BPInsights: October 29, 2022

Stories Driving the Week

Through Both Branches and Apps, Large Banks Are Reaching New Customers

The nation’s large banks are expanding their presence among underserved customers through both branches and digital banking, in contrast to recent reports that bank branch trends illustrate bias against minority and low-income communities. A new BPI research note explains that the largest U.S. banks opened a comparatively large share of branches in low- to moderate-income and minority areas relative to population growth. In addition, while the number of branches per capita has declined nationwide, larger declines in branches occurred outside of low- to moderate-income and minority communities. Average distance to the nearest bank branch has remained stable across all neighborhood categories over recent years.

What’s new: The FDIC released new data this week indicating a record low national “unbanked” rate (4.5 percent) since the agency’s survey began in 2009. Nearly 96 percent of U.S. households were banked in 2021, according to the new survey. The survey reflects 1.2 million newly “banked” households since 2019.

What we’re saying: “This week’s new FDIC data reinforces the fact that banks are increasingly reaching new customers and communities. The largest U.S. banks have deepened their presence in minority and low- to moderate-income communities both through their branch footprints and investments in digital banking. While there is always room for banks to expand their relationships, banks are building new ties with customers, particularly in underserved communities and through the Bank On program. The banking system remains the safest and most trustworthy way for consumers to save for the future.”

Progress: While there remains a gap between the share of white unbanked households (2.1 percent) and their black and Hispanic counterparts (11.3 and 9.3 percent, respectively), that gap has shrunk significantly since 2019, the FDIC noted in its survey release. To learn more about what banks are doing to close the racial wealth gap and increase financial inclusion, click here and here.

The big picture: Household financial inclusion has been improving, and banking has become more convenient than ever as customers can bank from anywhere using their phones.

CFPB’s Enforcement Actions Snarled by Funding Ruling

The recent Fifth Circuit court ruling against the CFPB’s funding mechanism is throwing a wrench in the Bureau’s enforcement efforts, according to Bloomberg. Multiple companies under CFPB scrutiny have cited the ruling to ask courts to dismiss enforcement actions on constitutional grounds, according to the article. For example, TransUnion asserted that a CFPB lawsuit and consent order should be dismissed based on the ruling. The court decision could also emerge in settlement negotiations and disputes over civil investigative demands, the article said.

BPI Responds to CFPB Guidance on Deposit Account Fees

This week the Consumer Financial Protection Bureau announced new guidance related to fees charged on consumer accounts. Greg Baer, BPI president and CEO, issued the following statement in response: “The CFPB has clear authority to define prohibited fee practices through notice-and-comment rulemaking, but instead continues to rely on invective-filled guidance, which is legally non-binding but which the CFPB has a history of improperly enforcing through the non-public examination process and threats of enforcement action. Banks remain committed to serving their customers by offering the best products at competitive prices, and would welcome a return to a regulatory world where the rules are clear and transparent, and applied universally.”

  • Additional background: The CFPB adopted a final rule in January 2021 affirming that “unlike a law or regulation, supervisory guidance does not have the force and effect of law.”
  • To learn more, see coverage from the Wall Street Journal, Bloomberg, Law360 and Axios.

CFPB Launches Data-Sharing Rulemaking

This week the Consumer Financial Protection Bureau initiated the rulemaking process for Section 1033 of the Dodd-Frank Act, related to how consumers access their personal financial data and how that information is protected. Paige Pidano Paridon, BPI senior vice president and senior associate general counsel, issued the following statement in response: “BPI appreciates the CFPB’s effort to establish clear and consistent rules and expectations for all entities with access to consumers’ financial data. Banks are responsible stewards of consumers’ data and are already subject to numerous laws and regulations requiring them to safeguard this sensitive information. It is essential that consumers’ data is protected regardless of what type of entity has access to that information, and better protection means requiring Big Tech and other nonbanks to adhere to the same obligations, expectations and direct oversight applied to banks.”
What is BPI looking for? The final rule must, among other considerations:

  • Advance the adoption of secure APIs and outlaw the use of screen scraping;
  • Mandate any entity with access to sensitive consumer data establish and maintain strong safeguards;
  • Limit the type of data shared to what is necessary to provide a service;
  • Require transparency so that customers understand how their data is being used, who it is being used by and how long the data is being saved; and
  • Clarify that liability for misuse or unauthorized access to the data follows the data – for example, if a data aggregator is hacked and a consumer’s data is accessed and used to engage in unauthorized transactions or fraudulent activity, the data aggregator should be liable for that breach.

What comes next: The Bureau formally launched the process for implementing Section 1033 and is soliciting input through a panel of small businesses affected by the rule — a legal requirement under the Small Business Regulatory Enforcement Act, or SBREFA. The panel will prepare a report on the input received from the small businesses, and the CFPB will consider the input as it develops a proposed rule, expected to be issued in 2023. A final rule is expected in 2024.
Earlier this week, CFPB Director Rohit Chopra previewed forthcoming developments in the data-sharing rulemaking. He said the CFPB “will be looking at a number of ways to stop incumbent institutions from improperly restricting access when consumers seek to control and share their data.” The CFPB will target abuse of financial data, fraud and scams; seek to ensure that customers’ data is only used for the specific purpose they intended; and seek to prevent “excessive control or monopolization” in financial services markets. The Bureau will explore alternatives to the “notice-and-opt-out regime” in financial privacy.

Yellen: Treasury Aiming to Boost Bond Market Resilience

The Treasury Department is looking at ways to strengthen the crucial Treasury market, Secretary Janet Yellen reiterated this week. She acknowledged that liquidity had decreased in the market. “It’s not unexpected that in a world of increased volatility that liquidity should diminish somewhat or the cost of transacting might rise a little, but my assessment is that markets are well functioning, trading volumes are large, traders are not having difficulty executing trades,” she said at a conference. Yellen said Treasury is seeking to ensure that “intermediation is available,” enhance oversight of trading venues, increase transparency and gather better data on markets.

  • Stability: While Yellen warned that financial stability risks could emerge amid global volatility, she said the U.S. financial system continues to weather uncertainties.

The Crypto Ledger

Here’s what’s new this week in crypto.

  • UK bill: The UK House of Commons voted this week to pave the way for adding crypto assets to the range of regulated financial services in the country. The lawmakers approved amendments to the Financial Services and Markets Bill, including one that would set crypto assets up to be brought under the country’s financial regulatory purview, according to CoinDesk. The draft bill also included measures to extend existing regulations to payments-focused stablecoins. The bill still needs to be considered by the House of Lords.
  • Hong Kong: Hong Kong plans to legalize retail crypto trading in a bid to become a new crypto hub, according to Bloomberg. The practice is banned in mainland China. The change would come as part of a planned mandatory licensing program for crypto platforms set to be enforced in March 2023.
  • CFTC warning: CFTC Commissioner Christy Goldsmith Romero this week cautioned financial firms against investing in crypto, given the risks it presents. “Cryptocurrencies have not served as a hedge or to diversify traditional investment exposures,” Goldsmith Romero said at a conference. Crypto investments could “unexpectedly amplify risk, heightening financial stability concerns.”

In Case You Missed It

UK’s FCA Eyes Competitive Effects of Big Tech’s Finance Foothold

The UK Financial Conduct Authority recently released a discussion paper on the competitive impacts of Big Tech’s entry and expansion into retail financial services. The paper solicits input on the competition benefits and risks of Big Tech’s presence in that market in order to shape the regulator’s approach. “[B]ased on evidence from Big Tech firms’ core markets and their expanding ecosystems, competition risks could arise in the future from them rapidly gaining market share, markets ‘tipping’ in their favour, and potential exploitation of market power that would be harmful to competition and consumer outcomes,” the paper said.

  • Key themes: The paper identifies major themes on the topic, including Big Tech firms’ potential to increase the overall value of their ecosystems by expanding further into financial services; the notion that Big Tech firms start with partnerships but could evolve into competing more directly with existing firms; the possibility that Big Tech firms’ entry into the market may not be sequential or predictable; the potential consumer benefits of Big Tech’s entry; and the longer-term risk that Big Tech firms create and exploit market dominance and harm consumers and competition.
  • Next steps: The FCA will issue a Feedback Statement in the first half of 2023 based on the comments it receives.

Barclays to Hire 1,000 New Staff to Help Customers Navigate Inflation

Barclays will hire about 1,000 new employees in the coming weeks to help customers manage their finances through inflation, according to a Bloomberg article. The bank’s CEO gave the update during the bank’s third-quarter earnings call.

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.