April 9, 2019
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Banking agencies introduce new rule to reduce impact of large bank failures

The federal banking agencies proposed a rule this week to reduce the impact from failure of the largest banks.

The largest banks - known as global systemically important bank holding companies (GSIBs) - are required to issue debt with certain features under the "total loss-absorbing capacity," or TLAC, rule. That means that debt would be used to recapitalize the holding company during bankruptcy or resolution if it were to fail. GSIBs are banks that have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure.

This new proposal would complement other measures that the federal banking agencies - including the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency - have taken to limit interconnectedness among large banks.

The proposal would require banks to hold additional capital against substantial holdings of TLAC debt to discourage GSIBs from purchasing large amounts of TLAC debt. This would reduce interconnectedness between large banks and reduce the impact on the financial system if a GSIB were to fail.

The proposal from the would also require the holding companies of GSIBs to report their TLAC debt outstanding. The federal banking agencies are accepting comments on this rule for 60 days following publication in the Federal Register. Read more at Financial Regulation News

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How financial institutions are risking customer data through insecure mobile apps

An investigation of mobile apps from 30 financial institutions reveals weak encryption, data leakage, insecure data storage, and other vulnerabilities.

Banks and other financial companies are putting consumer data at risk by not properly securing their mobile apps, according to a Tuesday report from Aite Group and Arxan Technologies.

The report discovered several key security flaws among 30 mobile apps offered by financial institutions. Almost all of the apps researched could easily be reverse engineered, providing access to sensitive source code data, including account credentials, API keys, server file locations, and incorrectly stored health savings account information.

In the report, 97% of the apps tested lacked the proper code protection, opening themselves up to reverse engineering or decompiling. Some 90% of the financial institution (FI) apps shared services with other programs on the device, while 83% insecurely stored data by housing it in the device's file system and external data or by copying content to the clipboard. Such flaws expose the data to use by other apps on the device. Read more at TECH REPUBLIC

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Online lenders put small banks in a bind

It's cost them business but could also help them compete with bigger rivals

The boom in internet lending is taking a toll on traditional commercial banks, especially smaller ones, suggesting that they're going to have to have to find ways to adjust to the changes wrought by financial technology.

New academic research says more than a quarter of the "peer-to-peer" dollars loaned over the internet today would've traditionally been handled by small commercial banks before the advent of online lenders.

The figures come from a paper presented at Federal Reserve Bank of New York's fintech conference in March, which found 27 percent of peer-to-peer lending dollars had displaced traditional bank lending.

But there's plenty of evidence that online lenders also help small banks, or at least have the potential to provide them tools to better compete with their larger rivals.

Peer-to-peer lenders, sometimes referred to as "P2P" or "social lending," match people who want a steady income through lending to those who want to borrow online. They have sprung up as the internet has matured, with some companies now lending for more than a decade. San Francisco-based Lending Club, for example, said it provided $10.9 billion in loans last year, and its loan applications were up 35 percent over the year before. Read more at ROLL CALL

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KeyBank rolling out new tellerless branches

KeyBank is expanding its tellerless branch model as it experiments with new ways of running its customer-facing retail operation.

But don't expect to see any of those in the Cleveland market just yet.

Key recently announced that it will open its first newly constructed tellerless branch on May 13 in Boulder, Colo. It'll be the first tellerless branch opened that was specifically built for that model.

An existing branch in the city will relocate to the new one, which instead of teller lines features private offices where interactions with bankers trained as "financial wellness consultants."

Those employees might also be considered "universal" bankers, a term more commonly applied to bankers who are effectively jacks of all trades and can do everything from depositing checks to helping someone apply for credit. Read more at CRAIN'S CLEVELAND BUSINESS

Lending as a Service

Small-Dollar Loans Benefit Communities.  Small-dollar lenders provide essential financial services to many individuals in underserved communities throughout the nation.  By providing loans to those who cannot otherwise access traditional forms of credit, small-dollar lenders help communities and small businesses thrive and allow money to be reinvested in local businesses and neighborhoods where it is needed most. 
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Jamie Dimon: Cybersecurity threats may be the 'biggest threat to the U.S. financial system'

JPMorgan Chase (JPM) CEO Jamie Dimon has singled out cybersecurity as the "biggest threat" to the financial services industry.

In his widely read annual letter, Dimon noted that JPMorgan Chase spends nearly $600 million each year on cybersecurity and employs 3,000 people dedicated toward these efforts.

Dimon isn't alone with his concerns. Cybersecurity poses a threat to critical infrastructure and the economy, playing a large role in everything from transportation to financial services.

"Indirectly, we also spend a lot of time and effort trying to protect our company in different ways as part of the ordinary course of running the business," Dimon wrote. "But the financial system is interconnected, and adversaries are smart and relentless - so we must continue to be vigilant."

"The good news is that the industry (plus many other industries), along with the full power of the federal government, is increasingly being mobilized to combat this threat," he added.
Read more at YAHOO FINANCE

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Financial Sector Study Shows Deep Concern About Third-Party Cyberrisks

One in 10 organizations has a role specifically dedicated to vendor, third-party or supplier risk.

The financial services industry's heavy reliance on third-parties poses a potential cyberdefense vulnerability if the risks are not actively managed to protect personally identifiable information and other sensitive data.

Those are among the findings of a joint survey "Third-Party Cyber Risk for Financial Services: Blind Spots, Emerging Issues & Best Practices" by Boston-based BitSight, and the Center for Financial Professionals.

Based on a survey of financial services professionals from around the world, the report found managing third-party cyberrisk is not only critical to businesses, but a lack of continuous monitoring, consistent reporting, and other blind spots are creating challenges that could leave organizations susceptible to data breaches and other consequences.

The study observed, the financial industry, in particular, has an enormous ecosystem of legal, accounting and human resources, management consultants, outsourcing firms, and information technology and software providers Read more at CREDIT UNION TIMES

National Debt Holdings is a professional Receivables Management Company that partners with creditors to purchase and/or manage receivables at all stages of the account life cycle.

Federal authorities warn of fake bank supposedly operating in Minneapolis

First National Bank in Minneapolis doesn't actually exist

Anyone who has received any kind of notice from First National Bank in Minneapolis, Minnesota, take note: the bank does not actually exist.

The Office of the Comptroller of the Currency sent a notice Thursday to the chief executive officers of all national banks and federal savings associations; all state banking authorities; the chair of the board of governors of the Federal Reserve System; the chair of the Federal Deposit Insurance Corporation; the Conference of State Bank Supervisors; and other entities, warning them that there is an entity misrepresenting itself as a national bank.

According to the OCC, it received information about an entity calling itself First National Bank that is supposedly located at 222 S. 9th Street in Minneapolis.

But the supposed bank isn't what it appears to be.

"First National Bank purports to be a financial institution offering business banking services," the OCC said. "This entity is not a licensed or chartered bank." Read more at HOUSING WIRE

Merchant Boost Announces Name Change to ValidiFI
Redefining how financial service businesses measure risk and process payments.

CFPB Should Respect NACHA Standards. by Native American Financial Services Association

The Consumer Financial Protection Bureau (CFPB) should respect NACHA standards and rescind the Payment Provisions of its 2017 Final Rule entitled, "Payday, Vehicle Title, and Certain High-Cost Installment Loans" (i.e. Small-Dollar Rule). The data used to justify the Payment Provisions are not sufficiently robust nor reliable, and thus should not be used to defend a rule that would increase the cost of regulatory compliance without guaranteeing additional protections for consumers.

For background, on February 6, the CFPB proposed rescinding the Mandatory Underwriting Provisions of its Small-Dollar Rule because the data used to justify the rule was "not sufficiently robust and reliable." At the time, the agency argued that it may "commence a separate rulemaking initiative" on the Payment Provisions of the rule, but only after it re-examined the issue.

The Small-Dollar Rule's Payment Provisions restrict lenders from making more than two unsuccessful attempts to withdraw payment from a consumer's account unless a consumer provides new and specific authorization to make more withdrawals. The CFPB issued the rule with the singular goal of reducing the amount of non-sufficient funds fees (NSF) that a borrower could incur if a lender makes repeated unsuccessful attempts to debit a borrower's account for payment.

Currently, lenders using the Automatic Clearing House (ACH) Network - a system that facilitates the electronic movement of money - for payments must adhere to a set of Operating Rules governed by NACHA. NACHA's current Operating Rules limit lenders to three attempts to collect on a single payment. Read more at Native American Financial Services Association

Alternative Credit Reporting

Consumer Bankers Association favors CFPB reform initiatives

In advance of the Consumers First Act markup, the Consumer Bankers Association (CBA) forwarded a series of Consumer Financial Protection Bureau (CFPB) reform measures to the House Financial Services Committee.

"Our primary position remains that Congress should depoliticize CFPB operations by replacing the single director with a bipartisan multi-member Senate confirmed commission," Richard Hunt, CBA president and CEO, wrote. "A commission of individuals with diverse experience and expertise related to consumer financial products and services would elevate CFPB functions and transparency by providing an open debate of differing ideas, viewpoints and solutions, encouraging all sides to contribute to carefully conceived and lasting solutions for consumers."

The CBA also supports a policy limiting the public dissemination of unsubstantiated information submitted through the CFPB complaint database that could have unintended consequences on bank and consumers.

"The legitimacy or accuracy of the information provided by the consumers to the Bureau through the complaint database is largely unverified," Hunt concluded. "The CFPB's only duty is to ensure the consumer is in fact a customer of that company, and the company is a covered financial service provider. With the CFPB's database exceeding one million complaints, and the unsubstantiated nature of the complaints, the Bureau has effectively created a government sponsored YELP-like database where comments are publicly shared with little proof of validity. Banks and credit unions maintain robust compliant management procedures and work diligently to resolve disputes quickly, in order to maintain a positive customer relationship." Read more at Financial Regulation News

Dreher Tomkies LLP
Dreher Tomkies LLP is a law firm concentrating in the areas of Banking and Financial Services law.

Restricting Small-Dollar Loans Hurts Consumers' Financial Well-Being. Efforts by legislators to regulate the terms of small-dollar loans (such as by imposing price caps on fees or limitations on use) typically produce negative unintended consequences that vastly exceed any social benefits gained from the legislation.
Community Financial Services Association of America (CFSA)

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MicroBilt's alternative credit bureau launches new loan scoring product based on verified banking data

KENNESAW, Ga., April 4, 2019 /PRNewswire/ -- MicroBilt, a 40-year leader in data services for risk management, announced today the launch of Bank Account Verify Advantage (BAV Advantage). The new product uses verified bank data to assist lenders in scoring loan applicants.

BAV Advantage looks across a proprietary database of over 150 million consumer records and 1.5 billion ACH and check transactions to deliver a full 360 degree view of a consumer's loan and bank performance history - including loans associated with that bank - based on a submitted account and routing number.

"BAV Advantage uses an algorithm to assess an individual across a multitude of data points including risk factors associated with financial institutions. The product returns a score on the same scale - and with the same implied meaning - as a traditional credit score," said Sean Albert at MicroBilt.

In addition to the score, the report returns data to both inform the decisioning process and protect the lender from fraud.

"We match the account number to the bank's formatting. We match the routing number to the bank. We confirm the submitted name matches the account name," said Albert at MicroBilt.
Read more at MICROBILT

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Payment Trends: Contactless and Digital Payments. by Kristen Hoyman

Nearly every business in the business to consumer (B2C) space needs to have a payments option and most in the business to business (B2B) space need one, too. What used to be a convenience is now a requirement. The lack of many options not long ago meant that B2C and B2B payments were simple and streamlined. It used to be easy for a business. Sign up with a processor, get a terminal in your store or office, process payments and move along to the next initiative. But things are changing...

Payments Options Changing with Technology
Consumers have choices like wearable technology, mobile payments, contactless payments, online payments for e-commerce, peer to peer payment services, mobile wallets, RFID (radio frequency identification) technology, NFC (near field communication) technology, and non-bank payments providers. These choices make it tough for a business that wants to accept payments to figure out how to get to their customers in a way that is both convenient for the customer and cost-effective for the business.

One way to figure out how to reach your customers is to look at some of the trends going on in payments. Read more at REPAY

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