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CFPB credit card late fee rule paused

A federal judge issued a temporary injunction of the Consumer Financial Protection Bureau’s final rule on credit card late fees. The injunction was issued pending a U.S. Supreme Court decision on the constitutionality of the CFPB’s funding structure. 

The high court is due to rule by the end of June on a Fifth Circuit decision that the CFPB’s funding structure violates the Constitution’s appropriations clause and separation of powers. That case has also led to a nationwide injunction of the bureau’s 1071 final rule on small-business data collection and reporting.

The CFPB rule: 

• Cuts the credit card late fee safe harbor under the CARD Act from the current levels of $30 for the first violation and $41 for subsequent violations to $8, without inflation adjustments. 
• Applies to issuers with 1 million or more open accounts, which allows the CFPB to avoid analyzing the rule under the Small Business Regulatory Enforcement Fairness Act. 
• Allows covered issuers to charge fees above the threshold as long as they can prove the higher fee is necessary to cover their collection costs. 

In a national news release after the rule’s release, ICBA said the rule sends the wrong message that punctual credit card payments are not a significant priority, which will harm consumers by leading to more late payments and additional interest charges.

Source: ICBA

Report finds toxic culture at FDIC

The FDIC's workplace culture has been riddled with sexual harassment, discrimination and other interpersonal misconduct that its leaders failed to address sufficiently, according to an independent report released May 7 that is drawing renewed calls for FDIC Chairman Martin Gruenberg's exit.

The review, overseen by the special committee of the FDIC board of directors, cited accounts from more than 500 current and former employees.

The special review committee was established by the FDIC board in November 2023 following reports in The Wall Street Journal about a "toxic atmosphere" at the regulator. The committee appointed Cleary Gottlieb Steen & Hamilton LLP to conduct an independent review Dec. 11, 2023, following a solicitation process.

"A patriarchal, insular, and risk-averse culture has contributed to the conditions that allowed for this workplace misconduct to occur and persist," the report said. "A widespread fear of retaliation, as well as a lack of clarity and credibility around internal reporting channels, has led to an underreporting of workplace misconduct over the years."

Some congressional Republicans and at least one Democrat, but not the most senior ones, have called for Gruenberg's resignation. He will appear May 15 alongside other regulators before the House Financial Services Committee, then a day later in front of the Senate Banking Committee. The congressional hearings could decide Gruenberg's fate as FDIC chairman, The Wall Street Journal reported.

The agency is also facing investigations by the House financial services panel and the FDIC's inspector general, which could add to the pressure on Gruenberg's leadership, the report said, citing a person familiar with the matter.

Source: S&P Global Market Intelligence

ICBA’s List of 2024 Top-Performing Community Banks

ICBA has recognized the nation's 75 top-performing community banks that hit their stride in 2024. The banks were identified using FDIC return-on-assets data from the past three years. The top performers were broken into three categories based on asset size: less than $300 million, $300 million to $1 billion, and more than $1 billion. Several ACB members made these lists. They are:

Less than $300 million

McGehee Bank, McGehee

Connect Bank, Star City

Priority Bank, Fayetteville

$300 million to $1 Billion

Farmers Bank & Trust, Blytheville

More than $1 Billion

Centennial Bank, Conway

Congratulations on a job well done!!

Source: ICBA

Increase loan loss provisions, test discount window

The Federal Reserve is proactively working with banks to bolster their resilience in preparation for unexpected shocks to the financial system.

While US bank financial health is generally sound, the Fed is encouraging banks to implement risk management strategies as it monitors potential vulnerabilities in the financial system. This includes stress in commercial real estate (CRE) and the rapid growth of private credit, Fed Governor Lisa Cook said during a presentation at the Brookings Institution.

"The key is to check the shock absorbers on the car and make sure that it can make the drive," Cook said.

The Fed is specifically pushing banks to increase their loan loss provisions, Cook said. US bank credit provisions rose sharply in 2023 as banks predicted continued credit normalization and elevated risk. Still, many banks reported lower-than-expected provisions in the first quarter.

Having proper provisions is particularly important for banks with high CRE concentrations as work-from-home trends and reduced office usage have led to pressure in bank CRE portfolios in the wake of the pandemic.

The regulator said she views the CRE risk as sizable but manageable, and that the Fed will continue to monitor the sector in the short and medium term.

Additionally, the Fed is encouraging banks to pre-position collateral at the Fed discount window so they can quickly access liquidity when they need it, Cook said.

While banks have been hesitant to utilize the discount window due to the stigma that doing so is a sign of trouble, more banks did begin to following a string of bank failures in the spring of 2023. In recent months, regulators have floated ideas to reduce the stigma, such as adding discount window borrowing to banks' liquidity requirements or crediting them for discount window borrowing capacity in their liquidity coverage ratios.

The Fed is also looking out for emerging vulnerabilities in the financial system such as the rise of private credit, which could be a sign of weak underwriting or excessive risk appetite, Cook said. Private credit has quickly gained market share on banks in recent years. Therefore, the Fed will continue to monitor private credit's interconnectedness with the rest of the financial system, the regulator said.

Source: Federal Reserve Bank

Fed Discount Window Stigma

In a report titled "Can Discount Window Stigma Be Cured? An Experimental Investigation," economists at the Federal Reserve Bank of New York urged the Fed to rethink its contingent liquidity plans for banks given that the stigma around the Fed discount window facility has become "deeply engrained among practitioners," which may be impossible to cure.

Source: Federal Reserve Bank of New York

CFPB report targets health savings accounts

The Consumer Financial Protection Bureau released a report on costs and fees related to health savings accounts.

The CFPB said:

• There were approximately 36 million HSAs in 2023 holding more than $116 billion.
• The tax benefits of HSAs are offset by fees for monthly maintenance, paper statements, outbound transfers, and account closures.
• HSA providers typically offer low interest rates.

Source: CFPB

Hundreds of small and regional banks are feeling stressed

“You could see some banks either fail or at least, you know, dip below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings, told CNBC.

Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates.

The majority of those banks are smaller lenders with less than $10 billion in assets.

“Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, co-founder and partner at Klaros Group, told CNBC. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt by that stress.”

Graham noted that communities would likely be affected in ways that are more subtle than closures or failures, but by the banks choosing not to invest in such things as new branches, technological innovations or new staff.

For individuals, the consequences of small bank failures are more indirect.

“Directly, it’s no consequence if they’re below the insured deposit limits, which are quite high now [at] $250,000,” Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corp., told CNBC.

If a failing bank is insured by the FDIC, all depositors will be paid “up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.”

Source: S&P Global Market Intelligence; CNBC