Previously featured articles are being migrated to the NASCUS Digital Library, cataloged by topic. For additional news, research, reports, and industry announcements featured in NASCUS Report click here.
Articles for May 19, 2022 Issue:
- 2022 DSIR Deeper Dive: Increased Regulatory Scrutiny of Cybersecurity Incidents
- Former Regulators Join $45 Million Round in Crypto Risk Platform Solidus Labs
- CFPB Takes Action to Protect Depositors from False Claims About FDIC Insurance
- NCUA Statement on Committee Passage of Vendor Authority and Underserved Areas Bills
Courtesy of Teresa Goody Guillén and Andreas Kaltsounis, BakerHostetler
May 17, 2022 — Our 2022 Data Security Incident Response Report discussed the increased regulatory scrutiny of cybersecurity incidents and defenses following a year of high-profile and damaging cyberattacks, including the Russia-based SolarWinds espionage campaign and the Colonial Pipeline ransomware attack. This article summarizes several U.S. government actions aiming to improve the nation’s cybersecurity and the government’s ability to track and respond to cyber incidents. Organizations subject to these actions will need to evaluate how such actions may apply to them and take necessary measures to comply. Organizations should also note that these actions are just examples of a larger whole-of-government effort to bolster the nation’s cybersecurity and address cyberattacks—organizations should expect and watch for additional cyber regulations that may impact their operations.
The Biden Administration
At the forefront of this increased focus on cybersecurity is the Biden Administration’s goal to get the federal government’s cyber protections in order as it encourages private entities to do the same. In May 2021, President Biden issued the Executive Order on Improving the Nation’s Cybersecurity, calling on government agencies to strengthen and protect their data and information-security infrastructure. The SolarWinds hack demonstrated the extent to which government agencies are vulnerable to cyberattacks, especially as a result of open-source software and third-party dependencies that support so much of the federal government’s activities. The Executive Order aims to update and improve government systems and, by mandating software bills of material, improve visibility into hidden vulnerabilities that may exist in the government’s software and systems.
Office of the Comptroller of the Currency
On April 1, 2022, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve Board implemented a rule requiring banking organizations to notify their primary federal regulator after an incident affecting or disrupting bank operations is discovered “as soon as possible and no later than 36 hours.” The rule also requires bank service providers to notify their banking organization customers when they experience an incident.
In November 2021, the Financial Crimes Enforcement Network (FinCEN) issued an advisory indicating that money services businesses and other entities subject to the Bank Secrecy Act should file a suspicious activity report if they think a ransomware payment is processed through them. FinCEN is using the data to track ransomware groups and quantify the ransoms they are able to extract. For example, FinCEN noted that Darkside and Sodinokibi/REvil, the groups behind the Colonial Pipeline and the JBS and Kaseya attacks, respectively, accounted for 458 reported ransomware-related transactions in the first half of 2021, with a total value of $590 million.
Courtesy of FinExtra.com
May 17, 2022 — Solidus Labs, a digital asset risk surveillance firm founded by ex-Goldman Sachs engineers, has secured a $45 million B round led by Liberty City Ventures and joined by Evolution Equity Partners, Declaration Partners, and angels including former US Acting Comptroller of the Currency Brian Brooks and former CFTC Chairman Christopher Giancarlo.
The New York-based firm seeks to transform financial risk monitoring, beginning with the new challenges posed by crypto and digital asset markets. Solidus’ clientele includes top crypto firms as well as traditional financial institutions and regulatory agencies.
The announcement comes on the backdrop of record breaking crypto and DeFi adoption – with some estimates placing total value locked (TVL) in DeFi at more than $200 billion in the beginning of 2022 – which has seen Solidus Labs quadruple its team over 2021 amid massive demand.
In March, the firm unveiled its all-in-one crypto-native risk monitoring suite, Halo, which is currently monitoring more than one trillion trading events per day in more than 150 markets. The platform deploys over 50 different proprietary market abuse typologies, shielding investors and safeguarding crypto businesses from new threats unique to the crypto and decentralized finance space.
“For Web3 and the DeFi economy to truly fulfill their massive potential, there’s a need to mitigate new risks – both in terms of liquidity enablement and on the consumer and investor protection side. This is where Solidus’ crypto-native solutions come into play, and the reason we’ve been experiencing a 560% year-over-year revenue increase,” says Asaf Meir, Solidus’ founder and chief executive. “The additional funds will allow us to support the growing cohort of financial institutions looking to expand into the DeFi space, accelerate the deployment of our threat intelligence capabilities, and expand our R&D to solve a fast-growing array of DeFi specific use-cases and needs.”
May 17, 2022 — The Consumer Financial Protection Bureau (CFPB) released an enforcement memorandum today that addresses prohibited practices on claims about Federal Deposit Insurance Corporation (FDIC) insurance. Specifically, firms cannot misuse the name or logo of the FDIC or make deceptive representations about deposit insurance. The issue has taken on renewed importance with the emergence of financial technologies – such as crypto-assets, including stablecoins – and the risks posed to consumers if they are lured to these or other financial products or services through misrepresentations or false advertising.
“People know and trust the FDIC name and logo, and firms must not prey on that trust by making deceptive representations about deposit insurance,” said CFPB Director Rohit Chopra. “Companies undermine competition, erode confidence in the deposit insurance system, and threaten our hard-earned savings when they engage in false marketing or advertising.”
The Consumer Financial Protection Act prohibits deceptive acts and practices, including deceptive representations involving the name or logo of the FDIC or deposit insurance, by covered firms. Deposit insurance has long been a means to promote confidence in the banking system, and misrepresentation of those protections undermines consumer confidence and market competition. The most common form of deposit insurance is administered by the FDIC. Currently, the FDIC insures deposits at FDIC-insured banks and savings associations up to $250,000 per depositor, per FDIC-insured bank, for each account ownership category.
The Consumer Financial Protection Circular released today provides guidance to consumer protection enforcers that covered firms likely violate the Consumer Financial Protection Act’s prohibition on deception if they misuse the name or logo of the FDIC or engage in false advertising or make material misrepresentations to the public about deposit insurance, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. The Consumer Financial Protection Act is enforced by the CFPB, banking regulators, and the states.
- Read the Statement of CFPB Director Chopra, Member, FDIC Board of Directors, on the Final Rule Regarding False Advertising, Misrepresentations of Insured Status, and Misuse of the FDIC’s Name or Logo.
- Read today’s Consumer Financial Protection Circular, Deceptive representations involving the FDIC’s name or logo or deposit insurance.
- Read the CFPB blog, CFPB launches new system to promote consistent enforcement of consumer financial protections, to learn more about Consumer Financial Protection Circulars.
May 18, 2022 — National Credit Union Administration Chairman Todd M. Harper issued the following statement after the approval of H.R. 7022, the Strengthening Cybersecurity for the Financial Sector Act of 2022, and H.R. 7003, the Expanding Financial Access for Underserved Communities Act, by the U.S. House Committee on Financial Services today.
“The Committee’s passage of H.R. 7022 is an important step forward in closing a regulatory blind spot. The NCUA’s Inspector General, the Financial Stability Oversight Council, and the U.S. Government Accountability Office have all called for the NCUA to have the same authority over third parties as federal banking agencies. This authority is critical for mitigating the very real national security, cybersecurity, anti-money laundering, consumer protection, safety-and-soundness, and other risks to the credit union system and the broader financial services sector.
“H.R. 7003 is also an important piece of legislation that would allow all federal credit unions to add underserved areas to their fields of membership. These changes are essential to increasing access to safe, fair, and affordable financial services in rural communities, communities of color, and other underserved places. They would also advance financial inclusion within our nation’s financial system.
“I thank Chairwoman Waters, Congressman Foster, and the Committee for their work in advancing both of these bills.”
Articles for May 13, 2022 Issue:
- FTC Joins Amicus Brief Opposing Liability Shield for Sloppy Credit Reports
- U.S. SEC’s Peirce Sees ‘Movement’ on Stablecoin Regulations
- CFPB Says It’s ‘Sharpening Focus’ on Digital Redlining, Algorithmic Bias
- OPINION: When the Referees Play Favorites on Cryptocurrency Parts 1 & 2 (audio)
FTC Joins Amicus Brief Opposing Liability Shield for Sloppy Credit Reports
FTC Joins CFPB in Asking Second Circuit to Reverse Decision Inventing Defenses Against Liability for Data Brokers and other Consumer Reporting Agencies
The Federal Trade Commission has joined the Consumer Financial Protection Bureau in an amicus brief filed with the United States Court of Appeals for the Second Circuit in the case of Sessa v. TransUnion. The brief asks the court to overturn a lower court decision, which held that TransUnion was not liable for failing to investigate a wrongfully reported debt because the inaccuracy was “legal” and not “factual.”
“The lower court’s decision not only disregards the plain language enacted by Congress, but also is a gift to data brokers that already exercise a largely unfettered, invisible power over consumers’ lives,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Consumers can’t vote with their feet when consumer reporting agencies get it wrong. Enforcers and consumers need to be able to hold these companies accountable.”
The lower court held that legal inaccuracies are exempt from the requirement under the Fair Credit Reporting Act that consumer reporting agencies “follow reasonable procedures to assure maximum possible accuracy” of consumer reports. Since this law was enacted, it has allowed enforcers and consumers to hold consumer reporting agencies accountable for the incorrect information they place on consumers’ credit reports. This authority is especially critical in the credit reporting market, where consumers have no options for avoiding credit reporting agencies in order to participate in the economy and there are few incentives to fix sloppy mistakes. This holding, if adopted elsewhere, would make it easier for consumer reporting agencies to escape accountability for sloppy reports that harm consumers.
The joint brief argues that the lower court’s legal inaccuracy exemption is neither based on any textual language in the law, nor is it workable. The invented defense invites consumer reporting agencies and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate. For any number of obviously inaccurate factual mistakes that might appear on a consumer’s credit report, consumer reporting agencies might be able to manufacture some supposed legal interpretation to insulate itself from liability. The lower court’s unsupported reading could increase the number of inaccurate credit reports and result in inaccurate information about consumers being conveyed to lenders, landlords, employers, and other entities that purchase consumer reports.
The Commission voted 3-0 to file the amicus brief. Commissioner Noah Joshua Phillips did not participate.
U.S. SEC’s Peirce Sees ‘Movement’ on Stablecoin Regulations
Courtesy of Marc Jones and Katanga Johnson, Reuters
A top official at the U.S. Securities and Exchange Commission (SEC) signalled on Thursday that stricter rules around crypto stablecoins could be drawing closer.
Cryptocurrency markets have an overall value of about $1 trillion this week amid the collapse of the stablecoin TerraUSD and a destabilising plunge in Tether, currently the world’s largest stablecoin by market cap. Stablecoins are digital currencies whose values are pegged to traditional assets like the dollar.
Referring to tighter regulations, “one place we might see some movement is around stablecoins,” SEC Commissioner Hester Peirce said during an online panel debate hosted by the London-based Official Monetary and Financial Institutions Forum policy think tank. “That’s an area that has obviously this week gotten a lot of attention,” added Peirce, underscoring the potential that stablecoins can have future use in the marketplace builds.
She added that the SEC has an opportunity to capture digital currencies, and the technology platforms where they are traded, under the agency’s broad rulemaking authority. U.S. Treasury Secretary Janet Yellen told a Senate banking panel this week that the turmoil in crypto markets illustrated the need for an “appropriate” regulatory framework. President Joe Biden in March issued an executive order requiring the government to assess the risks and benefits of creating a central bank digital dollar, as well as other cryptocurrency issues.
The SEC’s chair, Gary Gensler, has said that the agency should address stablecoin risks as the asset-linked cryptocurrencies raise concerns related to financial stability and monetary policy around features that are similar to and potentially compete with bank deposits and money market funds. He has also said there are issues on their potential use for illicit activity.
But on Thursday, Peirce, the SEC’s lone Republican commissioner, said potential regulation should make room for a “trial-and-error” regulatory framework, saying that “some people have suggested that should be at the SEC; other people want it to be the banking regulators. “There are different potential options for approaching stablecoins…and with experimentation, we need to allow room for there to be failure.”
CFPB Says It’s ‘Sharpening Focus’ on Digital Redlining, Algorithmic Bias
Courtesy of CUToday.info
The CFPB said it is “sharpening its focus” on digital redlining and algorithmic bias as the result of the growing influence of financial technology platforms. The CFPB included the insight as part of a 40-page fair lending report covering the Bureau’s 2021 activities.
According to the report, “As more technology platforms, including Big Tech firms, influence the financial services marketplace, the CFPB will be working to identify emerging risks and to develop appropriate policy response.”
In terms of regulatory activity, the Bureau said it is participating in interagency rulemaking processes with the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp, National Credit Union Administration, and Federal Housing Finance Agency to develop regulations to implement the amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning automated valuation models.
The report added, “To address potential fair lending risk in models, the CFPB is considering proposing a requirement that covered institutions establish policies, practices, procedures, and control systems to ensure that their AVMs comply with applicable nondiscrimination laws.”
Fast times at the U.S. Securities and Exchange Commission.
Listen to Part 1 Here: Join “Speaking of Bitcoin” hosts Adam B. Levine, Andreas M. Antonopoulos and Stephanie Murphy for a look at a recent move by the Securities and Exchange Commission (SEC) to “clarify” the responsibilities of publicly traded crypto companies.
This episode tackles the new custody rules that aim to solve market volatility. The hosts share their thoughts on how superficial and abetting conversation of custody rules can be used to mask adverse decisions and therefore create conditions for enhanced market volatility. They state their concerns that the hypocritical nature of embellished rules may be bypassed without an explanation if regulators do not favor the results.
The power to regulate is the power to delay.
Listen to Part 2 Here: Join “Speaking of Bitcoin” hosts Adam B Levine, Andreas M. Antonopoulos and Stephanie Murphy for a look at the recent U.S. bitcoin futures exchange-traded fund approval that has some in the crypto community increasingly optimistic about its potential to revolutionize finance forever!
But should they be?
Ever since the first bitcoin (BTC) spot ETF was rejected by regulatory bodies in 2017, investors have had to watch their investments crumble. The prospects for a successful outcome have seemed bleak. So why do we keep talking about these failed products and why does it seem like everyone is clambering aboard with hope once again as if nothing happened the last time around?
The show tackles a paradoxical situation where a U.S. Securities and Exchange Commission tasked with investor protection may actually push consumers into riskier vehicles, before shifting gears towards knowledge-power-confounding “Darth Vader” effect and bipartisan legislation aimed at protecting U.S. investors from volatility risks.
Articles for May 6, 2022 Issue:
- Regulation Makes Crypto Contributions Challenging for Political Campaigns
- Consumer Advocates Urge CFPB to Protect Consumers From “Junk Fees”
- CFPB Supervisory Report Finds Unlawful Auto Repossessions, Breakdowns in Credit Report Disputes
- NASCUS Issues Two Comment Letter to NCUA on PCA Relief and ONES Supervision
Regulation Makes Crypto Contributions Challenging for Political Campaigns
Courtesy of Bill Allison, Bloomberg
Crypto’s Preferred Currency for Political Donations Isn’t Bitcoin. It’s Dollars.
Political committees have received just $580,000 in crypto
Cryptocurrency leaders are spending money to wield influence in Washington as focus on their industry skyrockets, but they don’t seem to be using their own product to do it. Industry insiders gave $7.3 million to political campaigns and committees in 2021 through the end of January, but almost all of that money came in old-fashioned dollars.
The disparity highlights the challenges cryptocurrencies face as they move into more mainstream parts of the economy. Only $580,000 worth of cryptocurrency was donated to political committees in the current election cycle, according to a Bloomberg analysis of Federal Election Commission records, with a handful of super PAC donations making up most of the total. Not all of those contributions were from crypto industry donors.
Ultimately, it is difficult to track how much crypto is being spent in politics. Some committees that received crypto contributions didn’t follow FEC guidance in reporting them and groups that study money in politics don’t track them. “Donations made with cryptocurrency are very difficult to identify in campaign finance data,” said Sarah Bryner, director of research and strategy at OpenSecrets, which studies money in politics.
One reason crypto isn’t being widely used to donate to campaigns is the way the FEC regulates it. While crypto donations have been allowed since 2014, the reporting is complex and campaigns and committees have to convert the assets to dollars before spending the money, incurring a processing fee. FEC rules also require far more record keeping and disclosure for contributions in cryptocurrencies. And the online platforms serving Democrats and Republicans, ActBlue and WinRed, don’t even accept them.
“There’s a lot of administrative hassles in doing it,” said Bill Powers, a partner practicing political law at Nossaman LLP. Conversely, reporting contributions in dollars — whether made by check, credit card, or cash — is much more straightforward. It is unclear if the rules on using crypto in politics will be simplified anytime soon.
In an executive order signed last week, the White House called on agencies across the government to coordinate what’s thus far been a scatter-shot approach to the asset class. However, it falls short of providing clear direction on regulation.
Powers said that as the digital assets become more familiar in the wider economy they will be more familiar in politics, too. “Crypto is becoming more commonplace, and as the campaign season heats up with outside groups making big ad buys, we’re going to see the use of cryptocurrency to make political contributions intensify,” Powers said.
Consumer Advocates Urge CFPB to Protect Consumers From “Junk Fees”
Courtesy of Rachel Gittleman, Consumer Federation of America
In response to the Consumer Financial Protection Bureau’s (CFPB) call for public input on how to save Americans billions in junk fees charged by financial companies, leading consumer advocacy organizations submitted an extensive comment letter detailing junk fees across a wide range of consumer financial products and services. The letter was submitted by Americans for Financial Reform (AFR), the Center for Responsible Lending (CRL), Consumer Federation of America (CFA), and National Consumer Law Center (NCLC) (on behalf of its low-income clients).
It has become increasingly common for businesses to deceptively increase the cost of goods and services through hidden or obscured fees, often presented after the consumer has committed to a transaction. The cost of junk fees almost always exceeds the cost of the service or activity that triggers them. Using well-honed techniques and marketing research, companies obscure the fee, trick the consumer into accepting it, or force them into a position where they cannot say “no.” Junk fees can also lead to perverse incentives where banks and other companies push practices that are at odds with their customers’ financial health, setting them up to fail.
“Banks, credit card companies, and other vendors impose fees on consumers in a manner that is calculated to evade the influence of competition and price comparison shopping,” said Rachel Gittleman, Financial Services Outreach Manager at the Consumer Federation of America. “The provider knows that the consumer will overlook and accept the charge because it is well hidden, or because the consumer has no alternative.”
Lower-wage workers, consumers of color, and other consumers struggling economically pay a disproportionate share of these fees. These consumers are located in communities that bear a higher fee burden on average than do predominantly white communities. Sophisticated algorithmic models may steer consumers to high-cost, subprime products instead of a wide array of competitively priced credit options with low fees.
“Junk fees like overdraft fees can push consumers into becoming unbanked and losing access to mainstream financial products,” said Lauren Saunders, Associate Director at the National Consumer Law Center.
Junk fees can also lead to discriminatory practices involving car financing, with profits padded by expensive add-on products, such as service contracts, Guaranteed Asset Protection (GAP) insurance, and window etching. These add-on products significantly increase the cost of the car, and research has shown that Latino consumers are, on average, charged higher mark-ups on auto loan add-ons than non-Latino consumers.
CFPB Supervisory Report Finds Unlawful Auto Repossessions, Breakdowns in Credit Report Disputes
Agency examiners identify improper practices across consumer financial products and services
Related reading: Overcharging for add-on products on auto loans
May 2, 2022 — The Consumer Financial Protection Bureau (CFPB) released its Supervisory Highlights report on legal violations identified during the CFPB’s supervisory examinations in the second half of 2021. The report details key findings across consumer financial products and services.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has the authority to supervise large banks, thrifts, and credit unions with assets over $10 billion and their affiliates, as well as certain nonbanks, including mortgage companies, private student lenders, and payday lenders. The CFPB’s supervisory authority also covers large entities in certain markets, including consumer reporting, student loan servicing, debt collection, auto finance, international money transfer, and other nonbank entities that pose risks to consumers.
Supervisory examinations review whether companies are complying with federal consumer financial law. When CFPB examiners uncover problems, they share their findings with companies to help them remediate the violations. Typically, companies take actions to fix problems identified in examinations. For more serious violations or when companies fail to correct violations, the CFPB opens investigations for potential enforcement actions.
Today’s report highlights findings from examinations of practices in the auto servicing, consumer reporting, credit cards, debt collection, deposits, mortgage origination, prepaid accounts, and remittances markets.
Wrongful auto repossessions by servicers
As described in a recent compliance bulletin, examinations have revealed that some servicers were engaging in unfair acts or practices by repossessing vehicles, even after consumers took intentional actions to prevent repossessions.
In certain examinations, examiners found that auto servicers engaged in unfairly failing to obtain refunds for borrowers for add-on products that no longer provided a benefit. In other instances, they found that auto servicers misled consumers about the amount of their final loan payments after their normal payments were deferred due to financial difficulties – largely as a result of the COVID-19 pandemic.
Failure by credit reporting companies to conduct reasonable investigations into disputed debts
Credit reporting companies are required to comply with several regulations to help ensure their reporting is fair and accurate. Examiners, however, have found that the credit reporting companies commonly fail to conduct these investigations in a timely manner, and they also fail to review and consider all the relevant evidence submitted by consumers.
The CFPB released a report in March that highlighted how the credit reporting system is used to coerce families and individuals to pay medical bills that may not be accurate, are being disputed, or may not even be owed. Federal law requires credit reporting companies to ensure that medical bills reported on consumers’ credit reports are accurate. If furnishers of medical bills are contaminating the credit reporting system with inaccurate information, the CFPB expects credit reporting companies to limit their access to the system.
NASCUS Issues Two Comment Letter to NCUA on PCA Relief and ONES Supervision
Over the past week, NASCUS has issued two comment letters to the NCUA regarding the following issues:
- NCUA’s Interim Final Rule (IFR) on PCA relief. This rule, enacted in February, is NCUA’s 2nd extension (3rd time passing) a rule to provide flexibility to adequately capitalized credit unions whose net worth declined strictly as a result of the pandemic stimulus.
- NASCUS continues to support this extension. Read the full comment letter here.
- NCUA’s proposal to raise the threshold for ONES supervision from $10 billion in assets to $15 billion in assets. Under the proposal, all of the existing capital planning and stress testing rules would still apply to credit unions starting at $10 billion in assets, however, supervision of credit unions between $10 billion and $15 billion in assets would remain with their NCUA Regional office (and state regulator.
- NASCUS supports the proposed change. We also recommend NCUA consider extending the exam cycle for $1 billion asset credit unions from 8-12 months to 12-18 based on the same underlying assumptions of risk profile motivating NCUA to recommend changes to the ONES program. Read the full comment letter here.
Articles for April 29, 2022 Issue:
- Idaho Department of Finance Warns Investors of Fraudulent Cryptocurrency Schemes
- Regulator Says Crypto Bank Violated Anti-Money Laundering, Compliance Rules
- CFPB Dusts Off Old Rule to Investigate FinTech
- FASB Proposes Updates to Reference Rate Reform Guidance
State Warns Idaho Investors of Fraudulent Cryptocurrency Schemes
Courtesy of BigCountryNewsConnection.com
The Idaho Department of Finance has issued a warning about a series of fraudulent cryptocurrency schemes seen recently targeting Idaho investors. The companies purport to provide high returns with no risks to the investor.
These fraudulent schemes are operating under theses names and websites:
- Crypto FX Direct d/b/a www.cryptofxdirect.com (CFXD)
- Shield Investors LTD d/b/a www.shieldinvestors.com (Shield)
- Quartz FX Trade d/b/a www.quartzfxtrade.com
- FinVest Trading d/b/a https://finvesttrading.com
These scams advertise operation of online cryptocurrency investment companies. However, in reality they are offering and selling fraudulent securities to Idaho investors.
These websites make outrageous, demonstrably false statements and claims such as guaranteed returns on investment as high as 65% – 80% every 24 hours. They offer profitable investments with any plan, and purport the more invested, the greater the return. Idaho investors were provided with phony credentials by the company’s investment advisor intended to support the legitimacy of the investment advisor as well as the companies they represent.
Idaho investors were asked to pay the investment advisor with cryptocurrency for a trading plan offered on the site. At the end of the agreed trading period the investment advisor would contact the investor and notify them they made a substantial return on their investment. In order to receive their investment returns, they had to pay for a fee which could not be taken from their trading profits. When the investor provided the trading fee, they were advised additional fees or penalties would be assessed which must be paid before they could receive their payment.
None of these entities are registered to sell securities in Idaho nor have they filed with the Idaho Secretary of State to conduct business in the Idaho.
The Department of Finance reminds Idahoans that persons and firms offering investments are required to be registered in Idaho. You may check the status of any investment professional, and the firms they represent by:
- Contacting the Department for information regarding registration, background, and educational requirements of an investment professional and their firm.
- Contacting the Idaho Secretary of State to determine if the company is registered to conduct business in Idaho.
- Researching the business address provided on their website to determine if it is a reasonable location for business.
Regulator Says Crypto Bank Violated Anti-Money Laundering, Compliance Rules
Courtesy of Andre Kelly, Reuters
The Office of the Comptroller of the Currency on Thursday said flagship crypto bank Anchorage Digital Bank National Association violated rules for monitoring for suspicious activity and preventing money laundering.
The Sioux Falls, South Dakota-based firm failed to adopt a compliance program that meets Bank Secrecy Act and anti-money laundering requirements, OCC said in its order. Anchorage Digital receiving a conditional bank charter from the regulator in January 2021.
A spokesperson for Anchorage Digital, which did not admit or deny the OCC’s findings, said the firm has already begun to strengthen and “will continue to bolster” the areas OCC identified as deficient in 2021.
The OCC’s order requires the company appoint a compliance committee within 15 days and have that board submit a progress report and plan for remediation to the regulator, among other actions.
Anchorage has begun corrective action and is committed to remediation, the order said.
Read the OCC’s announcement here: OCC Issues Consent Order Against Anchorage Digital Bank
Related Reading from 2021: OCC Conditionally Approves Conversion of Anchorage Digital Bank
CFPB Dusts Off Old Rule To Investigate FinTech
Courtesy of PYMNTS.com
The Consumer Financial Protection Bureau (CFPB) announced yesterday, April 25, 2022, that it will start using a largely unused legal provision to examine nonbank financial companies, FinTechs, that pose risks to consumers.
According to the Bureau, this dormant authority will help protect consumers and level the playing field between banks and nonbanks. “Given the rapid growth of consumer offerings by nonbanks, the CFPB is now utilizing a dormant authority to hold nonbanks to the same standards that banks are held to,” said CFPB Director Rohit Chopra.
Under the Dodd-Frank Act, the CFPB can supervise “nonbanks whose activities the bureau has a reasonable cause to determine pose risks to consumers.” This authority is not specific to any particular consumer financial product or service. The CFPB already implemented this provision through a procedural rule in 2013, and while it hasn’t used it yet, this may now change. The Bureau argues that this rule will allow it to be “agile” and supervise entities that may be fast-growing.
For the Bureau, this rule is more procedural than substantive, as section 1024(a) of the Dodd-Frank Act already grants the CFPB this authority to supervise nonbanks of any size and the new rule does not impose on them any new requirement. However, some commentators on the original 2013 rule argued that the then-proposed rule asserted an “extremely broad grant of jurisdiction.”
This supervisory authority allows the CFPB to investigate a company, and it provides the bureau with a wide range of options once the supervision is concluded. The CFPB can issue recommendations, the director of the bureau can also make determinations and relief is also available in a civil action or administrative adjudication.
In addition to the announcement, the CFPB also issued yesterday a procedural rule that would complement the first one. The proposed rule would allow the CFPB to publish certain information about any final determination made using its supervisory powers. Otherwise, the findings and decisions made would need to be kept confidential.
Read Also: Written Testimony of Director Rohit Chopra before the Senate Committee on Banking, Housing, and Urban Affairs
Read Also: CFPB’s New Procedural Rules May Be a Game-Changer
Read Also: The CFPB and BNPL: 3 Things to Watch
April 20, 2022 — The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) that would extend the period of time preparers can utilize the reference rate reform relief guidance and expand the Secured Overnight Financing Rate (SOFR)-based interest rates available as benchmark interest rates. Stakeholders are encouraged to review and provide feedback on the proposed ASU by June 6, 2022.
Issue 1: Proposed Sunset Date Deferral
In 2020, the Board issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.
The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.
To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the amendments in the proposed ASU would defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.
Issue 2: Proposed Amendments to the Definition of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate
In 2018, the Board issued Accounting Standards Update No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which added the term Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate (SOFR Swap Rate) to the Master Glossary of the FASB Accounting Standards Codification®. The amendments in Update 2018-16 also permitted a rate that meets the definition of the SOFR Swap Rate to be considered a benchmark interest rate and therefore eligible to be designated as the hedged risk for recognized fixed-rate financial instruments or a forecasted issuance or purchase of fixed-rate financial instruments.
In Update 2018-16, the Board stated that the definition of the SOFR Swap Rate was specific to the OIS rate based on SOFR and that it would monitor the developments of the forward-looking, term-based version of the SOFR rate (SOFR term) and consider including SOFR term as a benchmark interest rate in the future. Based on the developments of SOFR term in the marketplace, the proposed ASU would amend the definition of the SOFR Swap Rate to include other versions of SOFR, such as SOFR term, as a benchmark interest rate under Topic 815.
The proposed ASU is available at www.fasb.org.
Articles for April 22, 2022 Issue:
- National Meeting Related Article: Cards-as-a-Service Startup Deserve is Moving Beyond the Consumer Market to Offer Fintechs, Banks and B2B Businesses a White Label Commercial Card Platform for Their Corporate Customers.
- Crypto Transactions Come under Regulatory Scrutiny Globally as U.S. Regulators Strengthen AML Rules
- Five CFPB Reports Issued This Week
- 4-20-2022 Complaint Bulletin: Medical billing and collection issues described in consumer complaints
- 4-19-2022 Data Spotlight: Challenges in Rural Banking Access
- 4-15-2022 Fair Debt Collection Practices Act Annual Report 2022
- 4-14-2022 CFPB Equity Action Plan
- 4-14-2022 Student Loan Borrowers Potentially At-Risk when Payment Suspension Ends
- NCUA News of the Week
- NCUA Board Briefed on Cybersecurity Threats and Diversity, Equity, and Inclusion Program
- Community Development Revolving Loan Fund Grant Round Opens May 2
National Meeting for State Regulators Related Article:
Cards-as-a-Service Startup Deserve is Moving Beyond the Consumer Market to Offer Fintechs, Banks and B2B Businesses a White Label Commercial Card Platform for Their Corporate Customers.
Courtesy of Finextra.com
The Deserve Commercial Credit Card Platform is designed to help companies of all sizes, from banks and online lenders to fintechs and marketplace businesses, to create credit and charge cards for their business customers. With instant issuance and digital wallet provisioning, the digital application allows approved cardholders to start using their cards within minutes.
Deserve also provides enterprise-level controls for CFOs to track, manage, and understand expenses, along with a range of cashback reward programmes.
“We are extending our digital, cloud-native, mobile-first platform from consumer cards to commercial. With this, we will enable any financial institution or platform that serves other businesses to embed and issue commercial credit cards. For non-banks, this can be a significant source of revenue and can enhance brand loyalty,” says Kalpesh Kapadia, CEO and co-founder of Deserve. “Our platform will enable those who serve small and medium-size businesses and corporations to offer true credit combined with sophisticated expense management. We are thrilled to have Customers Bank as the first bank on our platform.”
In October, Deserve picked up a strategic investment from Visa as part of a project with Blockifi to launch the world’s first credit card with crypto rewards. This followed a $50 million Series D funding round in June that was co-led by Mastercard, alongside Mission Holdings and Ally Ventures.
Crypto Transactions Come under Regulatory Scrutiny Globally as U.S. Regulators Strengthen AML Rules
Courtesy of Joe Higginson, Payments Journal
As cryptocurrencies continue to flow into the financial mainstream for use in commerce and investment, they are also growing as tools that facilitate crime. Chainalysis, a blockchain research firm, reported a 79 percent increase in the value of criminal activity linked to cryptocurrencies last year, to a record USD $14 billion. This fact is making them objects of regulatory scrutiny.
Countries around the world have made, or are considering, regulations that require banks and other organisations that handle cryptocurrency transfers to update their know-your-customer (KYC) and know-your-transaction (KYT) compliance and reporting procedures. U.S. President Joe Biden has just signed an executive order that directs federal government agencies to work together to better understand and ultimately regulate digital assets.
Whatever rules the Treasury Department, or any other regulator, comes up with, they are likely to mean more work for any business that deals in cryptocurrency. Banks already are required to have stringent KYC and anti-money-laundering (AML) procedures in place when dealing with fiat transfers, but crypto exchanges do not.
The requirements have not been there, and neither has the desire to implement such procedures. It would entail costs and inconvenience for the exchanges, and their customers certainly have not been clamoring for it. Indeed, one of the key attractions of cryptocurrencies has been the anonymity available to both parties in a transaction, the amount and time of which are incorporated into the blockchain that records it, but not information about the participants.
It’s almost certain now that crypto exchanges will have to compile this information to comply with the U.S. rules, and other similar ones, and the exchanges will have to update their KYC and AML processes. There is also the possibility they will have to go back over old transactions and uncover the parties, which will not be a simple task. If there is a silver lining, it is that crypto exchanges are new and nimble entities, built on digital foundations, so they can respond more quickly and with less disruption to their organizational structures and operations when changes, in this case to their payment and fraud monitoring systems, are called for. Banks, by contrast, often labor under hidebound attitudes, organizational silos, and legacy data systems, impeding progress.
Currencies without countries
A key difference between cryptocurrencies and conventional national and regional fiat currencies is that cryptocurrencies have no sovereignty. They’re not issued by a government, so authorities have been slow to claim jurisdiction over their use, or to demand information from financial intermediaries. That is changing because it is considered unfair, at least in the corridors of regulatory agencies, for transactions that are the same in all meaningful ways as ones made with Euros, Yen, Pounds, Francs, or Dollars, to escape the same scrutiny.
The virtual nature of cryptocurrencies means, moreover, that there is no there there. If bitcoin is transferred from the wallet of a sender in the United States to the wallet of a recipient in New Zealand, nothing physical, or even electronic, is transferred between those countries. That’s why it’s more accurate to say that a cryptocurrency transaction represents a movement of value, not a movement of money.
That makes cryptocurrency dealings hard to track, and regulators are especially keen to track them because they are used to conduct a lot more movement of value these days, and an unsettling amount of it is for nefarious purposes – laundering the proceeds of drug sales, or for carrying out Ponzi schemes and other scams – as the Chainalysis data, reported by Reuters, showed. The firm compiled its data by examining transfers to wallets associated with crime. As of early this year, those wallets held the equivalent of more than US $10 billion.
Five CFPB Reports Issued This Week
The Consumer Financial Protection Bureau released a series of reports this past week as they study how consumers interact with financial products and services to help identify potential problems in the marketplace.
- 4-20-2022 Complaint Bulletin: Medical billing and collection issues described in consumer complaints
The CFPB’s Office of Consumer Response hears directly from consumers about the challenges they face in the marketplace, brings their concerns to the attention of companies, and assists in addressing their complaints. This report analyzes debt collection and credit or consumer reporting complaints submitted to the Bureau in 2021.
Read the full report here.
- 4-19-2022 Data Spotlight: Challenges in Rural Banking Access
The CFPB is renewing its focus on the specific challenges of rural consumers, including more focused and sustained outreach to rural stakeholders, researching relevant open questions, and using the CFPB’s authorities, resources, and roles across the government to address the problems facing rural consumers.This report highlights the CFPB’s research on rural consumers as well as contextual information from other agencies on the consumer finance challenges faced by rural communities. This report is a starting point for a CFPB initiative that will include devoted engagement with rural communities across the country, research into challenges faced by rural communities, and actions to protect rural consumers from predatory bad actors and repeat offenders in consumer financial markets. The CFPB is committed to ensuring that markets are working for rural communities and offering rural people a fair chance to thrive in their communities.
Read the full report here.
- 4-15-2022 Fair Debt Collection Practices Act Annual Report 2022
The Bureau’s annual report to Congress summarizes the Bureau’s activities to administer the Fair Debt Collection Practices Act (FDCPA) in 2021 as the primary federal regulator of the consumer debt collection industry. This report also includes activities conducted by the Federal Trade Commission (FTC) in 2021 in relation to debt collection.
Read the full report here.
- 4-14-2022 CFPB Equity Action Plan
The CFPB is committed to integrating racial and economic equity into the core mission work of the Bureau. The CFPB Equity Action Plan identifies specific actions CFPB will take to break down barriers to equity. It also includes performance and accountability measures to ensure our goals are met.
Read the Equity Action Plan
- 4-14-2022 Student Loan Borrowers Potentially At-Risk when Payment Suspension Ends
As a result of the CARES Act and subsequent administrative actions, more than 25 million student loan borrowers have had suspended payments on their federal student loans for more than two years. This suspension is scheduled to end later this year, and it remains uncertain how financially ready student loan borrowers are to resume payments on these debts.In this report we use data from the CFPB’s Consumer Credit Panel to identify which types of borrowers may struggle to make their scheduled loan payments based on five potential risk factors: pre-pandemic delinquencies on student loans, pre-pandemic payment assistance on student loans, multiple student loan servicers, delinquencies on other credit products since the start of the pandemic, and new third-party collections during the pandemic.The payment suspension’s end will require student loan borrowers to resume making roughly $6 billion per month in aggregate payments. Although some borrowers are likely to resume payments without serious issues, many borrowers may struggle. We find that about 15 million borrowers have at least one of the potential risk factors considered in this report and over 5 million borrowers have at least two. We also find that borrowers with multiple risk factors are more likely to live in low-income or high-minority census tracts.
Read the full report here.
April 21, 2022 — Through a live audio webcast, the National Credit Union Administration Board held its fourth open meeting of 2022 and was briefed on two matters:
- Current cybersecurity events and trends affecting federally insured credit unions and the broader financial system.
- The NCUA’s diversity, equity, inclusion, and belonging program.
Board Briefed on the Cybersecurity Threats Facing Credit Unions
Geopolitical tensions, supply chain risks, ransomware, COVID-19, and cyber criminality have contributed to a dynamic threat landscape that creates evolving risks for federally insured credit unions, according to a briefing provided to the NCUA Board by the agency’s Critical Infrastructure Division. Additionally, the potential for Russian cyber retaliation resulting from the U.S.’s support of Ukraine is an imminent danger.
“Briefings like this one today are a critical part of the NCUA’s communications efforts to promote cybersecurity best practices and raise awareness about the threats credit unions face,” said NCUA Chairman Todd M. Harper. “Each of us — the NCUA, state supervisory authorities, credit unions, and vendors — has a responsibility to protect our IT systems, improve our collective ability to recover from incidents, educate our employees, share information, and report and address potential vulnerabilities. All of us must do our part and be cybersmart.”
The briefing also summarized the NCUA’s efforts to improve its information security examination program, which is being field-tested by the NCUA and some state supervisory authorities. These new examination procedures are designed to scale to the size and complexity of all credit unions.
The NCUA strongly encourages credit unions to strengthen their institution’s cybersecurity programs and preparedness and immediately report cyber incidents to the NCUA, the FBI, and the Cybersecurity and Infrastructure Security Agency. Credit unions are also encouraged to download and use the NCUA’s Automated Cybersecurity Evaluation Toolbox, or ACET.
Additional cyber-related information is available on the NCUA’s cybersecurity resources webpage.
Briefing Highlights NCUA’s Diversity, Equity, Inclusion, and Belonging Initiatives
The NCUA Board received a briefing by the Director of the Office of Minority and Women Inclusion on the agency’s diversity, equity, inclusion, and belonging activities for hiring, employee retention, and supplier diversity.
“At their core, diversity, equity, inclusion, and belonging are more than policies and principles,” Chairman Harper said. “They are foundational practices and behaviors to be acted upon. They are vital to strategy, sustainable growth, innovation, talent acquisition, and employee retention at the NCUA and throughout the credit union system. In recent years, we have also seen efforts to embrace and solidify the principles of DEI as a pillar of the credit union industry. I encourage these worthy efforts to continue.”
Highlights from the briefing include:
- 42.4 percent of the NCUA’s new hires in 2021 were people of color;
- 36.8 percent of the NCUA’s total reportable contracting dollars for the year were awarded to minority- or women-owned businesses; and
- 240 federally insured credit unions submitted Voluntary Credit Union Diversity Self-Assessments in 2021, compared to 188 in 2020.
The briefing also included an update on how the NCUA supports minority depository institutions and opportunities for enhancing and fostering greater diversity, equity, inclusion, and belonging within the credit union system. More information on NCUA’s efforts can be found in the NCUA’s OMWI Annual Report to Congress(opens new window).
More Than $1.5 Million Available for Underserved Outreach, Cybersecurity
April 18, 2022 — Eligible low-income designated credit unions seeking Community Development Revolving Loan Fund (CDRLF) grants in 2022 can apply between May 2 and June 24.
“The grants the NCUA makes through the Revolving Loan Fund program make a real difference for credit unions, their members, and the communities they serve,” NCUA Chairman Todd M. Harper said. “These investments go into communities that would otherwise be underserved, giving credit unions resources to build their capacity, including cybersecurity resilience, bolster local economies, and create more secure financial futures for credit union members. I encourage all eligible credit unions to apply.”
The agency will award more than $1.5 million in CDRLF grants to the most qualified applicants, subject to the availability of funds, in four categories:
- Underserved Outreach (Maximum award, $50,000) — Assisting credit unions in expanding their reach to underserved communities and improve their members’ financial well-being;
- Small Credit Union Mentoring (Maximum award, $25,000) — Matching small credit unions with larger mentor credit unions to build capacity and expand services;
- Digital Services and Cybersecurity (Maximum award, $10,000) — Assisting credit unions with modernizing information and security systems to better protect themselves and members from cyberattacks; and
- Training (Maximum award, $5,000) — Strengthening credit unions through succession planning, leadership development, and staff education.
Grant requirements, application instructions, and other important information are available on NCUA.gov. Grant applications must be submitted online through the NCUA’s CyberGrants portal. Credit unions with additional questions about CDRLF grants may contact the NCUA’s Office of Credit Union Resources and Expansion at CUREAPPS@ncua.gov.
To apply, eligible credit unions must have an active account with the System for Award Management and unique entity identifier number that they will receive when they register for a SAM account. Low-income designated credit unions with an existing registration with SAM must recertify and maintain an active status annually. There is no charge for the SAM registration and recertification process. SAM users can register or recertify their account by following the instructions for registration.
Articles for April 15, 2022 Issue:
- NY Regulator Gets Authority to Charge Crypto Firms for Time Spent on Inspections
- Risk Alert: As employers, Credit Unions Are Encouraged to be Aware of Evolving Marijuana Laws
- NCUA Board Approves Proposed Rule to Recognize Electronic Pleadings and Communications
NY Regulator Gets Authority to Charge Crypto Firms for Time Spent on Inspections
Courtesy of CUToday.info
April 13, 2022 — New York’s Department of Financial Services will soon begin charging cryptocurrency companies for the time inspectors spend examining them, according to a provision in the recently passed $220-billion budget.
The change brings the regulation of crypto companies in line with that of banks and insurers, according to analysts.
Companies that wish to facilitate trading cryptocurrency in New York are required to receive a BitLicense from the state DFS. The idea of assessing charges to crypto firms was supported by Adrienne Harris, the recently appointed DFS superintendent, according to Crain’s New York Business.
“A long-running complaint from the crypto industry is that the state takes too long to review BitLicense applications,” Crain’s reported.
About 30 companies have received the license in the seven years the program has been active.
“This new authority will empower the department to build staff with the capacity and expertise to best regulate and support this rapidly growing industry,” Harris said in a statement announcing the change.
Risk Alert: As employers, Credit Unions Are Encouraged to be Aware of Evolving Marijuana Laws
Courtesy of New York Credit Union Association
The latest CUNA Mutual Group risk alert cites that, while a growing number of states and municipalities have introduced medical and adult recreational-use laws for marijuana use — with some jurisdictions now regulating an employer’s ability to test for marijuana while providing protections for users — credit unions should note that increased legislative and regulatory support around medicinal and recreational marijuana use can lead to more questions than answers about legal and reputational risks.
The alert states that credit unions should carefully reassess their workplace drug testing policies to be sure they follow existing and/or soon-to-be-effective state and local laws. Several of these laws prohibit employers from taking adverse action against applicants who test positive for marijuana, with exceptions for, “safety-sensitive” positions.
Risk mitigation tips
- Ensure any employment polices addressing marijuana, cannabis-related products and drug testing are reviewed by employment legal counsel, with particular attention given to carve-outs or protections afforded to recreational versus medicinal users, as well as conflicting language in any state or municipal laws where the credit union has a presence, including remote employees.
- Evaluate the nature of their workforce and the potential presence of “safety-sensitive” work positions as defined by state or municipal law.
- Clearly communicate decisions to your workforce that relate to workplace polices, enforcement and testing. Employees should be familiar with all workplace polices, if there are needs for accommodation, and how to request an accommodation.
CUNA Mutual Group’s risk alerts, in addition to additional risk-prevention resources, may be accessed in their Protection Resource Center. Log-in is required.
Related Reading: Case Study: How Frankenmuth Credit Union Banks Michigan’s Underserved Legal Cannabis Industry
Learn about the steps this $1 billion institution took to go from finding a partner to fielding a pilot to running a program.
April 13, 2022 — The National Credit Union Administration Board unanimously approved, by notation vote, an interagency notice of proposed rulemaking that would amend the Uniform Rules of Practice and Procedure (Uniform Rules).
The NCUA, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Board of Governors of the Federal Reserve System identified sections of the Uniform Rules that should be modified to recognize electronic pleadings and communications in administrative hearings and other sections that require modification based on the experience of the agencies in administrative litigation.
The current Uniform Rules were developed when the agencies accepted only paper pleadings. The proposed regulation would recognize the use of electronic communications in all aspects of administrative hearings.
The NCUA Board approved the notice of proposed rulemaking on Nov. 19, 2021. The agency expects this change will increase the efficiency and fairness of administrative adjudications.
Comments on the proposed rule will be accepted for 60 days after publication in the Federal Register.
Articles for April 8, 2022 Issue:
- Crypto’s Most Powerful Regulator Is Here, Adrienne Harris, New York’s Financial Watchdog Has Enormous Sway Over the Industry’s Future
- Senate Intro’s Bill to Prohibit Federal Reserve from Issuing Central Bank Digital Currency
- Securities and Exchange Commission Chair Gary Gensler Comments on New Crypto Regulation Initiatives
- NCUA Letter to Credit Unions Amends ‘Service Facility’ Rule
Crypto’s Most Powerful Regulator Is Here, Adrienne Harris New York’s Financial Watchdog Has Enormous Sway Over the Industry’s Future.
Courtesy of Kevin T. Dugan, New York Magazine, March 30, 2022
Thirteen years after the birth of cryptocurrency, it was supposed to be time for Washington to rein it in. Instead, the White House punted, and the Securities and Exchange Commission is still hashing out how it’s going to oversee the $2 trillion industry. State watchdogs have filled that vacuum, making Adrienne Harris, the head of the New York State Department of Financial Services, by default the most powerful crypto regulator in the country.
While states such as Florida and Wyoming have adopted a laissez-faire approach to regulation, attracting a sizable chunk of the booming industry, more money and jobs are still flowing into New York than any other city, making it the de facto crypto capital of the U.S. “There’s a misconception that having rigorous regulation turns off innovative companies,” Harris tells me during an hour-long interview at her office looking out onto the Statue of Liberty last month. “That hasn’t been our experience here.”
Harris was tapped as the first Black woman to lead DFS last year. She came into her position after a turn working in Silicon Valley and representing Wall Street banks, a résumé that critics have used to paint her as too close to the industries she is regulating. She’s eager to dispel any criticism that she’s soft as a regulator, especially when it comes to crypto. Harris says she’s looking to expand the agency’s remit, hire new regulators, and possibly watch over lending and asset management in decentralized finance, a.k.a. DeFi, one of the fastest-growing crypto industries, which has been prone to very large hacks.
The agency’s power over the industry lies mostly with the BitLicense, a required if unloved permit for crypto exchanges to operate within state lines. When it was first introduced in 2014, it was meant to be a model for the country, but the crypto industry has attacked the license for being too strict, limiting what people can trade, and requiring expensive anti-money-laundering operations, which, it should be noted, most traditional financial institutions are required to maintain. For Harris, the problem isn’t that it’s too restrictive — it’s that the process of getting one, which has stretched years for some companies, is too slow. “If you think about the companies that are BitLicensees, and even the companies in the queue, having the imprimatur of ‘Have you passed regulatory muster with a stringent regulatory regime?’ — I think the good actors see that as a good thing,” she says.
Created in 2011, DFS has been a regulator feared more than any of its counterparts in other states for the power it has over banks, insurance companies, and a host of other financial institutions. It brought ambitious money-laundering cases against banks like BNP Paribas (a settlement that resulted in several bankers losing their jobs), fined Deutsche Bank for its relationship with Jeffrey Epstein, and levied a $2.5 million fine on the National Rifle Association for selling its so-called murder insurance in the state. “DFS has a lot of teeth, and the sky’s the limit if the agency is exercised properly,” says state Sen. John Liu of Queens, a member of the state finance committee. “DFS compelled multinational banks to cough up $15 billion. We were able to build a couple bridges with that money. We still have much infrastructure in the state of New York that might benefit from DFS’s vigorous functions.”
Courtesy of CUToday.info
Sen. Ted Cruz (R-TX), a member of the Senate Commerce Committee, has introduced legislation to prohibit the Federal Reserve from issuing a central bank digital currency (CBDC) directly to individuals. Cruz’s bill was cosponsored by Sens. Mike Braun (R-IN) and Charles Grassley (R-IA).
Specifically, the legislation prohibits the Federal Reserve from developing a direct-to-consumer CBDC which could be used as a financial surveillance tool by the federal government, “similar to what is currently happening in China,” Cruz’s office said in a release.
The bill aims to maintain the dollar’s dominance without competing with the private sector, the release stated.
“As other countries, like China, develop CBDCs that omit the benefits and protections of cash, it is more important than ever to ensure the United States’ digital currency policy protects financial privacy, maintains the dollar’s dominance, and cultivates innovation,” according to the statement from Cruz. “CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely. It is important to note that the Fed does not, and should not, have the authority to offer retail bank accounts.”
How CBDCs Work
Unlike decentralized digital currencies like bitcoin, CBDCs are issued and backed by a government entity and transact on a centralized, permissioned blockchain. Not only would this CBDC model centralize Americans’ financial information, leaving it vulnerable to attack, it could be used a “direct surveillance tool into the private transactions of Americans,” Cruz’s office stated.
“The federal government has the ability to encourage and nurture innovation in the cryptocurrency space, or to completely devastate it,” Cruz said. “This bill goes a long way in making sure big government doesn’t attempt to centralize and control cryptocurrency so that it can continue to thrive and prosper in the United States. We should be empowering entrepreneurs, enabling innovation, and increasing individual freedom—not stifling it.”
The legislation comes, as CUToday.info has reported, at the same time other members of Congress have called on the Fed to push forward with a digital currency, while the Fed itself said it is researching the issue.
April 4, 2022 — The SEC’s remit is overseeing the capital markets and our three-part mission: protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets. Within the policy perimeter, regulators also care about guarding against illicit activity, a role that is so important to us and our partners at the Department of the Treasury and the Department of Justice; and about financial stability, which is important to all financial regulators.
There’s no reason to treat the crypto market differently just because different technology is used. We should be technology-neutral.
So I’d like to mention three areas related to the SEC’s work in this area: platforms, stablecoins, and crypto tokens.
1. Crypto trading and lending platforms [centralized or decentralized (DeFi)]
These platforms have scale, recently trading crypto worth more than $100 billion a day. The crypto market is highly concentrated, with the bulk of trading taking place on only a handful of platforms. Amongst crypto-only exchanges, the top five platforms make up 99 percent of all trading, and just two platforms make up 80 percent of trading. In crypto-to-fiat transactions, 80 percent of trading is on five trading platforms. Similarly, the top five DeFi platforms account for nearly 80 percent of trading on those platforms. The SEC will work on a number of projects related to the platforms.
- First is getting the platforms themselves registered and regulated much like exchanges. Congress gave us a broad framework with which to regulate exchanges. These crypto platforms play roles similar to those of traditional regulated exchanges. Regulation both protects investors and promotes investor confidence, in the same way that traffic laws protect drivers and promote driver confidence.
- Second, crypto platforms currently list both crypto commodity tokens and crypto security tokens, including crypto tokens that are investment contracts and/or notes.
The second area is the $183 billion (and growing) stablecoins market. Outside of use on crypto platforms, stablecoins generally are not used for commerce. Stablecoins, though, in offering features similar to and potentially competing with bank deposits and money market funds, raise three important sets of policy issues.
- First, stablecoins raise public policy considerations around financial stability and monetary policy. Such policy considerations underlie regulations that banking regulators have with respect to deposits and that we at the SEC have with respect to money market funds and other types of securities.
- Second, stablecoins raise issues on how they potentially can be used for illicit activity. Stablecoins primarily are used for crypto-to-crypto transactions, thus potentially facilitating platforms and users avoiding or deferring an on-ramp or off-ramp with the fiat banking system.
- Third, stablecoins raise issues for investor protection. Stablecoins were first adopted and continue to be dominantly used on crypto trading and lending platforms. About 80 to 85 percent of trading and lending on these platforms involves stablecoins.
Then, thirdly from a policy perspective are all the other crypto tokens. The fact is, most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits — the hallmark of an investment contract or a security under our jurisdiction. Some, probably only a few, are like digital gold; they may not be securities. Even fewer, if any, are actually operating like money.
- Today, many entrepreneurs are raising money from the public by selling crypto tokens, with the expectation that the managers will build an ecosystem where the token is useful and which will draw more users to the project.
- Thus, it is important that we work to get crypto tokens that are securities to be registered with the SEC. Issuers of crypto tokens that are securities must register their offers and sales of these assets with the SEC and comply with our disclosure requirements, or meet an exemption.
Courtesy of CUToday.info
April 4, 2022 — NCUA has issued a Letter to Federal Credit Unions (22-FCU-02) on the final rule amending the definition of “service facility” for multiple common-bond credit unions.
The final rule, which amends the definition of “service facility” for multiple common-bond federal credit unions became effective Dec. 27, 2021.
The final rule provides that shared locations are service facilities for purposes of multiple common-bond federal credit union additions of groups, regardless of whether the federal credit union has an ownership interest in the shared branching network providing the locations.
In addition, shared locations, including electronic facilities offering required services such as video teller machines, are also service facilities for purposes of multiple common-bond federal credit union additions of underserved areas, regardless of whether the federal credit union has an ownership interest, the agency explained in the letter.
“If your multiple common-bond federal credit unions plans to add groups or underserved areas, you should be aware that the final rule only changes the ownership requirement related to shared locations,” NCUA stated. “All other requirements related to service facilities, eligibility of groups, and the qualification of underserved areas remain unchanged.”
“For multiple common-bond federal credit unions adding occupational or associational groups, a service facility must allow a member to deposit shares, submit loan applications, or receive loan proceeds,” the letter continued. “For multiple common-bond federal credit unions adding an underserved area, a service facility in the underserved area must allow a member to deposit shares, submit loan applications, and receive loan proceeds. While various types of facilities could meet these requirements, including some electronic facilities, all three services must be available through the facility for it to qualify as a service facility in an underserved area. Accordingly, automated teller machines are not service facilities for purposes of underserved area additions.”
What Must be Demonstrated
NCUA also emphasized the process for establishing that an area qualifies as an underserved area remains the same. That is, according to the agency, multiple common-bond federal credit unions must demonstrate that the area is:
- A local community, neighborhood, or rural district under the Chartering Manual’s definition
- An investment area, which means either that the area is (1) an empowerment zone or enterprise community or (2) that it meets quantitative economic distress criteria and also has a significant unmet need for financial services
- Underserved by other depository institutions, based on objective data from the federal banking agencies
Articles for March 25, 2022 Issue:
- Federal Reserve Board invites comment on a proposal to update policies and procedures governing administrative proceedings
- Opinion Article: CCULR/RBC Unconstrained by Statute: An Arbitrary Regulatory Act
- NCUA Final Rule on Definition of Service Facility in a Letter to Federal Credit Unions
- CFPB Issues Policy on Contractual ‘Gag’ Clauses and Fake Review Fraud
March 22, 2022 — The Federal Reserve Board on Tuesday invited comment on an interagency proposal to update policies and procedures governing administrative proceedings for supervised financial institutions. The proposed updates would modernize these rules, aligning them with current practices and facilitating the use of electronic communications and technology in administrative proceedings. The proposal was jointly developed with the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration.
In addition, the Federal Reserve Board invited comment on proposed updates to additional rules applicable only to Board administrative proceedings. These proposed updates would codify existing practices and promote transparency.
Comments will be accepted for 60 days after publication in the Federal Register.
Opinion Article: CCULR/RBC Unconstrained by Statute —
An Arbitrary Regulatory Act
Opinion Provided Courtesy of Chip Filson
The new RBC/CCULR rule must meet two administrative procedural tests, as any other rule, when NCUA claims to be implementing a law. The first was outlined in an earlier column: Was there substantial objective evidence presented to justify the rule?
As I described, NCUA presented no systemic data or individual case analysis whatsoever. In fact, the credit union performance record shows an industry well-capitalized and demonstrating prudent capital management over decades.
In the December 2021 board meeting Q&A , staff confirmed that in the last 10 years only one failed credit union would have been subject to RBC. But today, 83% of the industry’s assets and 705 credit unions are now subject to its microscopic financial requirements.
The second test is whether the rule conforms to Congress’ legislative constraints when giving this rule making “legislative” authority to an agency. The PCA law was very specific in this regard when extended to the credit union system.
NCUA’s PCA implementation must meet three tests: that it apply only to “complex” credit unions, “consider the cooperative character of credit unions,” and be comparable to banking requirements.
NCUA had already passed these PCA implementation tests before. In 2004, GAO reviewed NCUA’s risk-based net worth (RBNW) implementation of the 1998 PCA requirement and concluded “the system of PCA implemented for credit unions is comparable with the PCA system that bank and thrift regulators have used for over a decade,” and that“available information indicates no compelling need. . . to make other significant changes to PCA as it has been implemented for credit unions.
March 22, 2022 — In a Letter to Federal Credit Unions, the NCUA clarifies several questions related to its recently passed rule on adding groups or underserved areas to fields of membership.
Specifically, the agency said ownership requirements related to shared locations are the only change made for multiple common bond federal credit unions adding groups or underserved areas.
“If your multiple common-bond federal credit unions plans to add groups or underserved areas, you should be aware that the final rule only changes the ownership requirement related to shared locations. All other requirements related to service facilities, eligibility of groups, and the qualification of underserved areas remain unchanged.”
For multiple common-bond federal credit unions adding occupational or associational groups, a service facility must allow a member to deposit shares, submit loan applications, or receive loan proceeds. For multiple common-bond federal credit unions adding an underserved area, a service facility in the underserved area must allow a member to deposit shares, submit loan applications, and receive loan proceeds. While various types of facilities could meet these requirements, including some electronic facilities, all three services must be available through the facility for it to qualify as a service facility in an underserved area. Accordingly, automated teller machines are not service facilities for purposes of underserved area additions.
The NCUA also emphasizes that the process for establishing that an area qualifies as an underserved area remains the same. That is, multiple common-bond federal credit unions must demonstrate that the area is:
- A local community, neighborhood, or rural district under the Chartering Manual’s definition;4
- An investment area, which means either that the area is (1) an empowerment zone or enterprise community or (2) that it meets quantitative economic distress criteria and also has a significant unmet need for financial services;5 and
- Underserved by other depository institutions, based on objective data from the federal banking agencies.6
CFPB Issues Policy on Contractual ‘Gag’ Clauses and Fake Review Fraud
Financial companies will face consequences for illegally manipulating or suppressing consumer reviews
March 22, 2022 — The Consumer Financial Protection Bureau (CFPB) issued policy guidance regarding potentially illegal practices related to consumer reviews. The CFPB seeks to ensure that customers can write reviews, particularly ones posted online, about financial products and services that accurately reflect their opinions and experiences. The guidance also highlights that practices such as posting fake reviews or inserting clauses that forbid a customer from publishing an honest review may violate the Consumer Financial Protection Act.
The CFPB’s guidance describes certain business practices related to customer reviews that are generally unlawful under the Consumer Financial Protection Act, including:
- Contractual ‘Gag’ Clauses: Attempting to silence consumers from posting an online review can undermine fair competition. Banks and financial companies that include clauses in form contracts that forbid a consumer from posting an honest review may be engaged in unfair or deceptive practices.
- Fake Reviews: Markets can be harmed if consumers cannot trust that online reviews are legitimate. Laundering fake reviews in ways that appear completely independent from the company to improve their ratings may constitute a deceptive practice.
- Review Suppression or Manipulation: Consumers cannot easily shop and compare products and services when firms engage in practices to limit the posting of negative reviews or manipulate reviews to trick or confuse consumers. The guidance explains why these practices may be unlawful.
Today’s effort is related to the Federal Trade Commission’s efforts to deter fake reviews and related fraud across the digital economy. The to put hundreds of businesses on notice about fake reviews and misleading endorsements, which may result in significant penalties against marketers that engage in this misconduct.
Articles for March 18, 2022 Issue:
CFPB Targets Unfair Discrimination in Consumer Finance; NCUA Releases 2021 Annual Report; Opinion: On the Compliance Horizon: The end of LIBOR
Discrimination or improper exclusion can trigger liability under ban on unfair acts and practices
March 16, 2022 — The Consumer Financial Protection Bureau (CFPB) announced changes to its supervisory operations to better protect families and communities from illegal discrimination, including in situations where fair lending laws may not apply. In the course of examining banks’ and other companies’ compliance with consumer protection rules, the CFPB will scrutinize discriminatory conduct that violates the federal prohibition against unfair practices. The CFPB will closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination.
The CFPB enforces several laws that can target discriminatory practices. Government regulators and private plaintiffs have commonly relied on the Equal Credit Opportunity Act (ECOA), a fair lending law which covers extensions of credit. However, certain discriminatory practices may also trigger liability under the Consumer Financial Protection Act (CFPA), which prohibits unfair, deceptive and abusive acts and practices (UDAAPs).
The CFPB published an updated exam manual today for evaluating UDAAPs, which notes that discrimination may meet the criteria for “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid, where that harm is not outweighed by countervailing benefits to consumers or competition.
The CFPB will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits. CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. The CFPB will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA. Read more of the press release here.
The NCUA developed this strategic plan through collaboration between Board members and input from and coordination by staff. This final strategic plan also incorporates the feedback and recommendations of stakeholders throughout the credit union system.
Under this plan, the agency’s revised strategic goals aim to:
Ensure a safe, sound, and viable system of cooperative credit that protects consumers: To meet our first strategic goal, we examine credit unions to ensure they operate in a financially sound manner and comply with all laws and regulations, including those related to consumer financial protection and fair lending. This work ensures that consumers can confidently use credit unions for their financial needs, and businesses and communities have access to the credit they need to grow and thrive.
Improve the financial well-being of individuals and communities through access to affordable and equitable financial products and services: As part of our second goal, the NCUA develops rules, regulations, and initiatives designed to expand access to safe, fair, and affordable financial products and services. This work includes chartering new credit unions, a priority for Vice Chairman Hauptman, and facilitating changes to credit unions’ fields of membership, a priority for Board Member Hood. And, this work fulfills the statutory mission of the credit union system, which is to meet the credit and savings needs of their members, especially those of modest means, a point I often emphasize in speeches.
Maximize organizational performance to enable mission success: Our third goal involves accomplishing our mission on behalf of credit union members through teamwork. A critical part of this goal is building a diverse and talented workforce and creating an inclusive environment where all employees have a sense of belonging and can bring their full and true selves to their work. Diversity, equity, and inclusion are priorities for the NCUA.
It has taken us a long time to get here, but we are at long last entering the final phase of the Corporate System Resolution. By pursing the least-costly resolution of the corporate crisis and taking bold action in court, we have recovered and returned nearly $2.2 billion to member capital account holders — with the potential for more distributions in the months ahead.
Nevertheless, some continue to question our actions. Skeptics of the Corporate System Resolution claim the NCUA overestimated the losses. Others assert that the corporates were merely experiencing a liquidity crisis but were otherwise financially sound. Such sentiments seriously minimize the true nature of the crisis the agency faced between 2008 and 2010.
The five corporate credit unions that failed were insolvent. That is a fact.
Like a gambler busted at the blackjack table, they were out of money. The game was over. Promising the dealer that you will have cash once you win the next few hands does not work in a casino, and it does not work for financial institutions. What came next was the need to resolve these failed institutions in a responsible manner and in a way that did not endanger the entire credit union system, which was under enormous stress during the 2008 financial crisis and its resulting recession.
That is why we structured the Corporate System Resolution to allow the credit union system to bear the costs of these failures over time…And, had the NCUA not taken the prudent steps that it did during the corporate crisis and over the last decade, including pursuing legal action, the credit union system would have had to endure those enormous costs — costs the system simply could not absorb.
Courtesy of by Richard H. Gamble, CU Management.com (CUES)
Fortunately, there is still some time to consider which alternative index to use. An upcoming challenge for credit unions is the 2023 finale of the U.S.-dollar London Interbank Offer Rate, historically one of the most popular indexes for adjustable-rate loans, which has also played a role in interest-rate risk in the past.
When the financial markets became overheated in the mid-2000s and banks couldn’t tell who was solvent, LIBOR increased by more than 400 basis points, triggering loan defaults, bankruptcies and government interventions. It stayed volatile until early 2009, when federal support to the financial system stabilized it, reports CU attorney Michael Edwards, based in Upper Marlboro, Maryland.
LIBOR had failed as a stabilizing foundation for floating-rate lending, he notes. When a subsequent scandal revealed that big derivatives traders were getting banks to manipulate LIBOR in their favor, its days were numbered. Still, some form of LIBOR—three-month and 12-month—will be around until June 2023. That gives CUs with LIBOR-indexed floaters some time to prepare for a situation, he notes.
Other Index Options
Most floating-rate promissory notes, Edwards explains, now have a clause that allows a lender to substitute another index if LIBOR disappears but not to change the credit spread charged above the index rate. Choosing an index with a rate higher than LIBOR means the loan would cost the borrower more and reward the lender more, he points out.
There are plenty of indexes to choose from. SOFR, the secured overnight financing rate published by the Fed, is a popular alternative, but one with a typically lower rate than LIBOR because it is based on secured lending instead of unsecured lending and therefore does not price in credit risk per se. There are also Bloomberg Short-Term Bank Yield Index (BSBY) and American Interbank Offered Rate (Ameribor), which are credit-sensitive like LIBOR.
- Article from NASCUS Report published in Dec. 2021 “Jan. 1 signals big changes with RBC, CCULR, LIBOR”.
- NASCUS Summary on the NCUA’s Letter to Credit Unions 21-CU-03 LIBOR Transition
March 16, 2022 – The National Credit Union Administration today released its 2021 Annual Report(opens new window), highlighting the agency’s activities, policy initiatives, and accomplishments for the past year.
“In 2021, the NCUA worked to ensure credit union members were protected and the credit union system and the National Credit Union Share Insurance Fund were prepared to weather any economic fallout related to the pandemic,” Chairman Todd M. Harper said. “Despite the year’s many challenges, the credit union system, as a whole, continued to perform well, remaining well capitalized with sufficient levels of liquidity. This is a testament to the strength of the credit union system going into the pandemic and the skillful management of credit union CEOs, boards of directors, and NCUA employees over the last two years.”
The NCUA Board and the agency in 2021 focused on addressing the economic and financial disruptions resulting from the pandemic. These actions included:
- Protecting the health and safety of NCUA employees and contractors so the agency could continue to perform its mission;
- Assessing the impact of COVID-19 on credit union members and operations; and
- Analyzing how the pandemic will affect the future financial condition of credit unions and the Share Insurance Fund.
In 2021, the NCUA Board finalized several rulemakings to strengthen the credit union system and safeguard consumers, and the agency implemented new systems to support its examination program in the future. The NCUA also protected credit union members during the year, fostered greater diversity, equity, inclusion, and belonging in the NCUA and the credit union system, and advanced economic equity and justice by expanding access to safe, fair, and affordable financial products and services.
Articles for March 11, 2022 Issue:
The NCUA Board approved a final rule adding the Sensitivity to Market Risk, or “S,” component to the existing CAMEL rating system and redefined the Liquidity Risk, or “L,” component with an effective date of April 1, 2022.
The new Sensitivity to Market Risk component rating reflects the exposure of a credit union’s current and prospective earnings and economic capital arising from changes in market prices and interest rates. The Liquidity Risk component rating reflects a credit union’s ability to monitor and manage liquidity risk and the adequacy of liquidity levels. The transition to CAMELS will not significantly affect the examination process nor add a burden to credit unions. The criteria for the Capital adequacy, Asset quality, Management, and Earnings components, and the composite rating, have not changed. Also, adding “S” and modifying “L” reflect factors that examiners routinely consider in evaluating a credit union’s financial condition and risk profile.
The NCUA has prepared a framework that supports the uniform application of CAMELS. It includes annual supervisory priorities and examination scope updates, routine updates to the Examiner’s Guide and National Supervision Policy Manual, a standardized examination platform and training program, regional and national quality assurance and control programs, and periodic training that addresses the inter-relationships between and among risk categories and the CAMELS rating implications.
- NCUA Letter to Credit Unions (22-CU-05)
- Appendix A NCUA’s CAMELS Rating System (CAMELS)
- Appendix B Common Questions and Answers about the CAMELS Rating System
House Republicans to Postal Commission: Banking Pilot Skirts Law
Courtesy of David Baumann, Washington Credit Union Daily
March 7, 2022 — House Republicans are challenging the Postal Regulatory Commission to use its authority to review a banking pilot program being operated by the U.S. Postal Service.
Any new product offered by the USPS must be approved by the commission, Rep. Blaine Luetkemeyer, R-Mo., and several other House Republicans wrote in a letter last week to Michael Kubayanda, chairman of the commission.
“Despite the PAEA’s clear requirement to file with the PRC in this case, the USPS neither informed the PRC nor published anything in the Federal Register regarding the pilot program,” the GOP members wrote in their letter. The PAEA is the Postal Accountability and Enhancement Act.
They added, “The notion that USPS could engage in this pilot program by justifying it as a new payment option—as opposed to a new product—is an affront to the PRC’s statutory role.”
The Postal Service began the pilot program at USPS retail locations on Sept. 13 in the Washington, DC; Falls Church, VA; Baltimore, MD; and Bronx, NY, areas. Customers in these locations can cash a check to purchase a single-use gift card for up to $500. Checks larger than that are not accepted, and no cash is to be disbursed.
Postal service officials said they did not consider the pilot to be an issue on which they had to consult with the PRC because the postal service already sold gift cards. They also told the PRC that only six people had used the pilot program to cash a check.
New Effort Focused on Financial Issues Facing Rural Communities
Courtesy of Shawn Sebastian, CFPB
March 10, 2022 — The Consumer Financial Protection Bureau has launched a new initiative to focus on financial issues facing rural America. Our effort will initially focus on rural banking deserts, discriminatory and predatory agricultural credit, and manufactured housing.
There is no single rural America–from Appalachia and the Deep South to rural Alaska, rural places have a wide range of diverse people, economies, and ways of life. Rural people are deeply committed to the places they live, but face real challenges in accessing reliable services and good jobs, keeping up with household expenses, maintaining farming, and finding affordable housing.
It is well known that larger economic trends have uniquely affected rural communities over the past several decades. The number of jobs in rural areas have still not fully recovered from the shock of the 2008 financial crash and job growth in rural areas of the rate of job growth in urban areas. Rural wages are , and rural poverty rates are higher than in non-rural areas . Increasing corporate consolidation across the economy has hit rural areas particularly hard, suppressing wages and leaving rural people with . In addition, the effects of the COVID-19 pandemic on rural populations have been severe, with .
We have a responsibility to pay attention to the particular challenges rural communities face as they work to build and maintain their financial resiliency. Last month, Director Chopra invited over 50 people from organizations representing rural people across the country to tell their stories and share their concerns. What we heard is that larger economic trends are affecting the financial resilience of rural families and their experiences with consumer finance.
March 8, 2022 — Overdraft protection programs are important to credit unions and their members, and the market landscape is changing. Credit unions can learn more about these programs and what market changes can mean on a March 23 webinar hosted by the National Credit Union Administration.
Online registration for the webinar, “Overdraft Programs: Searching for New Solutions,” is open now. The webinar is scheduled to begin at 2 p.m. Eastern and run approximately 60 minutes. Participants will be able to log into the webinar and view it on their computers or mobile devices using the registration link. They should allow popups from this website.
Luis Dopico, chief economist for the consulting service CU Collaborate, and Taylor Nelms, senior director of research for the Filene Research Institute, will cover a variety of issues and concerns credit unions should understand, including:
- Types of overdraft protection programs;
- How credit unions and banks compare;
- Fee structures;
- How members, consumer advocates, and regulators view programs; and
- Market changes, including the impact of fintech.
CFPB Estimates $88 Billion in Medical Bills on Credit Reports
Inaccurate medical billing data contaminates credit reporting system
March 1, 2022 — The Consumer Financial Protection Bureau (CFPB) today released a report highlighting the complicated and burdensome nature of the medical billing system in the United States. The report reveals that the U.S. healthcare system is supported by a billing, payments, collections, and credit reporting infrastructure where mistakes are common, and where patients often have difficulty getting these errors corrected or resolved.
Today’s report details how medical bills are often incurred through unexpected and emergency events, are subject to opaque pricing, and involve complicated insurance or charity care coverage and pricing rules. In emergency situations, patients might not even sign a billing agreement until after receiving treatment. In other instances, patients, including those with chronic illnesses or who are injured or ill, may desperately feel that the need for medical care forces them into accepting any costs for treatment.
When those bills end up in collections, the repercussions can be far-ranging. Medical bills placed on credit reports can result in reduced access to credit, increased risk of bankruptcy, avoidance of medical care, and difficulty securing employment, even when the bill itself is inaccurate or erroneous. The report outlines how these repercussions are especially acute for people from Black and Hispanic communities, as well as people with low incomes, veterans, older adults, and young adults of all races and ethnicities.
The report describes challenges and sources of confusion when a person’s medical bills go into collection or are placed on a credit report. Bills may be sent to collectors by doctors, hospitals, parent companies, or groups representing a service provider, so there may be multiple charges for the same visit. The total billed amount can quickly become unrecognizable, and the time and effort needed to parse legitimate charges from inaccurate ones can become unmanageable.
Read additional summary details here.
Read the CFPB’s full report, Medical Debt Burden in the United States.
Article Summary for March 4, 2022 Issue:
Testifying before the House Financial Services Committee Fed Chair Powell comments war underscores a need for crypto regulation; National Credit Union Administration (NCUA) Board Member Rodney Hood, Vice Chairman Kyle Hauptman, and Chairman Todd Harper addressed credit union industry professionals at the 2022 CUNA GAC to discuss their thoughts and priorities this year and the U.S. Senate approves cyber incident reporting rule for critical infrastructure, FISMA reform.
Fed Chair Powell: ‘War Underscores Need’ for Crypto Regulation
Courtesy of Nikhilesh De and Helene Braun, Coindesk
Fed Chair Pro Tempore Jerome Powell said Russia’s invasion of Ukraine could emphasize a need for cryptocurrency regulation to prevent sanctioned individuals from using cryptocurrency to evade sanctions.
“[The Ukraine-Russia conflict] underscored the need for Congressional action on digital finance including cryptocurrencies,” Powell said. “We have this burgeoning industry which has many parts to it, and there isn’t in place the kind of regulatory framework that needs to be there.”
The Fed Chair was responding to a question about whether Russia could use cryptocurrencies to bypass sanctions. The U.S., EU and other nations have imposed financial sanctions against Russia in an effort to have it back down from its invasion of Ukraine. Earlier on Wednesday, the European Union cut seven of Russia’s largest banks off from the SWIFT interbank messaging system.
Powell referred to the possibility that terrorists or other malicious actors could use cryptocurrency as further examples of the need for additional regulation.
Powell is testifying in front of the House Financial Services Committee Wednesday on the state of the economy and monetary policy. He will report to the Senate Banking Committee on Thursday.
Congressman Juan Vargas (D-Calif.) asked about the Fed’s recent reports on central bank digital currencies. Powell referred to the papers, saying the Fed is seeking public comment.
“This will be something that we will invest a fair amount of time and expertise … to get it right,” Powell said, emphasizing that “we have not decided to do it.”
Whether the benefits outweigh the costs of a central bank digital currency (CBDC) is an unanswered question, he said.
Powell also indicated that the U.S. central bank would try to mitigate inflation by raising rates later this year. He said that the central bank was set to raise its policy rate but that the situation in the Ukraine may have changed expectations.
March 1, 2022 — National Credit Union Administration (NCUA) Board Members Rodney Hood and Kyle Hauptman addressed more than 4,500 credit union advocates at the Credit Union National Association Governmental Affairs Conference (CUNA GAC) Tuesday morning, thanking credit unions for the past year they have had.
Board member Rodney Hood said he’s seeing reassuring trends in credit unions, even through the pandemic.
“Since the start of the pandemic, we’ve seen that credit unions have added more than 7 million members, and loan growth has been strong while delinquency rates remain manageable,” he said.
He also said he hopes NCUA will look to provide further opportunities for innovation and urged credit unions to explore those as well.
“I want to see credit unions approach fintech with a sense of purpose and clarity. Let’s be open to innovation and experimentation, but always with the primary commitments being of service to your members, ensuring the performance of your institutions, and protecting the safety and soundness of the broader system of cooperative credit,” Hood added.
NCUA Vice Chairman Kyle Hauptman thanked credit unions for their performance over the last two years to get through a situation “definitely not in the manual.”
Hauptman said he aims to have NCUA also evolve with the times to provide quality service, despite being saddled with a problem that affects many government agencies.
“We’re basically a monopoly provider of our services, and monopolies often wind up producing mediocre products at high prices,” he said. “By implementing normal, modern customer feedback and transparency, the agency you pay for ought to be an improved regulatory experience. So, we know that NCUA has to modernize as well,” Hauptman said.
Courtesy of CUNA News, full article here.
Senate Approves Cyber Incident Reporting Rule for Critical Infrastructure, FISMA Reform
Courtesy of Derek Johnson, SC Media
March 1, 2022 — Senate unanimously passed legislation Tuesday night that would require critical infrastructure entities to report to the federal government when they are hacked, update the government’s information security hierarchy and codify the government’s primary cloud security certification program.
The Strengthening American Cybersecurity Act is actually three separate bills jammed into one legislative vehicle.
One, the Cyber Incident Reporting Act, would require critical infrastructure owners to report to the Cybersecurity and Infrastructure Security Agency (CISA) within 72 hours when they are hacked or suffer a significant cyber incident. Another modernizes the Federal Information Security Management Act, the primary law governing the cybersecurity of civilian agencies, and incorporates newer entities like CISA and the national cyber director into the federal reporting chain. A third is designed to codify FedRAMP, the civilian government’s cloud security certification program, into law and better account for vulnerabilities in the software supply chains of cloud service providers.
A Senate aide told SC Media that there are still outstanding differences between the House and Senate regarding the FISMA overhaul that will need to be worked out (for example, the House version codifies the federal chief information security officer role while the Senate version does not).
Requiring critical infrastructure — entities that are largely private owned but whose operations are essential to the functioning of American society — to report breaches and other serious incidents has been one of the highest cybersecurity priorities in Congress over the past year as food producers, oil and gas pipelines, manufacturers, state and local governments and schools have come under relentless attack from ransomware groups, while defense contractors and other sectors have had their systems breached and purloined of sensitive trade secrets by foreign intelligence agencies and state-backed hacking groups.
It will give CISA unprecedented insight into how many companies deemed crucial to the delivery of services and the global supply chain are affected by the problem, and infuse discussions about federal resource allocation and technical assistance with more granular data.
Article Summary for February 25, 2022 Issue: Interagency Statement on Special Purpose Credit Programs Under the ECOA and Regulation B; Community Reinvestment Act: FAQs Regarding the Final Rule to Rescind the 2020 CRA Rule; CFPB Outlines Options to Prevent Home Valuation Bias and a factsheet for calculating prepaid interest; NCUA hosts Webinars on CAMELS and Call-Report Changes
February 22, 2022 — The Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB or Bureau), the Department of Housing and Urban Development (HUD), the Department of Justice (DOJ), and the Federal Housing Finance Agency (FHFA) (hereafter, the agencies) are issuing this interagency statement to remind creditors of the ability under the Equal Credit Opportunity Act (ECOA) and Regulation B to establish special purpose credit programs to meet the credit needs of specified classes of persons. Many financial institutions have publicly committed billions of dollars to better meet the needs of underserved communities, and this statement calls attention to the special purpose credit options under ECOA and Regulation B.
ECOA and Regulation B permit creditors to extend special purpose credit offered pursuant to
- Any credit assistance program expressly authorized by Federal or state law for the benefit of an economically disadvantaged class of persons;
- Any credit assistance program offered by a not-for-profit organization for the benefit of its members or an economically disadvantaged class of persons; or
- Any special purpose credit program offered by a for-profit organization, or in which such an organization participates to meet special social needs, if it meets certain standards prescribed in regulations by the Bureau
On December 21, 2020, the CFPB issued an Advisory Opinion (AO) on special purpose credit programs to clarify the content that a for-profit organization must include in a written plan that establishes and administers a special purpose credit program under Regulation B.3 In addition, the AO clarified the type of research and data that may be appropriate to inform a for-profit
organization’s determination to establish a special purpose credit program to benefit a specified class of persons.
February 22, 2022 — The Office of the Comptroller of the Currency (OCC) today issued responses to frequently asked questions (FAQ) about the December 2021 final rule1 to rescind the OCC’s Community Reinvestment Act (CRA) rule issued on June 5, 2020 (June 2020 CRA rule).2 The December 2021 CRA final rule, effective January 1, 2022, replaced the June 2020 CRA rule with provisions largely based on the rules adopted jointly by the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation in 1995, as revised.
This bulletin rescinds OCC Bulletin 2021-50, “Community Reinvestment Act: Frequently Asked Questions Regarding Notice of Proposed Rulemaking to Rescind the OCC’s June 2020 CRA Rule.”
The FAQs provide general information on the implementation of the December 2021 CRA final rule after the effective date of January 1, 2022, and address questions related to:
- The impact of the final rule on CRA bank type
- Qualifying activities and the qualifying activity confirmation request system
- The transition period.
- Examination administration.
- Assessment areas.
- Targeted geographic areas.
- Data reporting.
- Changes to public notices and public files.
- Strategic plans.
- Frequently Asked Questions Regarding the Final Rule to Rescind the OCC’s June 2020 CRA Rule
- Community Reinvestment Act Regulations