and credit unions’ lack of “mission compliance” deepens U.S. economic inequality.

The report from Petrou’s firm, Federal Financial Analytics, found that the National Credit Union Administration maintains no data on credit unions’ effectiveness at providing financial services to people of “small means,” and that its definition of “low-income” is far more expansive than that used by other federal agencies. As a result, she found, designated low-income credit unions simply replace community bank credit instead of providing new credit.

The report also found that credit unions evade the FCU Act’s mandate to provide credit for “provident or productive purposes” by making risky and even “predatory” loans—including subprime auto loans and, notoriously, taxi medallion loans that resulted in several CU failures and saddled vulnerable borrowers with massive debts. The report recommends renewed policymaker and public attention to the credit union mission and effective enforcement to ensure that it is meaningfully and materially achieved.

“The in-depth analysis conducted by Federal Financial Analytics reveals troubling details about today’s credit unions. The report should serve as a wake-up call to regulators and lawmakers that this $1.5 trillion dollar industry no longer meets its statutory mission to serve low- and moderate-income households,' said ABA President and CEO Rob Nichols. 'We strongly encourage policymakers to read this report, so they can judge for themselves if today’s credit union industry is meeting the mission Congress intended, and whether the NCUA is providing the regulatory oversight consumers deserve. Any fair reading will conclude that major reforms are needed.”

The report was picked up in a Politico story on Tuesday that highlighted key findings and was also featured in Politico’s widely read Morning Money newsletter. Read the report.

NCUA Votes to Delay Risk-Based Capital Rules for Credit Unions

In a move strongly opposed by ABA, the National Credit Union Administration by a 2 to 1 margin last Thursday voted to delay the effective date of the 2015 risk-based capital rule until Jan. 1, 2022. This is the third time NCUA has voted to delay the rule. Comments on the NCUA’s proposal will be due 30 days after publication in the Federal Register.

During the meeting, NCUA board member Todd Harper—who cast the lone dissenting vote—excoriated his fellow board members for supporting the delay, warning that another recession could be looming on the horizon. "We are forgetting the past repeatedly, just like characters in Groundhog Day," he said. "After a decade of work on a new risk-based capital regime, the Great Recession and the recent taxi medallion credit union failures, it is time for us to move ahead. To protect taxpayers, federally-insured credit unions and their members, we should no longer wait."

Following the vote, ABA President and CEO Rob Nichols sharply criticized NCUA’s action, noting that it serves to perpetuate the already-unlevel playing field between credit unions and banks. “Since 2014, every bank in the country has had to adopt and comply with risk-based capital rules recommended by regulators around the world,” Nichols said. “It defies simple logic that the NCUA would propose again to delay imposing comparable rules for the nation’s credit unions, when the agency is simultaneously allowing and encouraging credit unions to operate exactly like banks.”

In addition to delaying the risk-based capital rules, the NCUA board also signaled its intention to move ahead with its proposal on subordinate debt—which ABA will also strongly oppose—before the end of the year. “Today’s action by the NCUA only adds to the long list of reasons why members of Congress need to question whether this regulator is doing its job or simply promoting the runaway growth of an industry it’s supposed to be overseeing.” Read the proposal.

ABA Opposes Debt Limit Change for Chapter 12 Bankruptcies

A proposed change to Chapter 12 of the Bankruptcy Code could have adverse effects for the nation’s agricultural producers, ABA said in a statement for the record of a House Judiciary Subcommittee hearing held Tuesday. ABA submitted the testimony as lawmakers consider H.R. 2336, which would raise the current debt limit for Chapter 12 filings from approximately $4.3 million to $10 million.

Designed to help farmers keep their farms but reorganize their debts to avoid foreclosure or liquidation, Chapter 12 bankruptcy includes expansive rights for debtors that do not exist in other chapters of the bankruptcy code, ABA pointed out. The association added that raising the Chapter 12 debt limit could increase the cost of borrowing for farmers and ranchers and reduce the overall availability of credit.

ABA noted that the current debt limits under Chapter 12 are already indexed to inflation and are adjusted accordingly every three years. Rather than make a significant one-time increase as the bill proposes, ABA suggested that the three-year adjustment could be made annually. Read the statement.

ABA Seeks Greater Clarity on Banks' Ability to Serve Industrial Hemp Businesses

In a letter to the heads of the financial regulatory agencies last Friday, ABA called for greater clarification on how banks may serve businesses dealing with hemp—a low-THC strain of marijuana that was removed from the Controlled Substances Act by Congress as part of the 2018 Farm Bill.

Despite this legislative action, regulators have yet to issue a clear directive on distinguishing legal hemp and illegal marijuana, leaving many banks uncertain about whether they can legally serve these businesses, ABA noted. “Banks want to serve their communities and support their local economies but need clear, unequivocal assurance from their regulators that hemp is distinguishable from cannabis and that serving the industry will not expose them to criminal and civil liability, or regulatory censure.”

ABA asked regulators to confirm that hemp is no longer considered a controlled substance and that banks do not need to file suspicious activity reports solely because a transaction relates to hemp or hemp-related products. The association also called for guidance on retail products containing hemp or hemp-derived CBD and the appropriate procedures for sourcing those products back to legal processors. Read the letter. For more information, contact ABA’s Ed Elfmann.

Podcast: How Voice Biometric Authentication Improves Bank Customer Experience

On the latest episode of the ABA Banking Journal Podcast, CEO Brad Paige talks about “the first security enhancement that we’ve done that actually improved the customer experience.” The enhancement: digital voice authentication. Paige’s bank, the $1.2 billion Kennebunk Savings Bank in Maine, was encountering suspected fraudulent calls in its call center multiple times per day.

To make it easier to stop the fraud, the bank deployed voice authentication. By recording 30-45 seconds of audio, customers can opt in and create a unique voice print. Then, when they call, they can be authenticated within two to three seconds, Paige says, “shorten[ing] the length of time that we’re identifying and validating the customer.”

With more than 1,400 customers signed up, Paige says “the customer feedback has been really good. We know we’ve stopped multiple [fraud] attempts.” On the podcast, he also discusses how this technology helps reduce elder fraud and what community bank executives should know about deploying the service. Listen to the episode.

OCC Moves to Electronic Fingerprinting

The OCC last Friday issued a bulletin informing banks that in July 2019 it will begin using an electronic fingerprinting process for its background investigations. Fingerprinting is required for OCC background checks associated with applications for charters, notices of acquisition of control and notices to replace board members or senior management in certain institutions. The change is expected to improve the efficiency and effectiveness of the OCC’s fingerprinting background check process.

The bulletin also noted that the updated procedures are reflected in revised versions of the “Background Investigations” booklet and the “Changes in Directors and Senior Executive Officers” booklet of the Comptroller’s Licensing Manual. Read the bulletin.

FDIC, CFPB to Host Webinar on Preventing Elder Financial Abuse

The FDIC and Consumer Financial Protection Bureau will co-host a webinar on July 25 at 1 p.m. CDT that will outline strategies to address and prevent elder financial abuse. The webinar will focus on collaboration between financial institutions and law enforcement and will provide financial institutions with resources and strategies for developing these partnerships. It will also address the challenges of detecting and reporting elder financial abuse. Register for the webinar.

Compliance Alliance

Question of the Week

Question: If someone inherits a house and has plans to demolish it and build another house, what is the HMDA purpose?

Answer: There is no bright-line rule in the regulations or guidance that delineates when a loan like this crosses the line between “home improvement” and “home purchase.” Many banks consider a loan to cross into new construction when the old home is being completely torn down, including the foundation. At that point, if the lender is going to be doing the construction-permanent financing on the new house, the loan would generally be considered a “home purchase” transaction. This is just an example, however, and the bank’s own internal policy needs to make this delineation so that it can consistently evaluate this kind of loan any time it comes up in the bank.

A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. Comment 3 to 1003.2(j):

Home improvement loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located. 1003.2(i):

Compliance rules and regulations change quickly. For timely compliance updates, subscribe to Compliance Alliance’s email newsletters.

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email.

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