ABA Calls for Withdrawal of NCUA CUSO Proposal

ABA yesterday urged the National Credit Union Administration (NCUA) to withdraw a proposed rule that would expand the range of permissible lending activity for credit union service organizations, or CUSOs. The proposed rule would allow CUSOs to originate any type of loan a federal credit union may originate, including auto and payday loans. NCUA also proposed to broaden federal credit unions’ investment authority in CUSOs. As CUSOs may serve people who are not members of a credit union, the expanded authority would further undermine credit union field-of membership restrictions, which is one of the central justifications for their tax-exempt status.

ABA also raised concerns that the proposal would give rise to numerous safety and soundness and consumer protection risks, given that the NCUA has no examination or oversight authority over CUSOs and no mechanism exists to hold them accountable for unsafe and unsound practices or violations of federal consumer financial protection laws. The proposal would jeopardize the National Credit Union Share Insurance Fund and potentially imperil retail borrowers, particularly those in underserved areas and low-to-moderate income communities, ABA noted.

The Association urged NCUA to refrain from any CUSO-related rulemaking until it is given statutory authority to supervise and examine CUSOs; it performs an economic analysis to ensure safety and soundness risks can be addressed; and it withdraws—and refrains from taking any further action on—the proposal’s granting of authority to approve CUSO activities and services outside of the formal rulemaking process and broadening credit unions’ investment authority.

Bankers nationwide also responded to the proposal, submitting more than 600 of their own comment letters as part of an ABA grassroots campaign. Bankers wishing to submit a comment letter may do so through ABA’s grassroots platform until the Friday, April 30, deadline.

Read ABA’s comment letter.
Submit a comment letter.
For more information, contact ABA’s Tim Keehan.

Biden Unveils Tax Proposal

In advance of his speech last night to a joint session of Congress, President Biden yesterday unveiled the "American Families Plan," a $1.8 trillion proposal that calls for significant federal spending on education, children and families, nutrition and other initiatives through direct expenditures and targeted tax credits.

The administration proposes to pay for the President’s plan through an increase of the top individual rate to 39.6% from 37%, elimination of the capital gain rate preference for taxpayers with income of more than $1 million, elimination of certain real estate 1031 exchanges and an increase in Internal Revenue Service enforcement.

Two proposals within the plan that ABA will scrutinize closely include an end to the practice of "stepped-up" basis for assets at death (with certain exceptions for businesses and farms) and requiring financial institutions to provide additional information to the IRS to bolster tax compliance.

The proposed tax code changes are in addition to others floated by the Biden administration earlier this year as part of a plan for overhauling the nation’s infrastructure. Read more.

South Dakota Supreme Court Hears Recreational Marijuana Appeal

The South Dakota Supreme Court heard arguments for and against Amendment A in Pierre on Wednesday. Voters last November approved Amendment A, which legalizes recreational marijuana for people over age 21 and gives the power of regulation to the South Dakota Department of Revenue.

In February, a Circuit Judge ruled in favor of those trying to stop Amendment A, and supporters are appealing to the state’s highest court. At the heart of the lawsuit is whether the amendment comprises more than a single subject, which it cannot, and whether the amendment is considered to be an amendment or a revision to the South Dakota Constitution.

The Supreme Court justices asked questions of both attorneys during the hour-long hearing on Wednesday. It is unknown as to when a decision will be handed down.

On a related note, the South Dakota Department of Health (DOH) on Monday issued a request for proposal for a statewide patient registry, verification and licensing system to be used in the implementation of the medical marijuana program.

Pursuant to SDCL 34-20G, DOH is responsible for implementing a secure web-based patient verification system by Oct. 29, 2021, and a patient registry system by Nov. 18, 2021. These systems are necessary to ensure that patients and caregivers can be accurately identified and to ensure that only verified patients and caregivers have access to medical marijuana.

The patient verification system will also ensure that South Dakota law enforcement officials have the necessary tools to accurately identify medical marijuana patients/caregivers they may encounter. Additionally, a state licensing system will be used to accept applications for medical marijuana establishments and will facilitate multi-jurisdictional collaboration in compliance with state law. Read more.

ABA Calls for Banker Feedback on Beneficial Ownership Database

As the Financial Crimes Enforcement Network prepares to create a new beneficial ownership registry, ABA is urging bankers to provide feedback on the procedures and standards FinCEN should incorporate.

Banks consistently cite Bank Secrecy Act/anti-money laundering compliance as one of the most costly and burdensome regulations they face. The new registry has the potential to simplify, streamline and strengthen the customer due diligence process, but banker input is critical at this early stage to ensure that registry will meet the needs of financial institutions and law enforcement and facilitate a seamless partnership to combat illicit finance in America.

As they craft their messages, bankers are urged to incorporate real-world examples that demonstrate how FinCEN’s proposal will affect their institution. ABA has create a members-only staff analysis of FinCEN’s recent advance notice of proposed rulemaking that bankers can reference when drafting their comments. Comments are due to FinCEN by May 5, 2021, and will be made public in accordance with federal rulemaking procedure.

Submit a comment letter to FinCEN.
Read ABA’s staff analysis.
For more information, contact ABA’s Rob Rowe.

CFPB Delays General QM Rule Effective Date

The Consumer Financial Protection Bureau on Tuesday issued a final rule extending the mandatory effective date for its general Qualified Mortgage rule from July 1, 2021, to Oct. 1, 2022. With this action, the CFPB also extended the temporary “GSE patch” until the new mandatory compliance date or until Fannie Mae and Freddie Mac exit conservatorship, whichever comes first.

However, the Bureau noted that “the practical availability of the temporary GSE QM loan definition may be affected by policies or agreements created by parties other than the Bureau, such as the Preferred Stock Purchase Agreements, which include restrictions on GSE purchases that rely on the Temporary GSE QM loan definition after July 1, 2021.” (This statement followed an announcement from Fannie Mae and Freddie Mac earlier this month stating that any loans purchased by the GSEs after July 1, must conform to the requirements outlined in the QM final rule—effectively ending the GSE patch.)

ABA and a broad coalition of consumer advocacy and financial and housing trade groups previously opposed an extension, noting that the rule was finalized with broad consensus across industry, civil rights and community groups and made clear and sensible reforms to the QM framework. The groups also cautioned that it could cause market disruption and considerably hamper banks’ compliance efforts. Read the final rule. For more information, contact ABA’s Rod Alba

Deadline Nearing to Request Appointment to SDBA Committee, Work Group

The deadline to request appointment to an SDBA committee or work group is Friday, April 30. The committees are: Agricultural Credit Committee, Credit Card Committee, Legislative Committee and Trust Committee. The work groups are: Education Work Group, Emerging Leaders Work Group, Technology Work Group and Women in Banking Work Group.

Committee and work group terms are for one year beginning May 1, 2021. Committees and work groups generally meet one to two times a year to initiate activities and to recommend policy.

If you are interested in serving on a committee or work group, complete the Committee/Work Group Appointment Form at www.sdba.com/committees. Questions, contact Alisa Bousa.

ABA/VBA to Hold Diversity, Equity and Inclusion Summit

The ABA and Virginia Bankers Association are hosting the Diversity, Equity and Inclusion Summit for bankers nationwide on May 20.

This virtual event is designed to help you become an agent of change for your bank and for your community. Build your DEI playbook by choosing from several expertly-curated strategy sessions—giving you the opportunity to focus on your bank’s specific DEI efforts in a meaningful way.

You’ll also have the opportunity to share stories and solutions with your peers and gain valuable insights from the experts. This summit will help you master the leading practices for mitigating the systemic barriers that disadvantage marginalized groups in the industry—and give you actionable steps to implement change. Learn more and register.

Reserve Hotel Room for 2021 Quad States Convention

The SDBA reminds those planning to attend the 2021 Quad States Convention on June 14-15 in Rapid City to reserve their hotel rooms soon as some venues are filling quickly. This year's convention is being held at The Monument, which is the former Rushmore Plaza Civic Center.

The SDBA has reserved blocks of hotel rooms at the Holiday Inn Rapid City-Rushmore Plaza, Howard Johnson and Ramkota Hotel and recently added a block of rooms at The Rushmore Hotel & Suites. The cut off dates for the room blocks vary by hotel from May 11-17. View hotel details.

The Quad States Convention will include bankers and business partners from South Dakota, North Dakota, Montana and Wyoming. In addition to hosting a live event in Rapid City, the SDBA will also livestream speakers for those who are unable to or prefer not to attend in person. The early bird registration deadline is May 14. Learn more and register.

Question of the Week

Question: Are banks required to perform OFAC checks on incoming domestic wire transfers?

Answer: OFAC requires banks to implement a program in accordance with the bank’s size, complexity, risk-factors and other criteria in order to block transactions with certain individuals and counties on the OFAC list. There is no exception to doing business with a party or geography on the OFAC list. However, that being said, a bank’s program will not necessarily cover every single transaction the bank engages in.

For example, cashing non-customer’s checks. While banks often do not perform an OFAC check during this transaction, OFAC does not exempt non-customer check cashing from its requirements. That is, if a non-customer is an SDN individual, the bank is still technically violating OFAC by engaging in the transaction. However, regulators and the OFAC program itself recognizes the limitation of resources of an institution and other more prevalent OFAC-related risks that the institution may encounter. For that reason, if a bank implements and follows an OFAC program under which checking each non-customer check cashing is not feasible, it is likely regulators would not criticize such a practice. This being said, it is important to consider the context. An isolated check-cashing or two without an OFAC verification will likely be compliant in light of the above. However, consistently cashing checks for the same non-customer who happens to be on an OFAC list will almost certainly result in an OFAC violation.

A similar principle applies to incoming wire transfers. Generally, OFAC allows institutions to rely on the verification process of another institutions that is subject to OFAC provisions. Nonetheless, this should be addressed under the bank’s OFAC program and the bank would have the burden to show why an OFAC check was not performed, in the event of accepting a wire transfer from an OFAC party.

Reference: https://bsaaml.ffiec.gov/manual/OfficeOfForeignAssetsControl/01

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