Welcome to our second issue of Promissory Notes of 2023. Promissory Notes is our Banking & Finance Insights e-newsletter where we highlight important news articles from the industry and explain why they are important.

We are sponsoring the West Virginia State Bar 2023 Annual Meeting being held March 26-27. The Annual Meeting is the ideal venue to reconnect with lawyers and friends – and to build new relationships. Click here to learn more and register.

For those of you interested in labor and employment law, we are pleased to sponsor the ABA's 2023 Employment Rights and Responsibilities Committee Midwinter Meeting being held March 13-17. The ERR Midwinter Meeting will offer a wide range of thought-provoking and topical educational programming. Several years in the making, the subcommittees have joined forces to offer a mock trial that combines theory and practice in a multi-panel presentation. Presented through four separate panels, the mock trial will explore investigations, whistleblower and retaliation claims, and collateral torts. Other panels will discuss the Supreme Court’s recent decision in Dobbs v. Jackson Women’s Health Organization and its effect on labor and employment matters, emergency ethics matters, the future of employment arbitration agreements, and new developments in international labor and employment law. Click here to learn more and register.

Thank you for reading.

Bryce J. Hunter - Member; Chair, Tax Credits Practice Group; Chair, Community Banking Group; Co-Chair, Banking and Finance Practice Group; and Editor of Promissory Notes

Joshua L. Jarrell - Member; Chair, Public & Project Finance Practice Group; Co-Chair, Banking and Finance Practice Group

“ICBA reiterates opposition to non-bank-owned lenders’ applications to the FDIC, naming GM, Ford, Rakuten.”

Why this is important: The Independent Community Bankers of America (“ICBA”) maintains that so-called industrial loan companies, or ILCs, present outsized risks to the Deposit Insurance Fund (“DIF”), financial stability, consumers, and taxpayers and is lobbying Congress to close the ILC loophole to mitigate risks to the DIF and consumers, and to preserve the long-standing U.S. policy separating banking and commerce. The ICBA has stated that ILCs present “outsized risks” to the Federal Deposit Insurance Corporation (“FDIC”) and should be denied applications. Companies including General Motors, Ford, and internet technology company Rakuten all currently have applications pending with the FDIC to register subsidiaries as depository institutions, but the ICBA believes that these applications should be rejected.

The ICBA stresses that the FDIC has the statutory duty to deny deposit insurance applications from entities that fail to meet the standards of the Federal Deposit Insurance Act (“Act”), which, according to the ICBA, would hold the ILCs to the same restrictions and supervision that apply to any other bank holding company. ICBA lobbying helped result in legislation that would subject ILCs to the same rules and consumer protections as traditional banks. Along with the ICBA, other banking and consumer groups support the legislation arguing that the loophole in the Act had made the registration process “the fashionable charter of choice for firms seeking to benefit from the federal safety net while avoiding oversight.” --- Bryce J. Hunter

"’There’s potential divestment work to be done in convincing local Virginia treasurers to move the city/county/town monies out of banks with fossil fuel entanglements.’"

Why this is important: The linked article describes recent efforts to encourage Virginia treasurers of investment accounts to divest fossil fuel companies. These same efforts are occurring in other states. If you are managing investments for an entity (for-profit, not-for-profit, foundation, trust, etc.), you may find yourself answering for your failure to follow the “woke” agenda on a number of matters, but particularly climate change. --- Hugh B. Wellons

“The looming fight is over bank capital — the tool regulators use to ensure lenders have enough of a funding buffer to sustain operations during bad times.”

Why this is important: A fight is brewing about higher capital requirements for banks. This involves banks, particularly the larger banks, the Federal Reserve, and the U.S. Congress. Why is this happening? Well, it’s complicated. Michael Barr, the new Fed chair, has announced that capital requirements are in play, even as Republicans criticize the larger banks for “woke” social agendas. Those same Republicans, however, seem to be on the side of banks for now in softening these changes, but who knows? This article outlines this pending battle. --- Hugh B. Wellons

“The ABA and ICBA have criticized plans to limit late fees on credit cards, which the CFPB believes will slash costs to consumers by $9 billion.”

Why this is important: Alleging that major credit card issuers continue to profit off late fees that are protected by an expansive immunity provision and in an effort to reduce costs to bank customers by $9 billion on so-called “junk fees”, the Consumer Financial Protection Bureau (“CFPB”) announced recently that it planned to cap late fees at 25 percent of the required minimum payment on bank-issued credit cards. Banking industry groups have warned that the CFPB proposals will raise credit costs and reduce availability. The regulator also wants to slash the immunity provision dollar amount for late fees from its current upper limit of $41 to $8, cutting the perceived disparity between late fees and the cost of collection. Automatic annual inflation-linked increases to these fees also will be scrapped under the CFPB’s proposals.

The American Bankers Association (“ABA”) claims that these changes would reduce competition and raise the cost of credit for consumers regardless of whether they pay on time. In a recent statement, the ABA argued that the plans would “result in more late payments, higher debt and lower credit scores, and is inconsistent with the CARD Act’s encouragement of responsible credit management”.

The Independent Community Bankers of America (“ICBA”) joined with concern and urged the CFPB to ensure that any new rules did not adversely affect smaller credit card issuers such as community banks. In its recent statement, the ICBA stated “Considering these costs, current practices are appropriate and do not constitute ‘junk fees’, despite the CFPB’s misrepresentation of the community bank business model.”

Both banking organizations have stated that the new CFPB proposals will adversely affect small issuers, needlessly restrict access to credit in local communities, and mispresent how banks, particularly community banks, meet the credit card needs of their customers and both organizations are lining up support in the Congress where the Chairman of the House Financial Services Committee has voiced opposition to the CFPB proposals. --- Bryce J. Hunter

“This year, 23 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets.”

Why this is important: The hypothetical scenario for this year’s bank stress test is, well, think 2009 all over again. Twenty-three banks will be tested on this extreme, but not impossible, economic environment. Only serious and costly steps will protect a bank against such a serious situation. Few banks could afford to maintain such standards every year, but some standards are accumulative. The challenge for banks will be to adopt a strategy that will work every year to protect against this scenario over time. This Fed view, however, ties into another article linked above (“Big Banks Gear Up for Fed Fight”) that indicates that the Fed is focused more and more on increasing bank standards to avoid the kinds of failures and bailouts that we saw in 2008-2009. --- Hugh B. Wellons

“CFPB Consent Order highlights UDAAP issues around deposit practices.”

Why this is important: Every banker should read this linked article. If I described it in detail, this would be two pages long. This article outlines recent CFPB Orders that describe possible expansions in bank practices that the CFPB considers to be in violation of the Consumer Financial Protection Act. Some of these practices are relatively common, although aggressive, so you might check that your bank is not doing any of this. --- Hugh B. Wellons