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CBAI Urges FDIC to Modify Restrictive Deposit-Rate Caps Regulations

In a September 7, 2018 letter to Chairman Jelena McWilliams of the Federal Deposit Insurance Corporation (FDIC), the Community Bankers Association of Illinois (CBAI) urged the FDIC to modify Deposit Rate Caps in the brokered-deposit regulations to avoid the harmful consequences of these restrictions on community banks.

In its letter to the FDIC the CBAI highlighted the following issues.

  • The Deposit Rate Caps do not reflect either the realities of competitive funding or investment opportunities community banks face by not more closely equating the Caps to rates for U.S. Treasury Securities and Federal Home Loan Bank Advances.
  • The largest banks’ asset sizes, extensive branch networks and their continued too-big-to-fail subsidies negatively impact the calculation of Rate Caps which harm primarily community banks.
  • The calculation of the Rate Caps ignores promotional and negotiated rates which are more prevalent at community banks and therefore do not present a complete and accurate picture of the deposit-rate landscape, are not competitive and negatively impact a community bank’s ability to obtain new or retain existing deposits.
  • The regulations are not sufficiently tailored because they do not differentiate between a bank that is either “adequately” or “undercapitalized," where the bank is on its path toward becoming “well capitalized” and the extent of management cooperation with its regulators in resolving the capital issues.
  • The exclusion of credit unions from the calculation of the Rate Caps wrongly ignores thousands of financial institutions that are similar to community banks and would likely have a positive impact on the Caps.

The current problems and consequences of the Deposit Rate Caps are numerous and their impact on a small but not insignificant number of community banks is affecting their ability to grow and thrive. CBAI urges the FDIC to modify the brokered-deposit restrictions to avoid harmful consequences of these regulations on community banks. Read Comment Letter.

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CNB Bank & Trust Hosts Roundtable with Congressman Rodney Davis (R-13)

CBAI Regional Vice Chairman Shawn Davis, Chairman Richard Walden and Larry Franklin of CNB Bank and Trust, N.A., Carlinville, hosted a roundtable discussion with Congressman Rodney Davis (R-14) and District Staff Assistant Erik Hamilton in Alton to discuss a variety of topics of interest to community banks.

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The community bankers began the roundtable by thanking Congressman Davis for voting in favor of S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act. This legislation will provide wide-ranging, long-overdue and meaningful regulatory relief for community banks. Additional opportunities for regulatory relief were discussed.

Congressman Davis is a Conferee on the Farm Bill and he explained how that process should proceed in the coming weeks. Discussions on economic issues centered on the challenges facing rural communities, including attracting and retaining young professionals and the impact of tariffs on area businesses.

The community bankers shared their issues and concerns with existing or proposed regulations including: HMDA; the beneficial ownership rule; the modernization of the CRA, GSE reform; payments-system improvements, and a successful resolution of the federal/state disconnect in banking legal business in the marijuana industry.

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Congressman Davis appreciated the opportunity to meet with local community-bank leadership and the community bankers expressed their sincere appreciation to the Congressman for taking the time to visit with them about their issues and opportunities.

September 4, 2018

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CBAI Urges HUD to Amend Disparate Impact Standard

On August 17, 2018, CBAI responded to an Advance Notice of Proposed Rulemaking from the Department of Housing and Urban Development (HUD) regarding disparate impact in the Fair Housing Act (Act). CBAI urged HUD to amend the Act’s disparate impact standard to meet the limitations imposed by a 2015 Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. and establish a single consistent framework between the existing rule and Supreme Court decision. This alignment will eliminate the current confusion for community bankers and support their practical business decisions. Read Comment Letter.

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NEWS FROM THE FRONT- 08/07/18

 

The Illinois General Assembly’s summer recess continues.  They are not expected to return to Springfield until the fall veto session scheduled to begin on November 13.  The next several weeks are a busy time in the Governor’s office as decisions are being made to either sign or veto over 600 bills passed during the legislative session. 

 

Most attention has shifted to the campaigns headed towards the November election.  The Illinois State Fair in Springfield starts next week and is traditionally considered the start of the campaign season although races for state and federal offices are already in full swing.

 

Statutory Audit Provision for State-Chartered Savings Banks Repealed

Governor Rauner signed CBAI-backed legislation repealing a provision in the Illinois Savings Bank Act that requires an annual audit in addition to regular bank examinations. The legislation HB 4589 (PA 100-0652) takes effect immediately so savings banks no longer have to comply with the requirement. 

 

Last year State Representative Tony McCombie (R-Savanna) approached CBAI to discuss potential legislation following a conversation she had with a CBAI member bank in her district. The government-affairs team worked with her staff to draft legislation and worked with IDFPR to ensure there would be no opposition from regulators. The bill passed the House 90-20 and the Senate 53-0.

 

CBAI appreciates the efforts of both Rep. McCombie and Senator Neil Anderson (R-Moline) who successfully shepherded this legislation through the General Assembly.

 

Governor Signs CBAI Legislative Initiative Protecting Religious Lending

Last year Illinois enacted the Installment Sales Contract Act in an effort to rein in previously unregulated lenders.  Under this law, lenders could only enter into installment sales contracts under the supervision of the Illinois Attorney General’s Office. An unintended consequence of the new law was that the Attorney General’s Office interpreted it to include loans made by banks that for religious or cultural reasons do not include the payment of interest. An example is murabaha loans commonly used to serve the Islamic community. 

   

CBAI worked with the Attorney General’s Office, the Division of Banking and housing advocates to find an acceptable solution that allows community banks to offer religious-based financial products without additional regulation.  SB 3392 (PA 100-0626) provides an exemption for banks and credit unions from the Installment Sales Contract Act. Only state and nationally chartered financial institutions receive the exemption.  Other types of lenders are still subject to regulation by the attorney general.

 

CBAI appreciated the efforts of Sen. Dave Koehler (D-Peoria) and Rep. Marcus Evans (D-Chicago) who sponsored the legislation on our behalf. The bill passed the Senate 53-0 and the House 116-1. We also appreciate Governor Bruce Rauner for quickly signing the legislation.  The bill included an immediate effective date, so banks are no longer required to comply with the guidance issued by the Attorney General’s Office earlier this year.

 

Governor Signs Other Banking-Related Legislation into Law

The governor signed SB 331 (PA 100-0661) into law. This new law reduces the amount of civil penalties that the Secretary of Financial and Professional Regulation can impose on owners of cash-dispensing terminals for violations (from up to $1,000 to up to $100). These civil penalties can, however, be imposed for each violation, rather than the first violation. The new law also states that an owner cannot be fined more than $1,000 for violating provisions of the Act (rather than being penalized $10,000 for second and subsequent violations). This bill is effective immediately.

 

The governor signed SB 2385 (PA 100-0664which deals with requests for banking records required by the state for Medicaid verification. The State of Illinois has a significant backlog in processing Medicaid eligibility forms. One estimate pegs the backlog at 15,000 applications waiting to be processed.  Nursing homes and the Illinois Department of Human Services have claimed that a portion of that delay is related to issues obtaining financial records from financial institutions in order to determine eligibility.

 

Early in negotiations, nursing homes were asking for power of attorney so that they could require financial institutions to turn over their customers’ personal financial records directly to the care providers. This option was a non-starter for banks which put a premium on protecting customer information.  Financial institutions offered a counter proposal which ultimately became the language of SB 2385. Under the new law, the state will develop a form that nursing homes and care providers can use to request five years of previous financial data to be used for Medicaid verification. The form will be submitted to the bank and a processing fee can be charged. The bank will then release the financial records to the state and only for the purposes of Medicaid verification. The nursing homes and care providers will never be given access to the financial data collected.

 

CBAI appreciated the efforts of Sen. John Mulroe (D-Chicago), Sen. Dave Syverson (R-Rockford), Rep. Lou Lang (D-Skokie) and Rep. Norine Hammond (R-Macomb) who spent many hours working with financial institutions, state agencies and nursing homes to reach an agreement on this legislation.

 

The governor also signed legislation, supported by CBAI, that would exclude a law firm or licensed attorney that is collecting post-default debt from the definition of “student loan servicer” under the Student Loan Servicing Rights Act.  HB 4397 (PA 100-0635) takes effect on December 31, 2018.

 

Governor Rauner Vetoes Rebate Card/Statutory Fee Restraint Bill

The governor vetoed HB 4922 (Mah/Castro), which amends the Consumer Fraud and Deceptive Business Practices Act to prohibit retailers from offering consumers a rebate made on a rebate card that charges dormancy fees or other post-issuance fees. CBAI opposed the underlying concept of this legislation and remains opposed to any legislation that includes statutory fee restraints.

 

Guidance for Unclaimed Property Reporting Under RUUPA

The Illinois unclaimed property law was revised earlier this year when the Revised Uniform Unclaimed Property Act (RUUPA) went into effect on January 1. Under the new law, banks are required to report unclaimed property by November 1 of each year for a 12-month period running July of the prior year to July of that year. There are some significant changes in the new law of which community banks should be aware as you prepare this year’s report. 

 

Presumptive abandonment periods have been altered for many types of accounts. Most commonly, presumptive abandonment periods have been shortened from five to three years.  There are also changes on what is considered an indication of interest and how the combined statement rule can protect multiple accounts a customer has with the bank. Two provisions that may trip banks up: automatically recurring ACH transactions are not considered an indication of interest and there is new policy limiting the automatic renewal of CDs to one renewal before the presumptive abandonment clock is triggered.

 

The CBAI governmental relations (GR) and legal teams have prepared a letter of guidance to help community bankers navigate the new reporting rules. The letter also contains examples of questions CBAI members have asked the Treasurer’s Office and the responses we’ve received from our regulators. Click here to view the 2018 RUUPA Guidance Letter. 

 

Recently, the State Treasurer’s Office (STO) shared language regarding automatically renewable deposits. They admit that there is a great deal of confusion on when banks are required to remit these types of accounts. The STO hopes to include language into the Treasurer’s administrative rules that would essentially break down the procedure for automatically renewable deposits to make it clearer. Click here to view the Treasurer’s Office Guidance on CDs.

 

CBAI also has a webinar offering RUUPA guidance available through the education department.  The webinar features guidance from the Treasurer’s Office and CBAI governmental relations staff and is still available for purchase.  Click here to view more information on the webinar.

 

Please note that the CBAI GR team will continue to work on additional legislative changes to RUUPA as well as guidance in administrative rules that are expected to be filed later this month. While we hope those changes will make unclaimed-property reporting easier in the future; as of now banks are subject to the law that took effect January 1. The CBAI GR staff as well as the CBAI legal team, are available to offer assistance as you navigate this new law.

 

Chicago Firearms Banking Prohibition Proposal Stalls

Earlier this year we told you about a proposed ordinance in the Chicago City Council that would prohibit the city from conducting business with any bank that has customers involved in any portion of the firearms industry. The ordinance was proposed by Finance Committee Chairman Ed Burke. CBAI has been working with a coalition of business groups, including retailers and manufacturers, to oppose the ordinance. For now, it appears that our efforts have paid off as Alderman Burke has indicated that he will hold the ordinance and not bring it for a vote. While that is positive news for now, it is an election year and stranger things have been known to happen. CBAI will remain vigilant in its opposition to this proposal.

 

Court Delays Implementation of IDFPR’s Updated DS-1 Disclosure Form

A court-issued temporary restraining order has blocked implementation of a new DS-1 disclosure form that was scheduled to be implemented on July 1. The restraining order follows a legal challenge filed by the Attorneys’ Title Guaranty Fund and the Illinois Land Title Association seeking injunctive relief.  In meetings with CBAI, the Illinois Department of Financial and Professional Regulation indicated it is updating the form out of concerns that closing attorneys may be discounting or waiving fees in violation of the law. The updated form requires specific financial disclosure that it hopes will prevent further violations. The disclosure includes attorneys’ and brokers’ fees as well as lender charges.

 

CBAI staff expressed concern over adding additional regulatory burdens to the already tedious closing process. CBAI staff also pointed out that much of the disclosure is duplicative of federal RESPA regulations. We will continue monitoring the progress of the legal challenge as well as any potential changes that may be made to the proposal.

 

Legislators Step Down, Replacements Named

Several members of the Illinois House of Representatives have resigned their seats since the end of the spring legislative session on May 31. Rep. Patti Bellock (R-Westmont), a 19-year veteran of the General Assembly, resigned her seat to become the new director of the Illinois Department of Healthcare and Family Services; Deanne Mazzochi of Elmhurst was appointed to fill the remainder of her term. Rep. Bob Pritchard (R-Sycamore), a 15-year House veteran, also resigned his seat and accepted an appointment to the Northern Illinois University Board of Trustees; his seat is being filled by Jeff Keicher of Sycamore. Rep. Silvana Tabaras (D-Chicago) resigned her seat in the House after she was appointed to fill a vacancy in the Chicago City Council.  She was replaced by Celina Villanueva of Chicago. Rep. Chad Hays (R-Caitlin) has announced he will be vacating his seat in September to pursue a job in the private sector; a successor for Hays’ seat has not yet been announced. Additionally, Rep. Nick Sauer (R-Libertyville) abruptly resigned his seat after ethical and criminal allegations surfaced; his replacement has not yet been announced.

 

For more information, or if you have any questions or comments, please contact Jerry Peck or Megan Peck at 800/736-2224.

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CBAI Opposes Postal Service Banking Proposal

In a July 13, 2018 comment letter to the U.S. Department of the Treasury, the Community Bankers Association of Illinois (CBAI) stated its opposition to a proposal that is again being revisited in Congress and elsewhere for the United States Postal Service to provide banking services.

The disadvantage of the Postal Service delivering these services is that it will require developing and installing an entire infrastructure and expertise for its employees to be qualified to deliver banking services. The business of banking involves considerable risks, but the Postal Service possesses none of the required risk-management expertise for delivering banking services. Developing and installing this infrastructure and expertise will involve a massive up-front effort and financial investment which will divert the Postal Service’s focus away from its primary mission of delivering the mail and successfully addressing its own financial issues, which include annual losses and billions in unfunded liabilities.

Community banks have developed expertise in delivering traditional banking services. Rather than recreating and implementing a government-directed postal-banking system, it makes more sense to encourage and support existing community banks which have been successfully delivering market-driven banking services across the country for well over a century. CBAI recommended the various stakeholders work cooperatively to find ways to enhance the ability of community banks to expand the delivery of banking services in a safe and sound manner. Read Letter.