Richard's Rapid Fire - May 17, 2019

Helping struggling borrowers and fixing the federal student loan system were discussed this week at a joint event hosted by CBA, the Bipartisan Policy Center and the Aspen Institution. Rep. Donna Shalala (D-Fla.), top left, offered keynote remarks and stressed the need for better disclosures on federal loans. CBA’s Kris Fallon, center top, presented CBA’s policy recommendations for improving the student loan marketplace after a panel, bottom, discussed proposals to help current borrowers.

Cajun Thoughts: WATERS, McHENRY CLASH AT HEARING Bank regulators testified before the House and Senate this week and there were some fireworks as Chairwoman Waters gaveled out the House Finance Committee hearing abruptly. Chairwoman Waters said she promised a hard stop at 1:30 p.m., according to Politico, but did not let Republicans (and at least some Democrats) know about the end time, leaving a handful of members unable to ask the regulators questions. Ranking Member McHenry said the handling of the hearing was a “travesty,” a break from what has publicly been a cordial relationship. That incident aside, the hearings went largely as expected: Republicans pushed for faster regulatory reform and Democrats largely focused on consumer protections. There was a bipartisan discussion on CECL's impact on banks of all sizes. I must hand it to this new batch of regulators: They are professional, smart and dedicated to striking a careful balance between right-sizing regulations while also protecting consumers. I was glad Comptroller Otting and Chairman McWilliams discussed the importance of banks offering small-dollar loan products to customers. Previous regulations pushed banks out of this space and left Americans turning to loan sharks and pawnshops during financial emergencies. Regulators also talked about the importance of CRA modernization. Banks need clear guidelines and I believe, like Comptroller Otting, greater clarity will allow banks to do more, not less. Check out our CRA recommendations here… ANTI-BANK POLICIES POPULAR A recent focus group conducted by Rich Thau found swing voters in Iowa – despite having supported Trump in 2016 – are excited about liberal policies being advanced by Sens. Warren and Sanders even though they are not excited about the messengers. They also supported a big bank tax to pay for an infrastructure bill. Banks have come a long way since 2008. While our financial foundation and underwriting are strong, there are still issues to watch on the horizon… CBA LIVE STILL MAKING NEWS It has been more than a month since CBA LIVE but it’s still making news. Just this week, Dodd Frank Updatereported on a panel hosted by the Digital Channels Committee which focused on what banks need from regulators to innovate. Thanks again for everyone who made CBA LIVE 2019 a huge success! … THE FEDERAL STUDENT LOAN CRISIS The more you know the madder you get. We met with the top student aid official at the Department of Education this week and she told us about 75 percent of all federal student loan borrowers are paying $0 toward their loan balance. That is a sobering thought. At CBA we have spent a lot of time talking about student loans and hosted a joint event with the Bipartisan Policy Center and Aspen Institute exploring the problem and talking about solutions… SPEAKING OF STUDENT LOANS We launched a webpage complete with an animated video and infographics about CBA’s solutions to ensuring students can responsibly finance their higher educations. Check it out! … COMING SOON … CFPB SMALL DOLLAR RULE Unfortunately it is nothing new, but millions of Americans live paycheck to paycheck, leaving less cushion for emergencies. The need for access to affordable, short-term, well-regulated liquidity products has become more important than ever but regulations from D.C. have forced banks out of this space. The new regulators in town, however, understand that Washington doesn’t always know best and are reexamining the rules. This week we wrote the CFPB as part of its review of the terrible 2017 payday rule (which had a consumer protection carveout for small banks) to let them know why banks are best positioned to help our customers.



Regulators Talk CRA, Small-Dollar, Reg Reform with Congress: Prudential regulators, including FDIC Chairman McWilliamsComptroller Otting and Fed Vice Chair for Supervision Quarles, testified before the Senate Banking Committee and House Financial Services Committee this week. Senators and Members of Congress questioned regulators on their respective agencies' regulatory agenda. NCUA Chairman Hood also participated in the hearings.


A copy of the bank regulators opening statements are linked below:

  • FDIC Chairman Jelena McWilliams: Senate / House
  • Comptroller of the Currency Joseph M. Otting: Senate / House
  • Vice Chair for Supervision Randal K. Quarles: Senate / House

In their remarks, regulators focused on: the need to make CRA requirements more transparent, without undermining the law's intent; the need for fintechs seeking bank charters to be subject to the same high safety and soundness standards; streamlining thede novo process; implementing the bipartisan regulatory reform legislation passed last year (S. 2155); and the need for well-regulated small-dollar bank lending.


Committee Members largely focused on those same issues, as well as others specific to their constituencies like climate change and ag lending.


Of note for CBA Members, Chairman McWilliams noted the FDIC is expediting the rate cap component of the agency's brokered deposit review with the goal of issuing a proposal for comment and final rule by the end of the year. She also noted the FDIC had reviewed more than 60 comments and plans to revisit the 2013 small-dollar lending guidance soon, with the goal of helping banks reenter the space. She said it was her goal to reach more un- and under- banked consumers through well-regulated bank products.


Members from both sides were vocal in their displeasure with FASB and how they have progressed through the implementation of CECL. Members were concerned FASB decided to forego a cost-benefit analysis before implementing those requirements, specifically on how it will affect credit availability for LMI borrowers and small businesses.


Comptroller Otting, when discussing S. 2155, stated regulators expected to complete the bulk of implementation by the end of this September and the remaining provisions to be finished by the end of the year. He also committed to completing the executive compensation rule with fellow regulators.


A detailed summary of the Senate Banking Committee hearing is available here and a summary of the House Financial Services Committee hearing is available here.

CBA Writes CFPB on Payday Rule Review: On Wednesday, we offered comments to theCFPB’s notice of proposed rulemaking for payday, vehicle title, and certain high-cost installment loans. The comment letter offers support for the CFPB’s review of the 2017 rule and supported the new proposal’s call for strong consumer protections, while allowing Americans to receive short-term emergency funds within the well-regulated banking industry.

The letter also requests the CFPB delay the entire rule until the new proposal is finalized, noting without the delay depository lenders will be discouraged from providing responsible forms of short-term, small-dollar credit to the consumers who need it most.

Millions of Americans live paycheck to paycheck, leaving less cushion for emergencies, strained credit scores, and fewer credit options. The need for access to affordable, short-term, well-regulated liquidity products has become more important than ever. American families should be able to rely on their banks instead of being forced to resort to less regulated, more costly sources of funds like pawnshops or payday, online and title lenders.

In the letter, CBA Associate General Counsel David Pommerehn wrote, “Traditional lenders are in a unique position to help those in need of short-term liquidity. However, flexibility from regulators is key to encouraging development of small-dollar loan products by depositories. While we applaud the Bureau’s intention to curb the abuses of bad lenders, unfortunately, we firmly believe the Proposal will also have the unintended effect of driving away consumer-friendly financial institutions that provide better alternatives. Limiting the overly burdensome provisions of the Proposal will be an essential factor in determining whether banks and credit unions innovate and offer alternatives to payday loans.”

CBA supports the Bureau’s goal of ending abusive payday lending practices by nonbank lenders.  Unlike some nonbanks, depository institutions have long had their consumer lending products and practices examined against consumer protection and safety and soundness standards by various state and federal supervisory agencies, including theCFPB

The Bureau has never found that any depository institution’s short-term, small-dollar lending products were either “unfair” or “abusive” as is asserted by the Bureau’s 2017 Final Rule.

We also noted the coverage of “payday lending products” has incorrectly associated bank-offered deposit advance products with traditional payday lending, with little or no distinction in how bank-offered product features allow for greater consumer protection and better customer pricing. Additionally, many consumer groups have unjustifiably raised concerns over bank-offered deposit advance products.  Consumers who use bank-offered deposit advance products already have a relationship with the bank.  Deposit advance is an integrated feature added to the customer’s existing checking account and is not a stand-alone product, allowing banks to better understand a customer’s financial situation and ability to repay.  These services are only available to established customers who have maintained checking accounts in good standing with regularly scheduled direct deposits for a minimally prescribed period. 

A full copy of our letter to the CFPB is available here.

House Committee Expects Beneficial Ownership Vote in June: The House Financial Services Committee is expected to vote next month on a bill that would require corporations to disclose owners to the Treasury Department, says the bill's primary sponsor, Rep. Carolyn Maloney. The bill would keep owners from being anonymous to hide criminal activity. Members of Congress, including Congresswoman Maloney andCongressman Luetkemeyer, have worked on the issue for months, if not years, and have negotiated in good faith to find consensus. CBA, along with several other trade groups,wrote the Committee last week in support of the Committee’s work to modernize the anti-money laundering and counterterrorism regulatory system. While multiple proposals have been introduced in Congress to address illicit activity through shell corporations, we believe the bipartisan approach the Committee is working on strikes the right balance between imposing minimal requirements on small businesses while providing important information to law enforcement and financial institutions performing due diligence (a semi-law enforcement function).

CFPB Plans Rules Review, Starting with Overdraft: The CFPB this week released anotice detailing plans to periodically review regulations as mandated by the Regulatory Flexibility Act (RFA), as well a notice examining the 2009 Overdraft Rule.


The RFA requires agencies to review certain rules, within 10 years of their publication, and specifically consider the rules’ effect on small businesses. The review is meant to minimize major economic impacts of rules upon small entities. The RFA requires agencies to invite public comment on rules undergoing review and specifically consider the following:


  • The continued need for the rule;
  • The nature of public complaints or comments on the rule;
  • The complexity of the rule;
  • The extent to which the rule overlaps, duplicates, or conflicts with federal, state, or other rules; and
  • The time since the rule was evaluated or the degree to which technology, economic conditions, or other factors have changed the relevant market.


The Bureau also announced its first RFA review will cover the 2009 Overdraft Rule. In 2009, the Federal Reserve Board issued a rule that limits the ability of financial institutions to assess overdraft fees for ATM and one-time debit card transactions that overdraw consumers’ accounts. As the rule amends Regulation E, and the Bureau recodified Regulation E in 2011 when it assumed rulemaking authority under the Electronic Funds Transfer Act, the Bureau will conduct a review of the Rule. Comments will close 45 days after publication in the federal register.


“No Branch, No Problem” for Citi Customers: Citi made a bet following the financial crisis, reports the Wall Street Journal. While others were going after cheap deposits with large branch networks, Citi shrunk its footprint and now the bank is convinced many consumers are ready to leave the branch to fully embrace digital offerings. Citi added about $1 billion in digital deposits during the first quarter of 2019, more than all of last year. Of that $1 billion, about two-thirds came from new customers. The majority of those do not live near any of Citi’s some-700 branches.


Putting “Complaints” in Perspective: The CFPB received six percent more complaints in 2018 than it did in 2017, according to a report from the U.S. Public Interest Research Group (PIRG). But, the complaint leaders were not banks. CBA noted no one should be surprised larger institutions have more complaints, which the CFPB does not confirm the validity of, and overall, as a percentage of customers, the number of complaints about banks is low and customer satisfaction is evident by how infrequently people change banks. Perhaps most importantly, even PIRG, stated nearly all complaints were resolved in a timely manner.


Lawmakers Want to Make Student Loans Easier to Discharge: Politicians are at it again, focusing on the symptoms of the broken federal student loan systems instead of finding a solution. Right now federal loans have a double-digit default rate compared to private student loans, which have a 98 percent repayment rate. It is clear to see where the problem lies – the federal government is overlending, driving up college tuition and setting students up for failure. Instead of focusing on fixing that, however, lawmakers are discussing a billthat would make it easier for student loans to be canceled in bankruptcy. Such a proposal would harm more than help. Increasing discharges would burden taxpayers and would force lenders to raise interest rates.


Trump Voters Like Warren’s Ideas, Not Warren: A recent focus group of Iowa swing voters, who all supported President Trump in 2016, found many support liberal proposals like those coming from Sen. Elizabeth Warren. While they might have liked the policy ideas, they are not excited by any of the Democrat presidential candidates carrying them – though most were only familiar with WarrenVice President Joe Biden and Sen. Bernie Sanders. The ideas swing voters supported included forgiving student loan debt and taxing corporations – specifically big banks – to pay for infrastructure plans. Why does this matter?President Trump or a lesser known Democratic candidate could tailor their economic plan to include these popular ideas.

CBA’s State of the Week is IDAHO, where more than 1 out of every 3 residents banks with a CBA member! Idaho is home to CBA’s Head of Education Brenda Mechling. CBA members in Idaho hold $23 Billion in total assets, employ 5,000 people, provide $500 Million in small business loans and serve 700,000 customers. Check out our state by state numbers here!