We are very pleased to announce that several of the firm’s practice groups and attorneys – including our Banking & Finance group and those that practice in this arena – were recognized in the 2023 edition of Chambers USA, a directory of leading law firms and attorneys.

Chambers and Partners annually researches the strength and reputation of law firms and individual lawyers across the globe. The research process for the United States includes interviewing lawyers and their clients, including influential general counsel at Fortune 100 companies, high-profile entrepreneurs, and significant purchasers of legal services. Considerable credence is given to the opinions of clients. Click here to learn more.

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

“Sen. Tommy Tuberville (R-AL), said that he’d be a ‘yes’ vote on the Secure and Fair Enforcement (SAFE) Banking Act if it reaches the floor.”

Why this is important: Marijuana legalization has been a hot topic in recent years, with an increasing number of states moving towards decriminalization or outright legalization. However, despite these shifts, the cannabis industry still faces numerous challenges due to federal laws. One such challenge is the lack of access to banking services, as financial institutions fear legal repercussions since marijuana remains illegal at the federal level. 

Although cannabis is legal for medical use in 38 states and for recreational use in 23 states, it remains illegal under federal law. The Secure and Fair Enforcement Banking Act (the “SAFE Act”) would address certain banking challenges faced by cannabis-related businesses operating in states where marijuana is legal. The SAFE Act offers legal protections and banking services to these businesses by providing a safer and more regulated environment for the cannabis industry, reducing the risk of crime and violence associated with cash transactions, and promoting economic growth and tax revenue generation. Without this legislation (or something similar), financial institutions continue to be reluctant to provide banking services to cannabis-related businesses due to the fear of federal prosecution or violation of money laundering laws.

The SAFE Act has gained bipartisan support in in the Senate and having the Alabama Senator as an advocate is good news for proponents of the legislation. However, characterizing leadership in the Senate is an impediment to its enactment is more likely rooted in political talking points than reality. The Senate Majority Leader has long been a vocal advocate for cannabis banking legislation, including the SAFE Act. Moreover, the bill still needs to advance out of the Senate Banking Committee before it will have an opportunity to come to the floor for a vote. The chairman of that committee has indicated that the SAFE Act is scheduled for mark up in June. Interested observers, unfortunately, will have to wait and see how the bill progresses, and the likelihood of the legislation moving forward in the House of Representatives, if passed by the Senate, is even less clear. --- Joshua L. Jarrell

“Adjusted for inflation, incomes for U.S. workers remain below their pre-pandemic highs as elevated costs for goods and services linger.”

Why this is important: According to real estate data group ATTOM, May foreclosure-related filings, which include default notices, scheduled auctions, and bank repossessions, were up 7 percent from April and up 14 percent from a year ago, to 35,196 properties. States with the most foreclosure starts in May included Florida, where 2,901 foreclosures got underway, followed by California, with 2,451 foreclosures started, and Texas, where 2,286 properties fell into the foreclosure column. Illinois and New York foreclosure starts came in at 1,358 and 1,287, respectively.

Despite the increases, foreclosure rates remain close to pre-pandemic level lows. Industry analysts believe that the latest increase in distressed borrowers is the market “normalizing” after a pandemic period when many consumers benefited from forbearances and government assistance. Nonetheless, incomes remain below pre-pandemic highs as inflation keeps costs elevated which places homeowners at greater risk of falling behind on payments. Even as the rate of inflation continues to fall, at 4.9 percent in April, it is nearly double pre-pandemic levels. The good news for households is that the unemployment rate remains low which indicates that a widespread increase in foreclosures similar to the one during the global financial crisis from 2007 to 2009 is unlikely. --- Bryce J. Hunter

“In terms of assets, the report found that MDIs have grown from $246 billion in 2010 to $329 billion in 2022, which percentage-wise roughly mirrors the growth of all FDIC-insured institutions.”

Why this is important: Correlation is not causation – but it’s certainly noteworthy. Minority-depository institutions (“MDIs”) account for only a small percentage of community banking institutions, but studies show that even a small market-share can be linked to upward financial mobility among historically disadvantaged communities. One of the most important takeaways from this new report is that this post-pandemic world is emerging as a moment representing for the “first time in U.S. history that after an economic convulsion, in this case a pandemic, there are more MDIs, not fewer, and existing MDIs have more capital, not less.” Risk assessment is a crucial part of any lending transaction. While many of the largest banking institutions (justifiably) rely on complex data algorithms for much of their analysis, smaller community banks must leverage their comparable “insider” knowledge of the local community in determining how much risk a particular opportunity presents. Initiatives that support development and investment in MDIs can and should be a focal point in bridging the gaps inherent in generational disparity, including forms of legalized discrimination such as Jim Crow laws. The National Bankers Association is taking notice in this report, and others should as well. --- Brian H. Richardson

“While AI has streamlined operations significantly, its widespread use isn’t free from flaws.”

Why this is important: As we have discussed in previous issues of Decoded, AI is an emerging trend in the economy at large. Everything from students' book reports, title scene artwork on the latest Disney+ Marvel show, and now banking are utilizing AI. AI is created by having the programs vacuum up information from public spaces on the internet, including individuals’ social media posts, to allow the AI to learn and evolve. Even the questions asked of AI contribute to the AI’s algorithm. The concern is what information is being used to construct the AI algorithms, which impacts individual data privacy, and what impact AI will have on various industries.  

The rise of the use of AI in the banking and financial industries has raised concerns regarding consumer protection and privacy with the Consumer Financial Protection Bureau (“CFPB”) and U.S. Senators. Government officials are equally concerned about AI being used as a tool to scam the public as they are of customers’ personal data being breached and that unconscious biases programmed into an AI’s algorithm may lead to discrimination. As the use of AI increases in the banking and finance industries, increased consumer protections will necessarily need to be implemented because traditional measures are insufficient in an era of AI. These include the development of data literacy tools that educate the public on how to spot an AI generated scam, and increased government expertise on technological developments involving AI. --- Alexander L. Turner

“As trade associations representing virtually all banks of all sizes in the Nation, we write to express our strong opposition to any introduction of the so-called ‘Credit Card Competition Act’ or other legislation that would impose network routing requirements on credit cards.”

Why this is important: A number of trade associations representing virtually all banks of all sizes recently wrote to members of Congress to express strong opposition to the “Credit Card Competition Act” (the “Act”) or other legislation that would impose network routing requirements on credit cards. They called the legislation “anti-consumer, anti-competitive, and cynical attempt by the largest global merchants and biggest grocery chains to obtain a subsidy for themselves at the expense of smaller competitors and consumers.”  

The bill targets the fees big box and large e-commerce retailers pay when a consumer swipes their credit card during a purchase. Banks argue that these fees are a critical source of revenue for the card issuing financial institution because it helps maintain system improvements, ensure online transaction safety, mitigate consumer fraud losses, and most importantly, grant financial institutions the ability to offer affordable financial services products, like checking accounts and credit cards, to their consumers.

According to the trade associations, the Act aims to expand the government’s interference in private market interchange fees by creating a new routing mandate for credit cards, essentially imposing a back-door price control on credit card interchange fees. The retailers would have the ability to choose which networks process all credit card purchases, for their own financial benefit, while erasing consumers’ choice and any expected reward points during transactions and exposing them to increased risk, all without any consequence. The bill would unwillingly lower financial institutions’ defenses when safeguarding consumer transactions and cause them to spend more money to maintain those necessary programs – the same money that would otherwise be used to increase access to financial services for those who need it most. Further, “mom and pop” retailers would be required to purchase new hardware to accept card payments. 

The trade associations urge opposition stating that the time and resources it would take to implement this policy would be exponential compared to the little benefit it would have on Main Street small businesses. --- Bryce J. Hunter

“Banking apps typically have high retention rates, and this held true in 2022.”

Why this is important: Each year, the Mobile Customer Engagement Benchmark Report provides an interpretation of a year’s worth of data harvesting. This report attempts to distill the massive amount of background data collection gleaned from cookies, and cross-application data sharing that goes on in the background of a consumer’s mobile devices. For 2023, that data included tracking upwards of 1.2 billion application installs across a variety of platforms for customers of Alchemer Mobile-based apps. Customer retention is a key focus, especially in the banking industry, in part due to the constraints to switching banks, but also due to the incentives to the bank. After all, there is a 60-70 percent success rate in upselling to current customers, compared with the 5-20 percent success rate for engaging new customers. Reviewing these data show a trend that businesses can capitalize on opportunities to retain “at risk” customers through adaptive feedback. By tracking customers and feedback to non-invasive surveys and rating opportunities over time, businesses can identify “at risk” customers and take proactive steps to improve the customer experience or otherwise incentivize retention. Businesses that want to leverage this type of in-app collected data should carefully review their privacy policies and disclosures to ensure that they are only using and analyzing the data within the confines of their terms of use. --- Brian H. Richardson