IBANYS' Government Relations Committee met by conference call this morning for our first session of 2017. The purpose of the call was to hear federal and state updates on both legislative and regulatory matters.
Alan Keller of ICBA discussed the new
2017 "Plan for Prosperity" community bank regulatory relief agenda, which has been shared both with key congressional offices and with President Trump's transition officials. The new plan builds on the successes of 2016, and is viewed as more bold and aggressive, since both Congress and the executive branch will be under unified Republican control for the first time in a decade. Some of the thresholds have been significantly increased. The vehicle for many of the provisions will be
House Financial Services Committee Chairman Hensarling's CHOICE Act -- first unveiled last fall and to be re-introduced by mid-February. A bill could be on the House floor for a vote by summer.
There are two new New Yorkers on the House Financial Services Committee: Rep. Lee Zeldin (R-L.I.)
Rep. Claudia Tenney (R- Central NY)were added to the committee late last week. Rep. Tenney, a former member of the NYS Assembly and its Banks Committee, is newly elected to the House, succeeding former Rep. Richard Hanna, who retired. Rep. Zeldin was re-elected to his second term last November. Reps. Penney and Zeldin join Rep. Peter King (R-L.I.), Rep. Carolyn Maloney (D-Manhattan), Rep. Nydia Velazquez (D-Brooklyn) and Rep. Greg Meeks (D-Queens), although Democrats have not yet announced their new appointees for the committee for 2017. Also, newly elected Rep. John faso (R-Hudson Valley) has been appointed to the Agriculture Committee.
In the U.S. Senate, there is a new Senate Banks Chairman, Sen. Mike Crapo (R-ID). The Committee's focus in the early months of 2017 will be mostly consumed by confirmations of financial industry agency nominees. Therefor, the Senate will be slightly behind the House in addressing agenda issues. The expectation is that the Committee will eventually track similarly to the House CHOICE Act, but will likely end up with a more moderate bill, as the Senate requires a more bipartisan approach to reach the 60-vote requirement.
Click here to read the revised Plan for Prosperity.
IBANYS Legislative Counsel Bill Crowell reported
there are new Banks Committee Chairs in both the State Senate and State Assembly. In the Senate, Sen. Jesse Hamilton (D-Brooklyn) succeeds former Chair Diane Savino (D-Brooklyn). Both are members of the Independent Democratic Caucus (IDC), which is in a governing coalition with Senate Republicans. Saving had sponsored IBANYS' legislative initiatives in the past, including bills that would provide exempt ions from state CRA exams, revise the frequency of examinations and create community bank service corporations. Sen. Hamilton has few banks in his district, and no extensive experience with or knowledge of community banks. IBANYS is already undertaking efforts to reach out to him, and we will be meeting with him and his staff in the near future. In the Assembly, the new Chairman is Assemblyman Ken Zebrowski (D-Rockland County). Again, there is not a strong community bank presence in his Assembly District, so we will also be reaching out to him as well.
One banking bill has already moved: the Chapter Amendment that addresses technical revisions to last year's enacted mortgage consummation legislation, specifically including electronic signatures in its language. It is on the Senate calendar and has been introduced in the Assembly. IBANYS has no objections.
The Governor delivered his six regional "state of the state" addresses this week and touched on several issues of interest to community banks. He proposed:
- Banning "bad actors" from the financial services industry for behavior "like that" exhibited in the Wells Fargo scandal. The DFS Superintendent would be empowered to conduct hearings to ban executives or directors of banks, insurance companies and other DFS-regulated financial institutions if such behavior should result in the ban.
- Enhanced consumer protection related to the "Fin Tech industry" (e.g., mostly tech start-ups, such as for online lending).
- Closing a "consumer protection loophole" by protecting seniors from foreclosures, specifically those stemming from reverse mortgages.
- Protecting seniors from financial exploitation through a DFS-designed certification program training bank employees to recognize senior exploitation, providing banks that are so-trained with certificates to display, and empowering banks to place holds on suspicious transactions.
All of these proposals will play out in legislative or regulatory initiatives down the line this session, and we may see more details when the Governor submits his 2017-18 State Budget bills this coming week.
We then addressed two outstanding DFS regulatory issues:
The abandoned or vacant (
"Zombie") properties and the revised cybersecurity regulations.
On abandoned or vacant ("Zombie") properties:
DFS has now released its form for banks to complete and submit seeking exemptions
from this regulation. . .
There was a discussion of how this final regulation compares to the original legislation negotiated late in the 2016 legislative session. That process originally focused on an apples-to-apples" formula of mortgages originated . The regulation has expanded to a broader description -- an "apples-to-oranges" approach -- including mortgages originated, maintained and serviced. IBANYS' comment letter had noted this discrepancy and disparity, but DFS did not incorporate those comments and concerns into the final regulation.
There would seem to be an apparent discrepancy between legislative intent and regulatory implementation, and it may be that down the road -- once we see the details of how the exemption actually is implemented, what the true value of the exemption proves to be, who is "in" and "out" -- we may consider the question of seeking legislative relief. Banks are encouraged to file the completed exemption forms to see where DFS ends up in its decision.
On the DFS Revised Cybersecurity Regulations:
The Department originally set its initial proposed reg to take effect December 31, 2016. There was extensive comment on the proposal:
There was also a hearing by the NYS Assembly on December 19 at which IBANYS and representatives from Pioneer Bank testified, calling for revisions in the proposal. . .and, there was considerable media attention to the hearing and to community bank concerns, including the following quote:
"There's a bit of a one-size-fits-all approach" in the rule, said Laura Mazzara, senior vice president and chief risk officer for Pioneer Bank. She gave evidence on behalf of the Independent Bankers Association of New York State to a hearing of the Standing Committee on Banks considering the new regulations.
The Association believes that the proposed regulation doesn't take into account the different circumstances and risk profile of smaller community banks, she said.
"We are completely in support of the underlying objectives," she said, "We hold ... information security ... in very very high regard ... it really is a cornerstone of what we do to ensure trust from our customers."
Shortly thereafter, the DFS announced the effective date was delayed until March 1, 2017, and the regulations were then revised.
Many of IBANYS' concerns and comments were addressed and
incorporated into the revised regulation. Essentially, the new reg recognizes that a "one size fits all" approach is not appropriate, and ties the regulatory approach to risk assessment. It also eliminates the previous requirement of a
specific title of "Chief Information Services Officer" for community banks.
The GR Committee was extremely pleased with the result, calling the revisions "vastly improved and meaningful". While in a perfect world the preference would be for no new regulation on this issue, the reality is that this revised regulation appears to have listened to IBANYS concerns and addressed many of them. It was viewed as a very positive success and demonstrated the value of working together through IBANYS, and in alliance with other organizations such as The Business Council of New York State, insurance industry and third-party vendors, as well as with ICBA, to impact change. The feeling was that while there is a comment period for the revised regulation, there should not be additional comments submitted, as 1) we have been heard and listened to effectively, and 2) it is unlikely additional revisions will be made by DFS.
There was some discussion as to whether federal institutions are also impacted by this regulation, and while the general rule is that federal law supersedes state law, there is not clarity on whether that applies in this case as cybersecurity is a unique problem. The consensus was that we need to closely monitor how DFS implements the regulation, as "the devil will be in the details".
IBANYS will be holding future G.R. Committee meetings as the congressional and legislative sessions unfold. All meetings will be held Friday mornings at 9:00 a.m. unless otherwise noted. We will send out notices of when meetings will be held as situations dictate. Thanks to all for their participation and support.
Stephen W. Rice
Director of Government Relations & Communications
Independent Bankers Association of New York State