SDBA eNews

September 30, 2021

Don't Increase Burden with Tax Reporting Proposal, Reuter Tells Congress

Testifying before a House Financial Services subcommittee yesterday, bank CEO Jim Reuter said that a controversial proposal by the Biden administration requiring banks to report information to the IRS on gross inflows and outflows on customer accounts, “is yet another regulatory burden that would only lead to further consolidation in the industry.”

“Administratively, the cost would be significant,” said Reuter, president and CEO of Denver-based FirstBank. “We don't track [the data] in the manner that's being contemplated here. We might look for anomalous activity or fraud, but we aren’t tracking it in a way that meets what the IRS is looking for.”

Data security and increased cyberattacks on the IRS are also concerns stemming from the proposal, Reuter testified. “No matter how well the IRS does their job, they’re a much bigger target if we increase the pot of gold sitting there with everybody’s transactional information,” said Reuter, testifying on behalf of ABA.

He added that policymakers could make a big difference on the regulatory burden on banks by tailoring so that the burden is lighter for a bank that is less complicated. Reuter said there are opportunities for banks to partner with fintech companies, “but where it becomes an issue is when we’re competing with those same organizations or like organizations and they’re not regulated at the same level. That drives up our cost of business, because we’re competing with a branch infrastructure that they do not have.” Watch the hearing.

Sen. Thune Fights Proposal that Would Burden Banks and Compromise Customers' Privacy

This week, Sen. John Thune lead his colleagues, including Sen. Mike Rounds, in sending a letter to Senate Majority Leader Chuck Schumer (D-N.Y.) requesting that Democrats abandon the Biden administration’s unprecedented proposal to expand the reporting of the private, confidential financial data of law-abiding Americans from financial institutions to the Internal Revenue Service (IRS). The administration’s proposal would force financial institutions to report customer information such as gross inflow and outflow information and transaction information directly to the IRS.

“This proposal represents a radical departure from existing reporting requirements associated with national security and actual taxable events,” the senators wrote. “Placing more requirements on financial institutions would not only adversely affect these institutions and their customers—who ultimately pay the price for compliance costsbut it would also inundate the IRS with layers of new paperwork and taxpayer data that is either redundant or irrelevant to improving federal tax compliance, as account inflows and outflows are not taxable events.”

Read the full text of the letter here

Powell, Yellen Discuss Persistent Inflation, Systemic Risk

Higher inflation rates “will likely remain so in the coming months,” Federal Reserve Chairman Jerome Powell acknowledged Tuesday in testimony before the Senate Banking Committee. He noted that the effects of inflation on the economy “have been larger and longer-lasting than anticipated,” but added that “they will abate,” and begin to fall back toward the Fed’s longer-run 2% target.

Powell attributed much of these upward pressures on prices to persistent supply chain issues, noting that “this is really a mismatch between demand and supply. We need those supply blockages to abate before inflation can come down.” Meanwhile, Treasury Secretary Janet Yellen expressed her view that inflation at year-end would be “probably closer to 4%. That already almost must be the case, based on what’s happened this year.”

Powell and Yellen also discussed what they view as the most significant risks to the economy beyond the COVID-19 pandemic. Powell flagged cyber risk as the most significant threat to the banking industry. “We have a very highly capitalized banking system, one that is much better at measuring its risks” and banks are “well-fortified” against losses from loan defaults, Powell said. “The risk we haven’t really faced the full brunt of yet is a successful cyberattack on a financial institution of some kind—be it a financial market utility, a bank or some other type of financial institution. . . . It’s a very high priority to be ready for it.”

Yellen added that “there are threats to financial stability that have come from growth of activity in the shadow banking sector,” many of which came to light during the pandemic, as well as climate related risks—both of which she said she is working to address in her role as head of the Financial Stability Oversight Council.

ABA Issues FAQs on Vaccine Mandates

With President Biden issuing vaccine mandates for some employers, ABA has published a members-only set of frequently asked questions that breaks down whether the mandates apply to banks.

The federal government’s Safer Federal Workforce Task Force issued guidance last week that requires COVID-19 vaccination of all employees of federal contractors by Dec. 8, unless the employee is legally entitled to an accommodation for a disability or sincerely held religious belief, practice or observance. Banks that conduct business with the federal government or that have branches on military bases or other federal property are subject to the executive order and guidance. Read the guidance

President Biden also directed the Occupational Safety and Health Administration to develop an emergency temporary standard that will require all employers with 100 or more employees to have all employees be fully vaccinated or be tested weekly for COVID-19. The emergency temporary standard is expected to be issued in the coming weeks. Read the FAQ  . For more information, contact ABA’s Paul Benda or Jonathan Thessin.

SBA Issues Final Rule on PPP Loan Review Decision Appeals Process

The Small Business Administration has issued a final rule outlining procedures for appealing final SBA Paycheck Protection Program loan review decisions to its Office of Hearings and Appeals. The final rule mostly adopts the procedures established in a previously issued interim final rule from August 2020, with minor changes. Most significantly, under the final rule, a timely appeal by a PPP borrower of a final SBA loan review decision will extend the deferment period of the PPP loan. Previously, a timely appeal did not result in deferral of payment under the PPP loan.

Under the final rule, borrowers have 30 days to appeal their loan review decision. The rule specified that “the clock for counting days will begin only after the borrower has received the actual final SBA loan review decision document.” The final rule also made several additional changes to streamline the appeal filing process.

In related news, the Government Accountability Office issued a report earlier this week that concluded that changes in the PPP led to increased lending to the smallest businesses and in underserved locations. Specifically, as a result of a series of changes that Congress and the SBA made to the PPP since its inception, “[b]y the time PPP closed in June 2021, lending in traditionally underserved counties was proportional to their representation in the overall small business community...while lending to businesses with fewer than 10 employees remained disproportionately low, it increased significantly over the course of the program.”

ABA Opposes Legislation to Expand Credit Union Business Lending

In a letter to Reps. Vicente Gonzalez (D-Texas) and Brian Fitzpatrick (R-Pa.) last Thursday, ABA said that it opposes H.R. 5189, the Member Business Loan Expansion Act, legislation that would broaden the credit union industry's business lending authority.

“Congress placed purposeful limitations on the percentage of a credit union’s assets that can be comprised of business loans to prevent the credit union tax subsidy from being used to support large business loans for apartment buildings or strip malls, the need for which is already met by tax-paying financial institutions,” ABA wrote. “This proposed legislation threatens to undermine those carefully crafted guardrails.”

The legislation would erode restrictions on credit union business lending by enabling longer repayment periods, doubling the exemption for small loans and expanding access to low-cost funds for business loans, ABA said, adding that “each of these will have the effect of fueling further credit union business lending expansion, all indirectly financed by their tax-exempt status.” Instead, ABA called on lawmakers to focus on ensuring that credit unions live up to their statutory obligations to serve consumers of “small means.” Read the letter.

SDBA to Hold Security Seminar Next Week

The SDBA will hold its 2021 Annual Security Seminar on Wednesday, Oct. 6, at the Hilton Garden Inn—Sioux Falls Downtown in Sioux Falls. This well-rounded seminar focuses on a range of issues of concern to security officers, facility personnel and management. Using current trends and examples, a variety of topics will be covered: workplace violence prevention: guideline for the employer, security blunders: show and tell, national update, interviewing techniques for the security officer and observation vs. perception. Learn more and register

ABA to Host Free Webinar on Blockchain, Crypto, Digital Assets

ABA and Endorsed Solutions provider Crowe will host a free webinar on Tuesday, Oct. 5, at 1 p.m. CDT about what banks are doing with crypto and digital assets to meet customer demands and align with expectations. Attendees will learn about the types of activities banks are permitted to do, the common crypto/digital asset applications banks are evaluating and what a framework for implementation would look like. Register now.

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Question of the Week

Question: Must the bank follow the E-Sign Act requirements if providing a notice of nonpayment to a customer electronically?

Answer: The commentary to § 229.33(h), clarifies that a notice can be provided by email or fax. However, only Regulation CC, Subpart B, requires conforming with the E-Sign Act requirements for any disclosures or notices provided to consumers (not commercial customers) in accordance with Subpart B. The notice of nonpayment under § 229.33(h), is set forth under Subpart C, which does not address electronic consent. However, in light of the Subpart B requirements and a general best practice, conforming with E-Sign requirements will protect the bank by creating a presumption that notice was provided. Therefore, we advise meeting E-Sign requirements for any Regulation CC notice or disclosures, to consumer and non-consumer customers.

This paragraph requires a depositary bank to notify its customer of nonpayment upon receipt of a returned check or notice of nonpayment. Notice also must be given if a depositary bank receives a notice of recovery under §229.35(b). A bank that chooses to provide the notice required by §229.33(h) in writing may send the notice by email or facsimile if the bank sends the notice to the email address or facsimile number specified by the customer for that purpose. The notice to the customer required under this paragraph also may satisfy the notice requirement of §229.13(g) if the depositary bank invokes the reasonable-cause exception of §229.13(e) due to the receipt of a notice of nonpayment, provided the notice meets all the requirements of §229.13(g). Commentary to § 229.33(h),

For a customer who is a consumer, a depositary bank satisfies the written-notice requirement by sending an electronic notice in compliance with the requirements of the Electronic Signatures in Global and National Commerce Act (12 U.S.C. 7001 et seq.), which include obtaining the consumer's affirmative consent to such means of notice. Commentary to § 229.15(a),

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Contact Alisa Bousa, SDBA, at 605.224.1653 or via email.