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Richard's Rapid Fire - July 19, 2019
Sen. Elizabeth Warren Unveils Wall Street Reform Proposals: Senator Elizabeth Warren this week outlined a plan to impose additional regulations on Wall Street, the banking industry and private equity firms.
Highlights of what Sen. Warren’s plan includes:
- Impose new executive compensation rules for bankers.
- Reverse recent bank regulatory rules that she says weakened capital and liquidity requirements.
- Create a “21st Century Glass-Steagall Act” designed to rebuild “the wall between commercial banks and investment banks.”
- Allow the U.S. Postal Service to “partner with local community banks and credit unions to provide access to low-cost, basic banking services.”
- Create a real-time-payments system backed by the Federal Reserve.
House, Senate Hold Hearings on Facebook’s Libra: The Senate Banking Committee held a hearing Tuesday on Facebook’s proposed cryptocurrency Libra and the House Financial Services Committee heard from Facebook’s David Marcus on Wednesday.
There was a lot of discussion around topics involving consumer protections, how user data and privacy will be protected and if systems are in place to prevent financing of illegal activities. We continue to believe the safest place for consumers is within the well-regulated banking industry.
Senate Banking Committee:
- “If somebody steals funds from a bank account or makes fraudulent charges on a credit card, the consumer, for the most part – almost always is held whole (ph) by the institution. How will Libra handle that?”
- “When I deposit money into a bank, I am very confident that I can withdraw it from that bank, OK? My grandfather was not by the way and that's why even on these homesteads that are around, every once in a while, you'll find a glass jar full of money because they didn't trust the bank. It was only when we got deposit insurance that -- that the banks had the kind of faith. What kind of faith do we have in Libra?”
— Sen. Jon Tester, D-Montana, speaking to Facebook executive David Marcus at Tuesday’s Senate Banking Committee hearing.
House Financial Services Committee
- “We think you’re a bank, but you’re not quite like a bank. If you’re bank, we regulate the heck out of you. That is the resistance you’re feeling.”
— Rep. Ed Perlmutter, D-Colorado, speaking to Facebook executive David Marcus at Wednesday’s House Financial Services Committee hearing.
CFPB Releases Third-Party Debt Collection Report: On Thursday, the CFPB released a report on third-party debt collections, covering 5 million credit records maintained by one of the three nationwide credit reporting companies from 2004 to 2018. The report finds that more than 25% of consumers with a credit report have at least one debt in collection by third-party debt collectors. However, the data in the report also showed that over three quarters of third-party collection tradelines are for non-financial debt, with 58% of the tradelines being medical debt, and an additional 20% being telecommunications and utilities debt.
The report also shows the volatility of the third-party collection market over the past 15 years, with a 350% increase in third-party buyer tradelines between Q2 2004 & Q3 2009, and then a decline through 2016. While the number of third-party tradelines has increased over the past 15 years, the numbers of collectors has declined overall since 2004, most steeply over the past 10 years. In 2004, there was a total of 2,294 third party collectors, which has since declined to 898 third party collectors in 2018.
The Bureau also reported the majority of buyer tradelines were purchased from banking, retail and financial debt while non-buyer debt-collection tradelines are made up mostly of medical and telecommunication debts.
Finally, the distribution of original creditor type among all third-party collection tradelines showed 58% of debts are medical and healthcare, 15% are telecommunications debt, and only 5% of the total tradelines held by third-party collectors is banking debt.
This data comes as the Bureau is in the midst of their comment period for their proposed changes to the Federal Debt Collection Practices Act. CBA’s Stephen Congdon is facilitating comments on this proposal, and if you or someone from your institution is interested in contributing, please contact him at email@example.com.
CFPB Director Kraninger Discusses Exam Process: CFPB Director Kathy Kraninger on Wednesday said the CFPB was reevaluating its examination process as part of a larger review of the entire Bureau.
She said, "We are taking a fresh look at the entire process of examinations to ensure that we're risk-prioritizing our resources, utilizing technology to automate certain tasks and taking full advantage of appropriate partnerships with our fellow regulators.”
In addition to discussing the exam process, Director Kraninger largely reinforced previously outlined CFPB priorities, including:
- Communicating with examiners to ensure policies are carried out at the examiner level;
- Plans to use all four tools the Bureau has (education, supervision, examination and enforcement) and doesn’t feel enforcement actions should be read to prescribe policy;
- Continuing to further look at the meaning of abusive acts; and
- Strengthening the Bureau’s focus on elder financial abuse.
CBA’s Take on Overdraft Fees: The CFPB is currently reviewing overdraft rules. While CBA believes adjustments and clarifications to the rule may be warranted, the rule currently in place should largely remain the same. CBA SVP and Associate General Counsel David Pommerehn penned an op-ed in American Banker this week discussing the important role overdraft protection plays for customers trying to manage their finances. He also outlined why the current rule is largely working for consumers and banks.
Key points from the piece are available below and the full op-ed is available here.
- Roughly 10 years ago, policymakers made significant changes to the existing overdraft rules to increase transparency and improve physical disclosures. Today, in conjunction with these rules and advances in mobile banking technology, consumers have more account information at their fingertips than ever before, making it easier to manage their funds. However, the fact remains a large portion of Americans do not have enough money to cover emergency expenses or simply run out of funds before payday hits.
- Policymakers need to take a measured approach to any changes to the current rule and be mindful of consumers’ financial needs.
- Research by Novantas found the majority of overdrafts are by highly informed consumers who proactively protect themselves with overdraft services.
- It is also important to note when the new rule was crafted, the Federal Reserve Board determined the requirements should only apply to ATM and point-of-sale transactions, not physical checks or ACH transactions. This is largely due to extensive data gathered through consumer focus groups that found consumers “would prefer to have their checks paid into overdraft, because those transactions represent important bills” and “generally indicated that they were more likely to pay important bills using checks, ACH, and recurring debits, and to use debit cards on a one-time basis for their discretionary purchases.”
- Placing restrictions on overdraft services would take away a well-regulated source of financial liquidity, causing consumer harm through returned payment fees, accumulation of higher merchant-imposed interest or late-payment penalties for returned checks … We believe the current regulatory framework concerning overdraft services afford consumers strong protections via detailed disclosures and allows an avenue for financial management when funds are low.
HFSC Continues Markup of Credit Reporting Bills: The House Financial Services Committee continued a legislative markup they started last week focusing on bills that would make significant changes to credit reporting and underwriting systems banks utilize. Ahead of the markup, CBA sent a letter to Chairwoman Maxine Waters (D- Calif) and Ranking Member Patrick McHenry (R-N.C.) recognizing some unintended effects the bills could have on the availability of consumer credit.
Ultimately, the Committee approved legislation that would add new layers to dispute resolution processes and potentially limit the scope of consumer information used in underwriting decision, all with narrow party-line majorities, indicating much further changes will be needed for any of bills to have a chance of enactment.
A copy of CBA’s letter outlining our concern is available here.
Earnings Reports Reveal Consumer Banking Drives Growth: As earning reports rolled out, it was clear consumer banking is playing a pivotal role in driving growth at institutions across the country and helping customers meet their financial goals. A few pull quotes from this week are below:
- Booming consumer businesses drove quarterly profits higher at JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., while trading and deal fees shrank. (Wall Street Journal, 07/16/2019)
- Consumer Lending Powers Big-Bank Earnings, Upstaging Wall Street (Wall Street Journal, 07/16/2019)
- “We see solid consumer activity across the board,” Bank of America’s chief executive, Brian Moynihan, said in a statement … BofA has reported steady growth in its consumer businesses … Revenue from consumer banking rose 5% from a year earlier to $9.7 billion. Average consumer deposits climbed 3% to $707 billion. Those results set the table for a 7% increase in BofA’s overall net income to $7.3 billion. (American Banker, 07/17/2019)
- Citigroup profit beats estimates on gains in consumer lending (Reuters, 07/15/2019)
- Bank [of America] posts higher-than-expected earnings, lifted by consumer banking and wealth management (Wall Street Journal, 07/17/2019)
- [Wells Fargo] continued to win business from consumers, with primary checking accounts up 1.3% from a year earlier. (American Banker, 07/16/2019)
- Under CEO Brian Moynihan, the [Bank of America] managed to deliver record first-quarter profit in April, fueled by the company’s retail lending operations … (CNBC, 07/17/2019)
Truist Bank to Invest $60B in LMI Communities: The combined BB&T and SunTrust bank, Truist Bank, will make a $60 billion investment in low- and moderate-income communities, with more than half of the money going toward mortgage loans. The bank will also add fifteen branches in those communities.
M&T Bank Investing $9M in PA, NJ Branch Modernization: M&T Bank announced this weekthirteen of its thirty branches will close in Pennsylvania and New Jersey, and the bank will invest $9 million in renovating remaining locations in the area. With about 1% of the market share in the area, M&T plans to shift its business model to focus on commercial and business lending, wealth management and private banking, according to Ira Brown, the bank’s area executive. More here.
CBA Family Day: On Tuesday, the CBA Team hosted family and friends for our traditional Family Day! Thanks to our Director of Fun (also known as Regulatory Counsel) Stephen Congdon, we had a great afternoon filled with tacos, board games and fun!
MERGERS & ACQUISITIONS
STATE OF THE WEEK
CBA’s State of the Week is INDIANA, home to Old National Bank, where more than a third of Hoosier State residents banks with a CBA member! CBA members in Indiana hold $95 Billion in total assets, employ 25,000 people, provide $2.1 Billion in small business loans and serve 2.1 Million customers. Check out our state by state numbers here!