ABA Invests in NYDIG to Support Banks Offering Crypto Services

As consumers increasingly look to banks to help them safely hold cryptocurrencies and other digital assets, ABA President and CEO Rob Nichols announced in an ABA Viewpoint blog post on Tuesday that the association has invested in NYDIG, a leading provider of bitcoin solutions for banks.

Nichols noted that the investment would help support banks’ ability to meet customer demand for crypto products and services, citing NYDIG’s compliance-first approach, focus on the community bank market and focus on supporting banks rather than competing with them.

“We understand that expanding into cryptocurrency products and solutions won’t be for every bank, and that’s okay,” Nichols wrote. “We firmly stand with banks in their right to decide, according to their own judgment and market strategy, what products they will offer, and there are many valid and important factors that go into a bank’s decision about what products and services it offers. However, even with mixed opinions on the value of cryptocurrency as an asset class or as a basis for a product set, ABA believes strongly that banks should have access to the tools, partners and regulatory frameworks that allow them to meet their customers’ needs.” Read the blog post.

Biden Announces Three Key Fed Nominations

As expected, President Biden last Friday nominated Sarah Bloom Raskin to serve as vice chair for supervision at the Federal Reserve Board of Governors. Raskin—a former Maryland commissioner of financial regulation—previously served on the Fed board from 2010 to 2014, and also served as deputy secretary of the Treasury under President Obama.

President Biden also announced two additional Fed board nominees: economists Lisa Cook and Philip Jefferson. Cook is currently a professor at Michigan State University who previously served on the White House Council of Economic Advisers during the Obama administration. Jefferson is a professor and administrator at Davidson College in North Carolina and previously worked as a Fed economist.

Raskin, Cook and Jefferson join a slate of Fed nominees that also include current Fed Chair Jerome Powell—who was re-nominated by President Biden to serve a second term—and Lael Brainard, who was tapped to serve as vice chair of the board. These nominations, if approved by the Senate, would bring the Fed board back to full strength for the first time since 2013.

ABA President and CEO Rob Nichols congratulated the nominees. “If confirmed, all three would be joining the board at an important moment for our economy given the ongoing pandemic, the recent rise in inflation and other challenges,” Nichols said. “The nominees would bring a wide range of economic, regulatory and academic experience to the Board of Governors, which we have long believed benefits from having a full complement of governors from diverse backgrounds and viewpoints. We look forward to learning more about all three nominees' positions on monetary and regulatory policies during the confirmation process.” Read more.

Supreme Court Strikes Down Vaccine Mandate for Large Employers

The Supreme Court last Thursday blocked the employer vaccine mandate issued by the Occupational Safety and Health Administration, which would have required employers with 100 or more employees to ensure staff are vaccinated or tested weekly for COVID-19, among other requirements.

The mandate was previously upheld by the Sixth Circuit Court of Appeals. In mid-December, business groups challenging the vaccine mandate filed an application with the Supreme Court for an emergency stay of the mandate. The stay by the Supreme Court is effective until the challengers can appeal the Sixth Circuit’s decision in that court and to the Supreme Court, a process that likely will take at least several months.

In a separate ruling, the court upheld a nationwide vaccine mandate for workers at federally-funded health care facilities. Read the court’s decision on the employer vaccine mandate.

GAO Report Highlights Federal Response to Trafficking, Money Laundering

A recent report issued by the Government Accountability Office highlights the strategies and techniques used by criminal groups to engage in trafficking and money laundering, as well as efforts by the federal government to combat these illegal activities. The report was issued as required by the fiscal year 2021 National Defense Authorization Act.

The report describes how criminal groups move illicit goods and launder money across borders, using bulk cash smuggling, “funnel” accounts, gold and other high-value assets, and real-estate purchases, among other techniques. The report—which reflects input from ABA and several ABA members—also discusses how detailed case studies would help financial institutions’ ability to identify or report information useful for law enforcement investigations.

Additionally, the report describes how information sharing through the 314(b) program could be improved with clearer expectations and standards around response times for requests from other institutions or around what information can be shared. Read the report. For more information, contact ABA’s Rob Rowe or Jonathan Thessin.

Banking Trades Urge Further Study of Overdraft Use

A group of financial trade associations led by ABA last Thursday urged the CFPB to conduct a study of consumers’ preferences on overdraft and release the findings for public comment before undertaking any additional actions related to overdraft practices. The groups’ letter came after the bureau in December released two research reports on overdraft and signaled that it was “considering additional policy guidance outlining unlawful practices.” The groups highlighted findings from a recent Morning Consult survey that nine in 10 U.S. adults find their bank’s overdraft protection valuable, and that three in four were happy when their payment was covered when overdraft protection was used.

“Restrictions on overdraft may lead financial institutions to stop offering these services to their customers, which would result in significantly more returned checks and declined transactions,” the groups cautioned. “This may lead to unnecessary credit rating harm, returned item fees charged by the institution or by the merchant, fees from landlords and others, or requirements to pay using alternative methods such as money order.” They also cited a survey by research firm Curinos, which found that 62% of consumers would reconsider their support for new regulation of overdraft if it limited access to the service.

The groups recommended that the CFPB study frequent overdraft users in particular to ensure they fully understand how and why these consumers use overdraft and gauge their level of understanding about overdraft offerings. “Absent compelling evidence of knowledge gaps or that consumers are using the product irrationally—i.e., evidence that regular users of overdraft protection do not understand the product and its costs relative to available alternatives—people should be assumed to be the best judges of what is in their best interests and should remain free to choose.” Read the letter. For more information, contact ABA’s Jonathan Thessin.

FinCEN Exploring Creation of Regulatory Sandboxes

The Financial Crimes Enforcement Network is exploring the creation of regulatory sandboxes to test new methods of transaction monitoring, FinCEN Acting Director Him Das said last Thursday at the ABA/ABA Financial Crimes Enforcement Conference. Das said the idea stemmed from conversations FinCEN has been having with banks over the past two years as part of its Innovation Hours program.

The sandboxes would be a series of “interim but formal frameworks” for how institutions can pilot technologies like artificial intelligence to “transform traditional rules-based transaction monitoring,” said Das. He acknowledged that FinCEN needs additional staff and budget to build the program but said it is working on getting those additional resources and requested input from banks about the potential use and risks of the program. “We cannot design these sandboxes without knowing how your institutions would like to use them. What are you interested in building? What assurances do you need to start? What risks should we be on the lookout for?” said Das.

FinCEN is also considering other new ideas, Das said, including new approaches to customer risk rating and institutional risk assessment, digital identity tools and utilities, and automating the adjudication and filing of suspicious activity reports related to certain types of activity. Read more.

FDIC, National Bankers Association to Host Webinar on Diversity and Inclusion

The FDIC and the National Bankers Association will host a free webinar on Friday, Jan. 21, at 10 a.m. CST about advancing diversity and inclusion across the financial services sector and the role of minority depository institutions in creating jobs, growing small businesses and building wealth in low- and moderate-income communities. During the event, leaders from FDIC and NBA will discuss ongoing efforts to preserve and promote minority depository institutions and ensure access to capital and other resources that support economic development and mobility in minority communities. Register now.

Save the Date for Tri-State Trust Conference

The North Dakota Bankers Association will hold the Tri-State Trust Conference on April 26-28 at Delta Hotel by Marriott in Fargo, N.D. The conference agenda will be available by March 1. Exhibit and sponsor materials are now available.

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Question of the Week

Question: Can you give us some tips drafting an MSA for a joint advertising campaign to avoid a RESPA Section 8 issue?

Answer: As I am sure you have found, "marketing services agreements" is definitely a hot topic. It is still unclear to what extent this may be an issue for Section 8 purposes. Joint advertising in and of itself isn't a violation of RESPA Section 8 if each party is paying the market value for their pro rata share of the advertisement, so the bank should at least pay for its share of the ad and, of course, document how and why it isn't a referral fee. You should also make sure that there is no "quid pro quo" in this arrangement. In other words, for example, an agreement that says that if the bank pays for part of the advertising space, the individual would send the bank referrals.

In 2015, 5he CFPB put out “RESPA Compliance and Marketing Services Agreements” at http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin-2015-05-respa-compliance-and-marketing-services-agreements.pdf to delve into the issue. In 2020, the CFPB put out some FAQs at https://www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/real-estate-settlement-procedures-act/real-estate-settlement-procedures-act-faqs/#respa-section-8-marketing-services-agreements-msas to dive deeper into a few of the nuances.

Entering into, performing services under, and making payments under MSAs are not, by themselves, prohibited acts under RESPA or Regulation X. In fact, MSAs are not referenced in RESPA or Regulation X. Ultimately, the determination of whether an MSA itself or the payments or conduct under an MSA is lawful depends on whether it violates the prohibitions under RESPA Section 8(a) or RESPA Section 8(b), or is permitted under RESPA Section 8(c). The analysis under RESPA Section 8 depends on the facts and circumstances, including the details of the MSA and how it is both structured and implemented. …

An MSA is or can become unlawful if the facts and circumstances show that the MSA as structured, or the parties’ implementation of the MSA—in form or substance, and including as a matter of course of conduct—involves, for example:

An agreement to pay for referrals.
An agreement to pay for marketing services, but the payment is in excess of the reasonable market value for the services performed.
An agreement to pay for marketing services, but either as structured or when implemented, the services are not actually performed, the services are nominal, or the payments are duplicative.
An agreement designed or implemented in a way to disguise the payment for kickbacks or split charges.

Excerpt from Answer to Question 3 at RESPA Section 8: Marketing Services Agreements (MSAs): https://www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/real-estate-settlement-procedures-act/real-estate-settlement-procedures-act-faqs/#respa-section-8-marketing-services-agreements-msas

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